2. 1 By: Prof. Y. Peter Chiu By: Prof. Y. Peter Chiu 9 / 1 / 2010 9 / 1 / 2010 Advanced P.O.M. Chap. 3 Aggregate Planning

3. 2 ~ Aggregate Planning ~  Macro production planning  The problem of deciding how many employees the firm should retain — for a manufacturing firm to decide the quantity and mix of products to be produced  e.g. In Service organizations ： — Airlines plans staffing levels for flight attendants & pilots — Hospitals plans staffing levels for nurses §. A1: Introduction

4. 3  Macro planning begins with the forecast of demand  The aggregate planning methodology we discussed later, requires the assumption that 〝 demand is deterministic, or known in advance 〞.  Ways to satisfy demand — in house production — out-sourced / subcontracting §. A1: Introduction §. A1: Introduction ( page 2 )

5. 4 ■ Competing objectives of Aggregate planning ： — To react quickly to anticipated changes in demand （ i.e. making frequent and potentially large changes in the size of the labor force – A chase strategy, may be cost effective short term. ） — To retain a stable workforce. — To develop a production plan for the firm that maximizes profit over the planning horizon subject to constraints on capacity. §. A1: Introduction §. A1: Introduction ( page 3 )

6. 5  Aggregate planning methodology is designed to translate demand forecasts into a blueprint for planning staffing and production levels for the firm over a predetermined planning horizon  Production planning may be viewed as a hierarchical process in — purchasing — production — staffing decisions must be made at several levels in the firm §. A1: Introduction §. A1: Introduction ( page 4 )

7. 6 Fig. 3-1 p.128

8. 7  Aggregate Units of Production — amount of work required （ worker-years ） — weight （ tons of steel ） — volume （ gallons of gasoline ） — dollar value （ value of inventory in dollars ） ~ Not Always Obvious §. A1: Introduction §. A1: Introduction ( page 6 )

9. 8  Example 3-1 ( p.127 ) A plant manager working for a large national appliance firm is considering implementing an aggregate planning system to determine the workforce and production levels in his plant. This particular plant produces 6 models of TVs. The characteristics of the TVs are : ~ Aggregate Planning ~ §. A2: Example

10. 9  Example 3-1 （ continued ） The manger notices that the percentages of the total number of sales for these six models have been fairly constant ： §. A2: Example §. A2: Example ( page 2 ) ~ Aggregate Planning ~

11. 10  To find the particular aggregation scheme (1) Selling price / Number of worker-hours required = $ per Input-Hour §. A2: Example §. A2: Example ( page 3 ) ~ Aggregate Planning ~ Eg. 3-1 / Solution:

12. 11 then what is $78.34? “Average dollars of output / worker-hour input” in this particular production plant §. A2: Example §. A2: Example ~ Aggregate Planning ~ ( page 4 ) Eg. 3-1 / Solution:

13. 12  (continued) (2) The manager decides to define an aggregate unit of production as a fictitious TV §. A2: Example §. A2: Example ( page 5 ) ~ Aggregate Planning ~ Sum = 4.86 Eg. 3-1 / Solution:

14. 13 ◆ what is 4.86 hours? “ Average worker-hours required to produce a fictitious TV” §. A2: Example §. A2: Example ( page 6 ) ~ Aggregate Planning ~ What if we like to know “ how many fictitious TV can one worker – one day (8hrs) produce ? ” [ 1 / 4.86 ] x 8 = 1.646 — Applications of this Avg. worker-hours/ TV ： ～ If the manager can obtain sales forecast of overall models, then he can use this to plan workforce ～

15. 14  Hierarchy for Aggregate planning ( by Hax ＆ Meal 1975 ) (1) Items ： Final products to be delivered to the customer. (SKU-stock keeping unit) (2) Families ： A group of items that share a common manufacturing setup cost (3) Types ： Groups of families with production quantities that are determined by a single aggregate production plan ■ In our previous example, different models of TVs are families, while type might be large appliances. ■ Hax ＆ Meal aggregation scheme will not necessarily work in every situation §. A3: §. A3: Hierarchical production planning (HPP)

16. 15  The goal of aggregate planning is to determine aggregate production quantities and the levels of resources required to achieve these production goals  The primary issues related to the aggregate planning problem include ： ◆ Smoothing — 2 key components of smoothing costs are the costs that result from hiring and firing workers ◆ Bottleneck problems — System unable to respond to sudden changes in demand as a result of capacity restrictions §. A4: Overview of the Aggregate planning problem

17. 16  The primary issues related to the aggregate planning problem (continued) : ◆ Planning horizon — Not too small T, Not too large T — End-of-horizon effect ◆ Treatment of demand — Assumption of deterministic or known, ignores the possibility of forecast errors — Needs a buffer for forecast errors — incorporates the effects of seasonal fluctuations & business cycles §. A4: Overview of the Aggregate planning problem §. A4: Overview of the Aggregate planning problem ( page 2 )

18. 17 ◆ Smoothing Costs — laid off (firing) workers — hiring workers ◆ Holding Costs — capital tied up in inventory ◆ Shortage Costs — excess demand normally assumes backlogged ◆ Regular time Costs — the cost of producing one unit of output during regular working hours ◆ Overtime and subcontracting costs §. A5: Costs in Aggregate planning

19. 18 Example 3.2 ： ( p.133) Densepack company is to plan workforce and production levels for the six-month period January to June. The firm produces a line of disk drives for mainframe computers that are plug compatible with several computers produced by major manufacturers. Forecast demands for the next 6 months for a particular line of drives produced in their plant 1, are 1280, 640, 900,1200, 2000, and 1400. There are currently (end of December) 300 workers employed in plant 1. Ending inventory in December is expected to be 500 units, and the firm would like to have 600 units on hand at the end of June. And It is estimated that ： §. A6: A Prototype problem

20. 19 Cost of hiring 1 worker, Cost of firing 1 worker, Cost of holding 1 unit of Inventory for 1month, The plant manager observed that in the past, over 22 working days, with the workforce level constant at 76 workers, the firm produced 245 disk drives. What is ‘’Number of aggregate units produced by 1 worker in 1 day ?’’ Evaluate : (1) the chase strategy (zero inventory plan) and (2) the constant workforce plan §. A6: A Prototype problem ( page 2 ) Example 3.2 ： (continued)

21. 20 Starting ： 500 units 300 workers 300 workers Ending ： 600 units x worker ？ x worker ？ §. A6: A Prototype problem ( page 3 ) Example 3.2 : Solution

22. 21 K= # of aggregate units produced by one worker in one day 76 workers work 22 days producing 245 disk drives §. A6: A Prototype problem ( page 4 ) Example 3.2 : Solution

23. 22 chase (1) Evaluation of chase strategy §. A6: A Prototype problem ( page 5 ) Example 3.2 : Solution

24. 23 §. A6: A Prototype problem ( page 6 ) Example 3.2 : Solution chase (1) Evaluation of chase strategy

25. 24 §. A6: A Prototype problem ( page 7 ) Example 3.2 : Solution chase (1) Evaluation of chase strategy 753 & 144 & 13 

26. 25 §. A6: A Prototype problem ( page 8 ) Example 3.2 : Solution Constant workforce (2) Evaluation of Constant workforce plan Hire to max. 411 workers initially 

27. 26 Constant Work Force Plan hires 111 workers in January 111*(500)+5962*(80)+600*(80)=$580,460 §. A6: A Prototype problem ( page 9 ) Example 3.2 : Solution Constant workforce (2) Evaluation of Constant workforce plan

28. 27 (3) Comparison of 2 plans Chase Strategy ( Zero Inventory Plan ) ■ Hiring & Firing Constantly Appropriate? H ： 755(-2) $522,500 F ： 145(-1) ■ Minimum Inventory Level, total I = 30 or 13 (-17) $48,000+$2,400=$50,400 ■ Ending at desirable work force level ? 910 Total costs = $569,540 & ending 910 workers §. A6: A Prototype problem ( page 10 ) Example 3.2 : Solution

29. 28 (3) Comparison of 2 plans (3) Comparison of 2 plans (continued) Constant Work Force Plan ■ Minimum hiring & firing (one time) $55,500 §. A6: A Prototype problem ( page 11 ) Example 3.2 : Solution ■ More carryovers units, total I = 5962 $476,960 ■ Ending at better work force level. 411 Total costs = 580,460 & ending 411 workers

30. 29 (4) Other Suggestions ： (A) CHIU’s – Suggestion Ⅰ §. A6: A Prototype problem ( page 12 ) Example 3.2 : Solution  3.224  2.198  $ 414,440 910 workers +600*($80)= $462,440 (19% reductions)  2000

31. 30 §. A6: A Prototype problem ( page 13 ) Example 3.2 : Solution (4) Other Suggestions ： (B) CHIU’s – Suggestion II  3.224  2.198  $ 337,960 674 workers +600*($80)= $385,960 (33% reductions)  2000

32. 31 §. A6.1: Class Problems Discussion Chapter 3 : ( # 12, 14 ) p.139-140 Preparation Time : 10 ~ 15 minutes Discussion : 10 minutes

33. By: Prof. Y.P. Chiu32 The End