1. WEEK 11A – [S&OP] AGGREGATE PLANNING (CHAPTER 13) Planning levels (long, intermediate and short ranges and real time control); Planning & Control Model; strategies for uneven demand; ATP SJSU Bus 140 - David Bentley1

2. Aggregate Planning Defined Planning for aggregate demand Total demand stated in some aggregate unit. Think fruit salad (apples, oranges, berries) Stated in cups (or some fraction) Often the unit is $ May be pounds, square feet, barrels, gallons Requires eventual disaggregation to specific units SJSU Bus 140 - David Bentley2

3. PLANNING LEVELS SJSU Bus 140 - David Bentley3

4. Planning Levels - 1 Long Range Horizon: 3-5 years Intervals (“buckets”): Quarterly and annual Aggregation: Company, Division, Product Group or Product Line Consists of: Sales Plan, Operations Plan, Long Range Resource Plan (LRRP) Supports: Business Plan Plan and acquire land, buildings, technology SJSU Bus 140 - David Bentley4

5. Planning Levels - 2 Intermediate Range Horizon: 18-24 months Intervals (“buckets”): Monthly and quarterly Aggregation: Product Consists of: Demand Forecast, Master Production Schedule (MPS), Rough Cut Capacity Plan (RCCP) Supports: Sales, Operations, LRR Plans Hire, develop contracts, add equipment SJSU Bus 140 - David Bentley5

6. Planning Levels - 3 Short Range Horizon: 12 months Intervals (buckets) : Days and weeks Aggregation: Item (Part) Consists of: Material Requirements Plan (MRP), Capacity Requirements Plan (CRP) Supports: Master Production Schedule Order material, add temps, use overtime SJSU Bus 140 - David Bentley6

7. Planning Levels - 4 Real Time Horizon: Now Intervals (“buckets”): Minutes and days Aggregation: P.O. line item, Job operation Consists of: Purchasing system, Production Activity Control (PAC) system (aka Shop Floor Schedule) Really a control level SJSU Bus 140 - David Bentley7

8. Hierarchical Planning Structure SJSU Bus 140 - David Bentley8 Items Product lines or families Individual products Components Manufacturing operations Resource Level Plants Individual machines Critical work centers Production Planning Capacity Planning Resource requirements plan Rough-cut capacity plan Capacity requirements plan Input/ output control Sales and Operations Plan Master production schedule Material requirements plan Shop floor schedule All work centers

9. Disaggregation Breaking an aggregate plan into more detailed plans Create Master Production Schedule for Material Requirements Planning We’ll talk more about disaggregating the plan level-by-level when we come to MRP and MRP II SJSU Bus 140 - David Bentley9

10. Strategies for Uneven Demand Level Capacity Steady rate of output Minimal or no layoffs or hiring Inventories and/or backlogs Chase Demand “Hire and fire” Varying output rates Minimal inventory and managed backlog SJSU Bus 140 - David Bentley10

11. Planning Methods Graphical approaches Simple to use and understand Trial-and-error approach Mathematical approaches Transportation method, other models Linear programming approach See examples which follow SJSU Bus 140 - David Bentley11

12. PURE STRATEGIES Rules specify either pure chase demand or pure level capacity SJSU Bus 140 - David Bentley12

13. Level Production Strategy SJSU Bus 140 - David Bentley13 Level production = 100,000 pounds (50,000 + 120,000 + 150,000 + 80,000) 4 Spring80,000100,00020,000 Summer50,000100,00070,000 Fall120,000100,00050,000 Winter150,000100,0000 400,000140,000 Cost of Level Production Strategy (400,000 X $2.00) + (140,00 X $.50) = $870,000 SALESPRODUCTION QUARTERFORECASTPLANINVENTORY

14. Level Production with Excel SJSU Bus 140 - David Bentley14 Inventory at end of summer Input by user =400,000/4 Cost of level production = inventory costs + production costs

15. Chase Demand Strategy SJSU Bus 140 - David Bentley15 Spring80,00080,00080020 Summer50,00050,00050030 Fall120,000120,000120700 Winter150,000150,000150300 10050 SALESPRODUCTIONWORKERSWORKERSWORKERS QUARTERFORECASTPLANNEEDEDHIREDFIRED Cost of Chase Demand Strategy (400,000 X $2.00) + (100 x $100) + (50 x $500) = $835,000

16. Chase Demand with Excel SJSU Bus 140 - David Bentley16 Workforce requirements calculated by system No. of workers hired in fall Production input by user; production =demand Cost of chase demand = hiring + firing + production

17. MIXED STRATEGY Combination of Level Capacity and Chase Demand SJSU Bus 140 - David Bentley17

18. Mixed Strategy Policy examples “no more than x% of workforce can be laid off in one quarter” “inventory levels cannot exceed x dollars” “backorders cannot exceed x units” May shut down manufacturing during the low demand season and schedule employee vacations during that time SJSU Bus 140 - David Bentley18

19. Mixed Strategy & Linear Programming LP gives an optimal solution, but demand and costs must be linear SJSU Bus 140 - David Bentley19

20. Mixed Strategy and Excel SJSU Bus 140 - David Bentley20 Target cell; cost of solution goes here Solver will put the solution here When model is complete, Solve Click here next Demand Constraint Workforce Constraint Production Constraint Cells where solution appears

21. Strategies for Adjusting Capacity Overtime and under-time Increase or decrease working hours Subcontracting Let outside companies complete the work Part-time workers Hire part-time workers to complete the work Backordering Provide the service or product at a later time period SJSU Bus 140 - David Bentley21

22. Strategies for Managing Demand Shifting demand into other time periods Incentives Sales promotions Advertising campaigns Offering products or services with counter-cyclical demand patterns Partnering with suppliers to reduce information distortion along the supply chain SJSU Bus 140 - David Bentley22

23. Available-to-Promise (ATP) Quantity of items that can be promised to customer Difference between planned production (plus inventory on hand) and customer orders already received SJSU Bus 140 - David Bentley23