1. Operations Management
Chapter 6
Aggregate Planning
PowerPoint presentation to accompany
Heizer/Render
Principles of Operations Management, 7e
Operations Management, 9e

2. AGGREGATE PLANNING STRATEGIES
Capacity Options
Demand Options
Mixing Options to Develop a Plan
Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e

3. METHODS FOR AGGREGATE PLANNING
Graphical and Charting Methods
Mathematical Approaches to Planning
AGGREGATE PLANNING IN SERVICES
Restaurants
Hospital
Miscellaneous Services
National Chains of Small Service Firms
Airline Industry
Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e

4. Anheuser-Busch
Anheuser-Busch produces nearly 40% of the beer consumed in the U.S.
Matches fluctuating demand by brand to specific plant, labor, and inventory capacity
High facility utilization requires
meticulous cleaning between batches
effective maintenance
efficient employees
efficient facility scheduling
Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e

5. Aggregate Planning Requires
Logical overall unit for measuring sales and outputs
Forecast of demand for intermediate planning period in these aggregate units
Method for determining costs
Model that combines forecasts and costs so that planning decisions can be made
It may be helpful to begin this chapter with a discussion of the various planning needs of an organization - from strategic planning down to day-to-day/hour-to-hour scheduling and dispatching. Identify the level of decision making (strategic, tactical, operational), and provide examples of the time periods and level of detail required - i.e., step through the various levels of disaggregation.
When you get to this slide, you may want to spend a little extra time discussing how one develops a logical overall unit for measuring sales and output. Is the unit of dollars always the best? Could required units of capacity or something similar be used?
Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e

6. Planning Setting goals & objectives Determining steps to achieve goals
Example: Meet demand within the limits of available resources at the least cost
Determining steps to achieve goals
Example: Hire more workers
Setting start & completion dates
Example: Begin hiring in Jan.; finish, Mar.
Assigning responsibility
Of these steps, the most difficult to implement seems to be the goal setting. Discussion of setting goals and objectives in a practical case would probably be helpful to students.
Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e

7. Planning Tasks and Responsibilities
Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e

8. Planning Horizons Planning Horizon 1 year 5 years Today 3 Months
Short-range plans
Job assignments
Ordering
Job scheduling
Dispatching
Intermediate-range plans
Sales planning
Production planning and
budgeting
Setting employment, inventory,
subcontracting levels
Analyzing operating plans
Long-range plans
R&D
New product plans
Capital expenses
Facility location, expansion
Responsible: Operations managers, supervisors, foremen
Responsible: Operations managers
Responsible: Top executives
Students should be asked about the characteristics of the decisions which must be made in each of these planning horizons.
Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e

9. Relationships of the Aggregate Plan
Plan for
Production
Demand
Forecasts,
orders
Master
Schedule, and MRP systems
Detailed Work
Schedules
External
Capacity
Subcontractors
Inventory On
Hand
Raw Materials
Available
Work Force
Marketplace
and Demand
Research and
Technology
Product
Decisions
Process
Planning & Capacity
This slide illustrates the relationship between the aggregate schedule and other decisions areas within the organization.
Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e

10. What’s Needed for Aggregate Planning
A mathematically based aggregate planning model requires considerable:
time
problem definition
model development
model verification
model application
expertise
people who understand the problem
people who understand both the modeling process, and the specific model
money
money to pay for all of the above
often requires funding for several people for several months!
It should be apparent from this slide that aggregate scheduling is not a simple process. This may be the first time your students have been exposed to a topic where significant knowledge of the model and the specific modeling process is of particular importance. It may therefore, be of value to expand on the “expertise” needed to accomplish aggregate scheduling.
Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e

11. Aggregate Planning
Provides the quantity and timing of production for intermediate future
Usually 3 to 18 months into future
Combines (‘aggregates’) production
Often expressed in common units
Example: Hours, dollars, equivalents (e.g., FTE students)
Involves capacity and demand variables
Point out that aggregate scheduling involves disaggregation of, or adding detail to, the aggregate schedules.
Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e

12. Aggregate Planning Goals
Meet demand
Use capacity efficiently
Meet inventory policy
Minimize cost
Labor
Inventory
Plant & equipment
Subcontract
At this point, we are making the decisions as to “how” we will meet the aggregate schedules, and “when” each major task with be performed.
Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e

13. The Extremes Level Strategy Chase Strategy Production equals demand
Production rate is constant
It may be helpful to stress that the extremes depicted above are the opposite ends of a continuum.
Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e

14. Aggregate Planning Strategies Pure Strategies
Capacity Options — change capacity:
changing inventory levels
varying work force size by hiring or layoffs
varying production capacity through overtime or idle time
subcontracting
using part-time workers
This slide and the next list various scheduling strategies. The four slides following provide a framework for discussing the advantages and disadvantages of the pure strategies.
Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e

15. Aggregate Planning Strategies Pure Strategies
Demand Options — change demand:
influencing demand
backordering during high demand periods
counterseasonal product mixing
Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e

16. Aggregate Scheduling Options - Advantages and Disadvantages
Some
Comments
Changing
inventory levels
Changes in
human resources
are gradual, not
abrupt
production
changes
Inventory
holding costs;
Shortages may
result in lost
sales
Applies mainly
to production,
not service,
operations
Varying
workforce size
by hiring or
layoffs
Avoids use of
other alternatives
Hiring, layoff,
and training
costs
Used where size
of labor pool is
large
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17. Advantages/Disadvantages - Continued
Option
Advantage
Disadvantage
Some
Comments
Varying
production rates
through overtime
or idle time
Matches seasonal
fluctuations
without
hiring/training
costs
Overtime
premiums, tired
workers, may not
meet demand
Allows
flexibility within
the aggregate
plan
Subcontracting
Permits
flexibility and
smoothing of the
firm's output
Loss of quality
control; reduced
profits; loss of
future business
Applies mainly
in production
settings
Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e

18. Advantages/Disadvantages - Continued
Option
Advantage
Disadvantage
Some
Comments
Using part-time
Less costly and
High
Good for
workers
more flexible
turnover/training
unskilled jobs in
than full-time
costs; quality
areas with large
workers
suffers;
temporary labor
scheduling
pools
difficult
Influencing
Tries to use
Uncertainty in
Creates
demand
excess capacity.
demand. Hard to
marketing ideas.
Discounts draw
match demand to
Overbooking
new customers.
supply exactly.
used in some
businesses.
Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e

19. Advantage/Disadvantage - Continued
Option
Advantage
Disadvantage
Some
Comments
Back ordering
during high-
demand periods
May avoid
overtime. Keeps
capacity constant
Customer must
be willing to
wait, but
goodwill is lost.
Many companies
backorder.
Counterseasonal
products and
service mixing
Fully utilizes
resources; allows
stable workforce.
May require
skills or
equipment
outside a firm's
areas of
expertise.
Risky finding
products or
services with
opposite demand
patterns.
Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e

20. Aggregate Planning Strategies
Mixed strategy
Combines 2 or more aggregate scheduling options
Level scheduling strategy
Produce same amount every day
Keep work force level constant
Vary non-work force capacity or demand options
Often results in lowest production costs
Students might be asked to suggest what problem level-scheduling enables one to avoid. Why would level-scheduling result in the lowest production costs?
Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e

21. Aggregate Planning Methods
Graphical & charting techniques
Popular & easy-to-understand
Trial & error approach
Mathematical approaches
Transportation method
Linear decision rule
Management coefficients model
Simulation
Under what conditions would one probably wish to use the mathematical approaches?
Does use of the graphical approach result in a greater understanding of “why” a particular schedule is better or worse than another?
Is it necessary that we develop and use the “optimal” schedule? (This question might be linked to a discussion of the robustness of the EOQ model.)
Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e

22. The Graphical Approach to Aggregate Planning
Forecast the demand for each period
Determine the capacity for regular time, overtime, and subcontracting, for each period
Determine the labor costs, hiring and firing costs, and inventory holding costs
Consider company policies which may apply to the workers or to stock levels
Develop alternative plans, and examine their total costs
One example which is usually meaningful to students is course scheduling.
Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e

23. Forecast and Average Forecast Demand
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24. Cumulative Demand Graph for Plan 1
Jan Feb Mar Apr May Jun
Cumulative forecast requirements
Cumulative level production using average monthly forecast requirements
Reduction of inventory
Excess inventory
Cumulative Demand (Units)
7,000
6,000
5,000
4,000
3,000
2,000
1,000
Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e

25. Comparison of Three Major Aggregate Planning Methods
Techniques Approaches Aspects
Charting/graphical methods
Transportation method
Management
coefficient model
Trial and error
Optimization
Heuristic
Simple to understand, easy to use. Many solutions; one chosen may not be optimal
LP software available;permits sensitivity analysis and constraints. Linear function may not be realistic
Simple, easy to implement; tries to mimic manager’s decision process; uses regression
Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e

26. Controlling the Cost of Labor in Service Firms
Seek:
Close control of labor hours to ensure quick response to customer demand
On-call labor resource that can be added or deleted to meet unexpected demand
Flexibility of individual worker skills to permit reallocation of available labor
Flexibility of individual worker in rate of output or hours of work to meet demand
Discuss how the “control of labor costs” can be linked to measures of efficiency in performance of the overall service.
Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e

27. Hotel: Single Price Level
Sales
Demand Curve
Potential customers exist who are willing to pay more than the $15 variable cost
Passed up profit contributions
Some customers who paid $150 for the room were actually willing to pay more
$sales = Net price * 50 rooms
=150*50
=$7500
Money left on the table
$15 variable cost of room
Price
$150 Price charged for room
Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e

28. Hotel: Two Price Levels
Demand
Sales
$100
Price #1
$200
Price #2
Total sales =
1st net price *30 + 2nd net price *30
= $8100
Net prices are:
Price #1 => $85
Price #2 => $175
$15 variable cost of room
Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e