1. Aggregate Planning This Chapter explores:
An overview of operations planning techniques
The hierarchical planning process
Aggregate production planning
Production planning strategies
Applications: pure and mixed strategies
Master Production Scheduling

2. Operations Planning Overview
Long-range planning
Greater than one year planning horizon
Intermediate-range planning
Six to nine months
Short-range planning
One day to less than six months
1 year
Long-range planning is generally done annually, focusing on a horizon greater than one year.
Intermediate-range planning usually covers a period from 6 to 18 months, with time increments that are monthly or sometimes quarterly.
Short-range planning covers a period from one day or less to six months, with the time increment usually weekly.
6 months
1 week

3. Major Operations Planing Activities
Process Planning
Long
Range
Strategic Capacity Planning
Aggregate Planning
Medium
Range
Manufacturing
Services
Master Production Scheduling
In manufacturing, the planning process can be summarized as follows: The production control group inputs existing or forecast orders into a master production schedule (MPS). The MPS generates the amounts and dates of specific items required for each order. Rough-cut capacity planning is then used to verify that production and warehouse facilities, equipment, and labor are available and that key vendors have allocated sufficient capacity to provide materials when needed. As Chapter 15 details, material requirements planning (MRP) takes the end product requirements from the MPS and breaks them down into their component parts and subassemblies to create a materials plan. This plan specifies when production and purchase orders must be placed for each part and subassembly to complete the products on schedule. Most MRP systems also allocate production capacity to each order. (This is called capacity requirements planning.) The final planning activity is daily or weekly order scheduling of jobs to specific machines, production lines, or work centers. (See Chapter 16 for details.)
Material Requirements Planning
Weekly Workforce &
Customer Scheduling
Daily Workforce &
Order Scheduling
Short
Range
Major Operations Planing Activities

4. Chapter 7: Schedule Management

5. Some Definitions
Process planning is selecting specific processes and technologies to produce a product or service.
Strategic capacity planning is the determination of the long-term capabilities of the system.
Aggregate planning involves translating long-term forecasted demand into specific production rates and the corresponding labor requirements for the intermediate term
Production rates
Long-term
demand
Aggregate
Planning
Labor
requirements

6. Hierarchical Production Planning
Decision Level
Decision Process
Forecasts needed
Allocates
production
among plants
Annual demand by
item and by region
Corporate
We have looked at manufacturing planning activities within a framework of long range, medium range, and short range. If we were to overlay the organization chart of a firm onto Exhibit 13.1, we would note that higher levels within the organization deal with long-range planning and lower levels deal with short-range planning. In a more formal way, Harlan Meal uses the term hierarchical production planning (HPP) to tailor the planning structure to the organization.' As Exhibit 13.2 shows, higher levels of management would use aggregate data for top-level decisions, while shop-floor decisions would be made using detailed data. In the extreme case HPP logically states that top management should not become involved in determining the production lot size at a machine center. By the same token, the production line supervisor should not become involved in planning new product lines.
An advantage of hierarchical planning is that each successive level has a smaller database and a simpler structure.
Determines
seasonal plan by
product type
Monthly demand
for 15 months by
product type
Plant manager
Determines monthly
item production
schedules
Monthly demand
for 5 months by
item
Shop
superintendent

7. Aggregate Production Planning
Goal: Specify the optimal combination of
production rate (units/time)
workforce level (how many workers?)
inventory on hand (unsold product from previous runs) **the three items above are the basic controllable variables for production planning
Product group or broad category (Aggregation)
Medium-Range: 6-18 months
The form of the aggregate plan varies from company to company. In some firms, it is a formalized report containing planning objectives and the planning premises on which it is based. In other companies, particularly smaller ones, "it may take shape in verbal directives or writings on the back of matchbook covers."
The process by which the plan itself is derived also varies. One common approach is to derive it from the corporate annual plan, as shown in Exhibit A typical corporate plan contains a section on manufacturing that specifies how many units in each major product line need to be produced over the next 12 months to meet the sales forecast. The planner takes this information and attempts to determine how best to meet these requirements with available resources. Alternatively, some organizations combine output requirements into equivalent units and use this as the basis for aggregate planning. For example, a division of General Motors may be asked to produce a certain number of cars of all types at a particular facility. The production planner would then take the average labor hours required for all models as a basis for the overall aggregate plan. Refinements to this plan, specifically model types to be produced, would be reflected in shorter-term production plans.
Another approach is to develop the aggregate plan by simulating various master production schedules and calculating corresponding capacity requirements to see if adequate labor and equipment exist at each work center. If capacity is inadequate, additional requirements for overtime, subcontracting, extra workers, and so forth are specified for each product line and combined into a rough-cut plan. This plan is then modified by cut-and-try or mathematical methods to derive a final and (one hopes) lower-cost plan.

8. Example: Factors Complicating Aggregate Planning at Henry Ford Clinic
High degree of demand variability
average number of occupied beds in 1991 was 770
in one 8-week period an average of 861 beds was occupied
in another 8-week period an average of 660 beds were occupied
number of beds occupied could change by as may as 146 beds in less than two weeks

9. Complicating Factors continued
Large penalty for not being able to admit HMO patients
lost revenue
must pay other hospital for patient’s stay
a simple obstetrics case cost $5,000
Tight labor market for RNs
12 to 16 weeks to recruit and train nurses at cost of $7,600
Cost of 8-bed modules exceeds $35,000/ month

10. Importance of Aggregate Planning
Without sufficiently long-term view may make short-term decisions that hurt the organization in the long-term
For example, shortly after Henry Ford Hospital reduced staff, it determined the staff was needed
New staff was recruited
Both staff reduction and recruiting costs incurred

11. Extremely Difficult Decision
Demand can shift by more than 16% in a two-week period
Takes weeks and costs $7,600 a piece to recruit new nurses
By time staff hired, demand may have shifted again

12. Extremely Difficult Decision continued
If don’t have enough staff, cost $5,000 per patient turned away (simple cases)
Cost of one idle 8-bed module is $35,000/month or $420,000/year

13. The Aggregate Plan
Approximate schedule of overall operations that will satisfy demand forecast at minimum cost
Planning horizon often a year or more and broken into monthly or quarterly periods
Purpose is to minimize short-sighted effects
Work with aggregate units and resources

14. The Aggregate Plan continued
Equivalent units
Relevant costs
hiring and layoff costs
inventory and backorder costs
wages and overtime charges
subcontracting costs
Major cost categories are: production costs (direct, fixed and variable); production changes (hiring, firing, training); inventory holding costs; backlog costs.

15. The Production Plan
Result of managerial iteration and changes to aggregate plan
Often disaggregated one level into major output groups: E.G.
Aggregate Plan: number of automobiles to be produced in each of the upcoming 12 months
Production Plan: number of compacts, mid-size, full-size, light trucks, and minivans to produce in each of the upcoming 12 months

16. Aggregate Planning Example
Keepdry, a small manufacturing company (200 employees), produces umbrellas. The company, founded in 1991 produces the following three product lines: 1) the Executive Line, 2) the Durable Line and 3) the Compact line shown in the following figure.
Executive Line
Durable Line
Compact Line
....

17. Aggregate Demand (Executive Line)
Number of working days:
Jan 22
Feb 19
Mar 21
Apr 21
May 22
Jun 20
....

18. Aggregate Planning: Some Key Strategies for Meeting Demand – Pure Plans
Chase
Stable Workforce--Variable Work Hours
Level ....

19. Cost Information Materials $5/unit Holding costs $1/unit per month
Marginal cost of stockout $1.25/unit per month
Hiring and training cost $200/worker
Layoff costs $250/worker
Labor hours required .15 hrs/unit
Straight time labor cost $8/hour
Beginning inventory 250 units
....

20. Costs of Production Plans
Costs of four plans will be considered with the following assumptions:
Plan 1: Exact production; vary workforce
Plan 2: Constant workforce; vary inventory
Plan 3: Constant low workforce; subcontract
Plan 4: Constant workforce; overtime

21. Determining Straight Labor Costs and Output
....

22. Chase Strategy (Hiring & Firing)
Beginning workforce level: 7 employees
4250 / 1173 (i.e. normal production rate per worker)
....

23. ....

24. ....

25. .... Materials $5/unit Holding costs $1/unit per mo.
Marginal cost of stockout $4/unit per mo.
Hiring and training cost $200/worker
Layoff costs $250/worker
Labor hours required .15 hrs/unit
Straight time labor cost $8/hour
Beginning inventory 250 units
Beginning workforce level 7 employees
....

26. ....

27. Level Production (Surplus and Shortage Allowed)
Beginning workforce level: 6 employees
....

28. ....

29. ....

31. Chapter 7: Schedule Management

32. The Master Schedule
Point where actual orders are incorporated into scheduling system
Aggregate outputs broken down into individual end items
“It is the time-phased plan specifying how many and when the firm plans to build each end item.”
Show mattress example …

33. MPS Activities: Check for the Following Problems
Does schedule meet production plan?
Does schedule meet demand forecasts?
Are there priority or capacity conflicts?
Are other constraints violated?
Does schedule conform to policy?
Does schedule conform to laws and rules?
Does schedule provide flexibility?

34. Rough-Cut Capacity Planning
Feasibility check of master production schedule
Historical ratios of loads placed on workcenters used
Workloads assumed to fall in period end items demanded

35. Priority Planning What materials are needed when
Feasibility check of master production schedule to make sure all materials will be available when needed
Determine when order is needed and schedule backwards from that date
Material Requirements Planning (MRP) systems often used

36. Capacity Requirement Planning (CRP)
Inventory control system and master schedule used to determine required capacity over planning horizon
Load reports generated for each work center
Inventory and lead times considered

37. Loading Deciding which jobs to assign to which work centers
Often some equipment or workers better for certain jobs

38. Sequencing
After jobs assigned to work centers, order in which to process the jobs must be decided
Sequencing can have impact on timeliness of job completions
Priority rules often used

39. Detailed (Short-Term) Scheduling
Detailed schedules itemizing specific jobs, times, materials developed
Typically done for only a few days in advance

40. Dispatching All previous activities are planning activities
Dispatching is the physical release of a work order from production planning

41. Expediting
Task of getting job done on time once it is released to the shop floor
Special tags used to identify hot jobs