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Aggregate Planning This Chapter explores:

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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 ....

30

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


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