1. PowerPoint Presentation
DAVIS
AQUILANO
CHASE
PowerPoint Presentation by
Charlie
Cook
F O U R T H E D I T I O N
chapter 15
Aggregate Planning
© The McGraw-Hill Companies, Inc., 2003

2. Chapter Objectives
Demonstrate how aggregate planning links long-range strategic planning and short-range scheduling.
Present alternate strategies for matching supply and demand: adjusting supply (an operations function) or adjusting demand (a marketing function).
Introduce strategies for developing aggregate plans and ways to identify their strengths and weaknesses.
Define marginal costs and total costs as they pertain to aggregate planning.
Fundamentals of Operations Management 4e

3. Chapter Objectives (cont’d)
Introduce the concept of yield management as a tool for matching supply and demand in service operations.
Fundamentals of Operations Management 4e

4. Managerial Issues
Translating long-range strategic plans into daily work schedules for the shop floor.
Using aggregate planning to develop intermediate-range plans that link the long-range strategic plan and the short-range operational plan.
Developing aggregate plans that match the demand for products with the firm’s ability to supply the products and to do so at minimum cost.
Coordinating marketing management and operations to develop an aggregate plan that is both effective and efficient.
Fundamentals of Operations Management 4e

5. Overview of Operational Planning Activities
Long-Range Planning
Focuses on strategic issues relation to capacity, process, selection, and plant location.
Intermediate-Range Planning
Focuses on tactical issues pertaining to aggregate workforce and material requirements for the coming year.
Short-Range Planning
Addresses day-to-day issues of scheduling workers on jobs at assigned work stations.
Fundamentals of Operations Management 4e

6. Aggregate Planning Aggregate Production Planning
The process for determining the most cost effective way to match supply and demand over the next 12–18 months.
Master Production Scheduling (MPS)
Short-term scheduling of specific end product requirements for the next several quarters.
Rough-Cut or Resource Capacity Planning
Determining that adequate production capacity and warehousing are available to meet demand.
Fundamentals of Operations Management 4e

7. Overview of Manufacturing Planning Activities
Exhibit 15.1
Fundamentals of Operations Management 4e

8. Aggregate Production Planning
Production Rate
The capacity of output per unit of time (such as units per day or units per week.
Workforce Level
Number of workers required to provide a specified level of production.
Fundamentals of Operations Management 4e

9. Aggregate Production Planning (cont’d)
Inventory on Hand
The surplus of units that results when production exceeds demand in a given time period.
Backlog (or Stockout)
The deficit in units that results when demand exceeds the number of units produced in a given time period.
Fundamentals of Operations Management 4e

10. Required Inputs to the Production Planning System
Exhibit 15.2
Fundamentals of Operations Management 4e

11. Production Planning Strategies
Chase Strategy
Matching the production rate to exactly meet the order rate by hiring and laying off workers as the order rate varies.
Stable Workforce—Variable Work Hours
Varying output by varying the number of hours worked through flexible schedules or overtime.
Level Strategy
Maintain a stable workforce working at constant output rate; absorb demand variations with inventory, backlogs, or lost sales.
Fundamentals of Operations Management 4e

12. Production Planning Strategies (cont’d)
Pure Strategy
Either a chase strategy when product exactly matches demand or a level strategy when production remains constant over a specified number of periods.
Mixed Strategy
A combination of chase and level strategies to match supply and demand.
Fundamentals of Operations Management 4e

13. Pure Chase and Pure Level Strategies
Exhibit 15.3
Fundamentals of Operations Management 4e

14. Aggregate Production Planning
Relevant Costs
Basic production costs (fixed and variable)
Costs associated with changes in the production rate (e.g., labor costs)
Inventory holding costs
Backlog (stockout) costs
Fundamentals of Operations Management 4e

15. Aggregate Planning Techniques
Trial and Error
Costing out the production alternatives and choosing the one with the lowest cost.
Linear Programming
Linear Decision Rule
Various Heuristic Methods
Fundamentals of Operations Management 4e

16. Aggregate Planning Techniques (cont’d)
Full Costs
All of the actual, out-of-pocket costs associated with a particular aggregate plan.
Used for developing a labor and material budget.
Marginal (Incremental) Costs
Unique costs attributable to a particular aggregate plan that are above and beyond those required to build the product by its most economical means.
Fundamentals of Operations Management 4e

17. Forecasted Demand and Workdays for C&A Company
Fundamentals of Operations Management 4e
Exhibit 15.4

18. First Alternative: Pure Chase Strategy
Exhibit 15.5
Fundamentals of Operations Management 4e

19. Second Alternative: Pure Level Strategy
Exhibit 15.6
Second Alternative: Pure Level Strategy
Fundamentals of Operations Management 4e

20. Third Alternative: Minimum Workforce with Subcontracting
Exhibit 15.7
Fundamentals of Operations Management 4e

21. Constant Workforce with Overtime Strategy
Fundamentals of Operations Management 4e
Exhibit 15.8

22. Summary of Costs for Aggregate Plans
Exhibit 15.9
Fundamentals of Operations Management 4e

23. Aggregate Planning Applied to Services: Tucson Parks and Recreation Department
Actual Demand Requirement for Full-Time Direct Employees and Full-Time Equivalent (FTE) Part-Time Employees
Exhibit 15.10
Fundamentals of Operations Management 4e

24. Three Possible Plans for the Parks and Recreation Department
Exhibit 15.11
Fundamentals of Operations Management 4e

25. Comparison of Costs for All Three Alternatives
Exhibit 15.12
Fundamentals of Operations Management 4e

26. Yield Management Yield (Revenue) Management Yield Management Requires:
The concept used in service operations with high-fixed costs and low-variable costs that attempts to match supply and demand (a chase strategy) to maximize capacity utilization.
Yield Management Requires:
The ability to segment the market
High-fixed and low-variable costs where additional sales create more profits
Product perishability (cannot be inventoried)
Lower-priced capacity that can be presold
Fundamentals of Operations Management 4e