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how to plan for all resources in total
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Aggregate Planning
Dealing with the Problem Complexity through Decomposition
Aggregate Planning
Master Production Scheduling
Materials Requirement Planning
Aggregate UnitDemand
End Item (SKU)Demand
Corporate Strategy
Capacity and Aggregate Production Plans
SKU-level Production Plans
Manufacturingand Procurementlead times
Component Production lots and due dates
Part processplans
(Plan. Hor.: 1 year, Time Unit: 1 month)
(Plan. Hor.: a few months, Time Unit: 1 week)
(Plan. Hor.: a few months, Time Unit: 1 week)
Shop floor-level Production Control(Plan. Hor.: a day or a shift, Time Unit: real-time)
Aggregate Planning Problem
Aggregate Planning
AggregateUnit Demand
AggregateUnit Availability(Current InventoryPosition)
Aggregate Production Plan
Required Production Capacity
Aggr. UnitProduction Reqs Corporate Strategy
Aggregate Production Plan:•Aggregate Production levels•Aggregate Inventory levels•Aggregate Backorder levels
Production Capacity Plan:•Workforce level(s)•Overtime level(s)•Subcontracted Quantities
Product Aggregation Schemes
•Items (or Stock Keeping Units - SKU’s): The final products delivered to the (downstream) customers•Families: Group of items that share a common manufacturing setup cost; i.e., they have similar production requirements.
•Aggregate Unit: A fictitious item representing an entire product family.•Aggregate Unit Production Requirements: The amount of (labor) time required for the production of one aggregate unit. This is computed by appropriately averaging the (labor) time requirements over the entire set of items represented by the aggregate unit.•Aggregate Unit Demand: The cumulative demand for the entire set of items represented by the aggregate unit.
Remark: Being the cumulate of a number of independent demand series, the demand for the aggregate unit is a more robust estimate than its constituent components.
Computing the Aggregate Unit Production Requirements
Washing machineModel Number
Required labor time(hrs)
Item demand as % ofaggregate demand
A5532 4.2 32
K4242 4.9 21
L9898 5.1 17
3800 5.2 14
M2624 5.4 10
M3880 5.8 06
Aggregate unit labor time = (.32)(4.2)+(.21)(4.9)+(.17)(5.1)+(.14)(5.2)+(.10)(5.4)+(.06)(5.8) = 4.856 hrs
Pure Aggregate Planning Strategies1. Demand Chasing: Vary the Workforce Level
D(t) P(t) = D(t)
W(t)
PC WC HC FC
•D(t): Aggregate demand series•P(t): Aggregate production levels•W(t): Required Workforce levels•Costs Involved:
•PC: Production Costs•fixed (setup, overhead)•variable (materials, consumables, etc.)
•WC: Regular labor costs•HC: Hiring costs: e.g., advertising, interviewing, training•FC: Firing costs: e.g., compensation, social cost
Pure Aggregate Planning Strategies2. Varying Production Capacity with Constant Workforce:
D(t) P(t)
O(t)
PC WC OC UC
U(t)
S(t)
SC
W = constant•S(t): Subcontracted quantities•O(t): Overtime levels•U(t): Undertime levels•Costs involved:
•PC, WC: as before•SC: subcontracting costs: e.g., purchasing, transport, quality, etc.•OC: overtime costs: incremental cost of producing one unit in overtime•(UC: undertime costs: this is hidden in WC)
Pure Aggregate Planning Strategies
3. Accumulating (Seasonal) Inventories:
D(t) P(t)
I(t)
PC WC IC
W(t), O(t), U(t), S(t) = constant
•I(t): Accumulated Inventory levels•Costs involved:
•PC, WC: as before•IC: inventory holding costs: e.g., interest lost, storage space, pilferage, obsolescence, etc.
Pure Aggregate Planning Strategies4. Backlogging:
D(t) P(t)
B(t)
PC WC BC
W(t), O(t), U(t), S(t) = constant
•B(t): Accumulated Backlog levels•Costs involved:
•PC, WC: as before•BC: backlog (handling) costs: e.g., expediting costs, penalties, lost sales (eventually), customer dissatisfaction
Typical Aggregate Planning StrategyA “mixture” of the previously discussed pure options:
D
PC WC HC FC OC UC SC IC BC
PWHFOUSIB
+Additional constraints arising from the company strategy; e.g.,
•maximal allowed subcontracting•maximal allowed workforce variation in two consecutive periods•maximal allowed overtime•safety stocks•etc.
Io
Wo
Solution Approaches
• Graphical Approaches: Spreadsheet-based simulation
• Analytical Approaches: Mathematical (mainly linear programming) Programming formulations
Analytical Approach:A Linear Programming Formulation
min TC = t ( PCt*Pt+WCt*Wt+OCt*Ot+HCt*Ht+FCt*Ft+
SCt*St+ICt*It+BCt*Bt )s.t.
t, Pt+It-1+St = (Dt-Bt)+Bt-1+It
t, Wt = Wt-1+Ht-Ft
t,(u_l_r)*Pt s_d)w_d)t*Wt+Ot
t, Pt, Wt, Ot, Ht, Ft, St, It, Bt 0
( )Any additional policy constraints
Prod. Capacity:
Material Balance:
Workforce Balance:
Var. sign restrictions:
Time unit: month / unit_labor_req. /shift_duration (in hours) /(working_days) for month t
Demand (vs. Capacity) Options or Proactive Approaches to
Aggregate Planning• Influencing demand variation so that it aligns to available
production capacity:– advertising– promotional plans– pricing(e.g., airline and hotel weekend discounts, telecommunication companies’
weekend rates)
• “Counter-seasonal” product (and service) mixing: Develop a product mix with antithetic (seasonal) trends that level the cumulative required production capacity.– (e.g., lawn mowers and snow blowers)
• => The outcome of this type of planning is communicated to the overall aggregate planning procedure as (expected) changes in the demand forecast.