1. Operations Management Aggregate Planning

2. 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 due to
meticulous cleaning between batches
effective maintenance
efficient scheduling

3. Aggregate Planning
Provides quantity and timing of production for the intermediate future (usually 3 to 18 months ahead)
Objective to minimize cost over the planning period while matching demand
Links firm’s strategic goals and production plans (manufacturing) or work force schedules (service)
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?

4. Aggregate Planning Goals
Meet demand
Use capacity efficiently
Meet inventory policy
Minimize cost
Labor
Inventory
Plant & equipment
Subcontract
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?

5. Aggregate Planning Variables
Production rate
Labor levels
Inventory levels
Overtime work
Subcontracting rates
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?

6. 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.

7. Relationships of the Aggregate Plan
Plan for
Production
Demand
Forecasts,
orders
Master Production
Schedule
MRP system
External
Capacity
Subcontractors
Inventory On
Hand
Raw Materials
Available
Work Force
Marketplace
and Demand
Research and
Technology
Product
Decisions
Process
Planning & Capacity
Detailed Work
Schedules
This slide illustrates the relationship between the aggregate schedule and other decisions areas within the organization.

8. 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.

9. Aggregate Planning Strategies Pure Strategies
Demand Options — change demand:
influencing demand
backordering during high demand periods
Counter seasonal product mixing

10. 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

11. 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

12. Advantages/Disadvantages - Continued
Option
Advantage
Disadvantage
Some
Comments
Using part-time
workers
Less costly and
more flexible
than full-time
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.

13. 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.

14. 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.

15. 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?

16. Aggregate Planning Methods
Graphical & charting techniques
Popular & easy-to-understand
Trial & error approach
Mathematical approaches
Transportation method
Linear decision rule
Management coefficients model
Simulation
Students might be asked to suggest what problem level-scheduling enables one to avoid. Why would level-scheduling result in the lowest production costs?

17. 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.
OM Session 21: Bishal Shrestha

18. Forecast and Average Forecast Demand 10 20 30 40 50 60 70
Production rate per working day
Jan Feb Mar Apr May Jun
Forecast
Demand
Level production using
average monthly
forecast demand

19. AP - Example
Mary Rhodes has rcvd the following estimates of demand requirements
Stockout costs = $100, Inventory carrying cost = $25 per unit per month, 0 ending inventory, evaluate the two options on incremental basis
Plan A: Produce at steady rate (minimum reqmt) and subcontract rest at $60 per unit
Plan B: Vary workforce, which currently performs at units a month. Hiring cost is $ 3000 per 100 units and firing cost is $6000 per 100 units