1. McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved. 13 Aggregate Planning

2. 13-2 Learning Objectives  Explain what aggregate planning is and how it is useful.  Identify the variables decision makers have to work with in aggregate planning and some of the possible strategies they can use.  Describe some of the graphical and quantitative techniques planners use.  Prepare aggregate plans and compute their costs.

3. 13-3 Planning Horizon Aggregate planning: Intermediate-range capacity planning, usually covering 2 to 12 months. Short range Intermediate range Long range Now2 months1 Year

4. 13-4  Short-range plans (Detailed plans)  Machine loading  Job assignments  Intermediate plans (General levels)  Employment  Output  Long-range plans  Long term capacity  Location / layout Overview of Planning Levels

5. 13-5 Planning Sequence Business Plan Establishes operations and capacity strategies Aggregate plan Establishes operations capacity Master schedule Establishes schedules for specific products Corporate strategies and policies Economic, competitive, and political conditions Aggregate demand forecasts Figure 13.1

6. 13-6 Aggregate Planning  Begin with forecast of aggregate demand  Forecast intermediate range  General plan to meet demand by setting  Output levels  Employment  Finished goods inventory level  Production plan is the output of aggregate planning  Update plan periodically – rolling planning horizon always covers the next 12 – 18 months

7. 13-7  Resources  Workforce  Facilities  Demand forecast  Policies  Subcontracting  Overtime  Inventory levels  Back orders  Costs  Inventory carrying  Back orders  Hiring/firing  Overtime  Inventory changes  Subcontracting Aggregate Planning Inputs

8. 13-8  Total cost of a plan  Projected levels of inventory  Inventory  Output  Employment  Subcontracting  Backordering Aggregate Planning Outputs

9. 13-9 Aggregate Planning Strategies  Proactive  Alter demand to match capacity  Reactive  Alter capacity to match demand  Mixed  Some of each

10. 13-10  Pricing  Promotion  Back orders  New demand Proactive Demand Options

11. 13-11  Hire and layoff workers  Overtime/slack time  Part-time workers  Inventories  Subcontracting Capacity Options

12. 13-12 Aggregate Planning Strategies  Maintain a level workforce  Maintain a steady output rate  Match demand period by period  Use a combination of decision variables

13. 13-13 Basic Strategies  Level capacity strategy:  Maintaining a steady rate of regular-time output while meeting variations in demand by a combination of options.  Chase demand strategy:  Matching capacity to demand; the planned output for a period is set at the expected demand for that period.

14. 13-14 Chase Approach  Advantages  Investment in inventory is low  Labor utilization in high  Disadvantages  The cost of adjusting output rates and/or workforce levels

15. 13-15 Level Approach  Advantages  Stable output rates and workforce  Disadvantages  Greater inventory costs  Increased overtime and idle time  Resource utilizations vary over time

16. 13-16 Cumulative Graph 12345 67 8910 Cumulative production Cumulative demand Cumulative output/demand Figure 13.3

17. 13-17 Mathematical Techniques Linear programming: Methods for obtaining optimal solutions to problems involving allocation of scarce resources in terms of cost minimization. Simulation models: Computerized models that can be tested under different scenarios to problems.

18. 13-18 Summary of Planning Techniques Table 13.7

19. 13-19 Aggregate Planning Example Trial and Error Technique Example Ch 13, Problem 7

20. 13-20 Aggregate Plan to Master Schedule Aggregate Planning Disaggregation Master Schedule Figure 13.4

21. 13-21  Master schedule: The result of disaggregating an aggregate plan; shows quantity and timing of specific end items for a scheduled horizon.  Rough-cut capacity planning: Approximate balancing of capacity and demand to test the feasibility of a master schedule. Disaggregating the Aggregate Plan

22. 13-22 Master Scheduling Process Master Scheduling Beginning inventory Forecast Customer orders Inputs Outputs Projected inventory Master production schedule Uncommitted inventory Figure 13.6

23. 13-23 Projected On-hand Inventory Projected on-hand inventory Inventory from previous week Current week’s requirements - =

24. 13-24 Projected On-hand Inventory Beginning Inventory Customer orders are larger than forecast in week 1 Forecast is larger than Customer orders in week 2 Forecast is larger than Customer orders in week 3 Figure 13.8

25. 13-25 MPS Example Master Production Schedule Example Ch 13, Problem 21