1. Aggregate Production Planning

2. Contents 1- What is aggregation?
2- What is aggregate production planning?
3- Importance of aggregate planning
4- Aggregate planning inputs+ outputs
5- Aggregate planning in services
6- Matching capacity and demand
7- Aggregate planning strategies
8- Example of aggregate planning

3. 1- What is aggregation?

4. What is aggregation?
Aggregation refers to the idea of focusing on overall capacity, rather than on individual products or services, or bringing together under one plan, groupings of related products or services.
For services :
For services, aggregate planning refers to determining a staffing plan based on the following:
The scheduling of staff to meet or exceed customer service needs
Capacity requirements (machines, facility)
For manufacturing:
aggregate planning refers to determining a production plan based on the following:
Work force levels - the number of workers required for production
Production rates - the number of units produced per time period
Inventory levels - the balance of unused units carried forward from the previous period.

5. What is aggregation?
Aggregation is done according to: products, labour, & time:
Products
A product family (or product archetype) is a group of products that are manufactured similarly
Have common labor and material requirements
Do not focus on details, but on broad product families
Labor
Usually a specific plant is devoted to a given product family
Time
How often should an aggregate plan be updated?
Disruption versus sudden demand changes and/or seasonality

6. 2-What is aggregate production planning?

7. What is the aggregate production planning?
1- A “big picture” approach that does not focus on individual products or services. Instead, the focus is on groups of similar products of an entire product line. (Examples:- total number of bikes produced, and total number of customers served).
2- Medium-term capacity planning over a two to eighteen month planning horizon. It involves determining the lowest-cost method of providing the adjustable capacity for meeting production requirements.
3- An intermediate planning method used to determine the necessary resource capacity a firm will need in order to meet its expected demand
4- Process by which a company determines levels of capacity, production, subcontracting, inventory, stockouts, and pricing over a specified time horizon.
5- Process that translates annual business & marketing plans & demand forecasts into a production plan for all products in a plant or facility.
Focus on quantity and timing of expected demand (forecast)
Start with multiple plans and choose the most appropriate one depending on revenue, market share, and Inventory targets

8. Overview of Manufacturing Planning Activities

9. 3-Importance of aggregate planning

10. Why aggregate planning is necessary?
Operations and supply chain management
To ensure that Operations is prepared to meet customer needs
Should make-buy decisions be changed?
Contracts for raw materials and parts
Labor requirements
Inventory levels
Marketing
To ensure that the company's capacity will be used in the most profitable way, considering market constraints
If there is not enough capacity, which products or customers will have priority?
If there is more capacity than needed, how can the firm sell more?
The aggregate operations plan and the sales Plan must be consistent
Accounting and Finance
To have an accurate budget for operations
To ensure adequate cash flow for operations
Year-end inventory levels affect earnings forecasts
Human resources management
If more workers will be needed, plan for hiring and training
If fewer workers are needed, plan for layoffs

11. 4- inputs, outputs of aggregate planning

12. Aggregate planning inputs
A forecast of aggregate demand
covering the selected planning horizon (6-18 months)
Constraints:
limits on overtime, layoffs, capital available, stockouts or backlogs, company policy, financial constraints, capacity constraints
The alternative means available
to adjust short- to medium-term capacity, to what extent each alternative could impact capacity and the related costs
Production costs:-
labor costs, regular time ($/hr) and overtime ($/hr)
subcontracting costs ($/hr or $/unit)
cost of changing capacity: hiring or layoff ($/worker) and cost of adding or reducing machine capacity ($/machine)
Stockout or backlog cost ($/unit/period)

13. Aggregate planning outputs
Total cost of a plan
Production quantity from regular time, overtime, and subcontracted time: used to determine number of workers and supplier purchase levels
Inventory held: used to determine how much warehouse space and working capital is needed
Backlog/stockout quantity: used to determine what customer service levels will be
Machine capacity increase/decrease: used to determine if new production equipment needs to be purchased
In brief outputs are the projected levels of :
Monthly production
inventory
Employment (size of work force)
Subcontracting
Backordering, and the costs of all these components

14. 5-Aggregate planning in services

15. Aggregate planning in services
-Intangible products can’t be inventoried
Possible approaches:-
Try to proactively shift demand away from peaks
Use overtime or subcontracting to handle peaks
Allow lost sales
Cross train people to increase effective capacity
Difficulties
Services can not be inventoried
Demand is difficult to predict
Capacity is difficult to predict
Service capacity must be provided at appropriate time and place
Labor is most constraining resource
Demand is perishable
Input is highly variable

16. 6- Matching capacity and demand

17. Matching capacity and demand
A- Adjusting capacity
B- Adjusting demand

18. (A)- Modifying capacity

19. Strategies for modifying capacity
After existing and future capacity requirements are assessed, alternative ways of modifying capacity must be identified.
Short-term Responses:
For short-term periods of up to one year, fundamental capacity is fixed.
Major facilities are seldom opened or closed on a regular monthly or yearly basis.
Many short-term adjustments for increasing or decreasing capacity are possible,

20. Temporary capacity changes
Type
Action
Inventories
Stock pile finished goods during slack periods to meet later demand.
Backlogs
During peak demand periods, ask willing customers to wait some time before receiving their product. File their order and fulfill it after the peak demand period
Employment levels
Hire additional employees or layoff employees as demand for output increases and decreases.
Work force utilization
Have employees work overtime during peaks and be idle or work fewer hours during slack demand periods
Employees training
Instead of having each employee specialize in one task, train each in several tasks. Then, as skill requirements change, rotate employees among different tasks. This is an alternative to hiring and layoffs for getting needed skills.
Process design
Change the job content at each workstation to increase productivity~ Use work methods analysis to redesign-jobs.
Subcontracting
During peak periods, hire other firms temporarily to make the product or some of its subcomponents

21. Capacity (aggregate) options - advantages & 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
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

22. Capacity (aggregate) options - advantages & disadvantages
Some Comments
Using part-time workers
Less costly and more flexible than full-time workers
High turnover/training costs; quality suffers; scheduling difficult
Good for
unskilled jobs in areas with large temporary labor pools
Influencing
Demand
Tries to use excess capacity. Discounts draw new customers
Uncertainty in
demand. Hard to match demand to supply exactly
Creates marketing ideas.
Overbooking used in some businesses.
Back ordering during high- demand periods
May avoid overtime. Keeps capacity constant
Customer must be willing to wait, but goodwill is lost
Many companies backlog.
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.

23. STRATGIES FOR MODIFYING CAPACITY
Long-term Responses:
The costs, benefits, and risks of expansion pose an interesting decision problem.
By building the entire addition now, the company avoids higher building costs, the risk of accelerated inflation (and even higher future construction costs), and the risk of losing additional future business because of inadequate capacity.
But there may also be disadvantages to this alternative:-
First: the organization may not be able to muster the financial investment.
Second: if the organization expands now, it may find later that its demand forecasts were incorrect; if ultimate demand is lower than expected, the organization has overbuilt.
Finally, even if forecasted demand is accurate, it may not fully materialize until the end of the planning horizon. If so, the organization will have invested in an excess-capacity facility on which no return is realized for several years. Since funds could have been invested in other ways, the organization has forgone the opportunity of earning returns elsewhere on its investment

24. (B)- Modifying demand

25. DEMAND STRATEGIES 1- Development of countercyclic but similar products
Regardless of the capacity expansion strategy used, a company will almost always benefit if it can satisfy the same total demand using less investment in capacity.
A primary cause of underutilized capacity is short-term fluctuations in demand. Some products are highly seasonal, so that demand is very large during certain months of the yea days of the week, or even times of the day.
If the capacity of the production system is designed to meet the maximum demand rates, a substantial amount of the capacity is unused during low-demand periods. Here we present strategic actions that can reduce a company's investment in production capacity without harming its ability to satisfy customer demand .
Here we will discuss some the following strategies:
1- Development of countercyclic but similar products
2- Differential pricing and product promotion
3- Capacity sharing

26. 7- Aggregate planning strategies

27. Aggregate Planning Strategies – main questions
Should inventories be used to absorb changes in demand during planning period?
Should demand changes be accommodated by varying the size of the workforce?
Should part-timers be used, or should overtime and/or machine idle time be used to absorb fluctuations?
Should subcontractors be used on fluctuating orders so a stable workforce can be maintained?
Should prices or other factors be changed to influence demand?

28. Aggregate Planning Strategies
Three basic production strategies :
- chase strategy,
- level strategy, and
- mixed production strategy

29. Extremes strategies Level Strategy Chase Strategy
Production equals demand
Production rate is constant

30. Aggregate planning pure strategy
Level Production
Production
Demand
Units
Time
Chase Demand
Production
Demand
Units
Time

31. Chase Strategy - Works well for make-to-order firms
- Adjusts capacity to match the demand pattern. Firm hires & lays off workers to match production to demand. Workforce fluctuates but finished goods inventory remains constant.
- Works well for make-to-order firms
Produces exactly what is needed each period
Sets labor/equipment capacity to satisfy period demands

32. Level strategy . Works well for make-to-stock manufacturing firms.
Relies on a constant output rate & capacity (Workforce levels )while varying inventory & backlog levels according to fluctuating demand pattern.
. Works well for make-to-stock manufacturing firms.
Sets capacity to accommodate average demand
Produce same amount always
Keep work force level constant
Vary non-work force capacity or demand
Often results in lowest production costs
Maintaining a steady rate of regular-time output while meeting variations in demand by a combination of options.

33. Production planning techniques
Linear Programming
Linear Decision Rule
Computer Simulation
Search Decision (Computer heuristic model)
Tableau Method (transportation method)
Trial and Error
Costing out the production alternatives and choosing the one with the lowest cost. 33

34. Developing the Aggregate Plan
Step 1- Choose strategy: level, chase, or hybrid
Step 2- Determine the aggregate production rate
Step 3- Calculate the size of the workforce
Step 4- Test the plan as follows:
Calculate Inventory, expected hiring/firing, overtime needs
Calculate total cost of plan
Step 5- Evaluate performance: cost, service, human resources, and operations

35. 7- aggregate planning example