Aggregate Production Planning in Industrial Engineering

7/30/2019 Aggregate Production Planning in Industrial Engineering

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Aggregate Production Planning


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Planning

Planning is probably one of the most important , yet least

understood , jobs that a manager performs. Poor planning can mean a companys inability to handle

unexpected occurrences.

Good planning can place a company in an extremely

competitive position !


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Business/FunctionalStrategy


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Overview of Operations Planning Activities

Long

range

MediumRange

Shortrange

Process planning

Strategic capacity planning

Master scheduling

Material requirements planning

Sales and operations (aggregate) planning

Manufacturing

Forecasting &demand

managementSales plan Aggregate operations plan

Order schedulingWeekly workforce andcustomer scheduling

Daily workforce and customer scheduling

Services


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Aggregate Planning

Aggregate planning is a first rough-cut

approximation at determining how existingresources of facilities and people should be used.


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Aggregate Operations Planning

The main purpose ofaggregate operations planning is

to specify the optimal combination of production rate (units completed per unit of time)

workforce level (number of workers)

inventory on hand (inventory carried from previous period)

This planning is done over an intermediate-rangeplanning period of 3 to18 months

Sets production rates, etc. by product group or somebroad category or products (aggregation)


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Balancing Aggregate Demand and Production Capacity

Suppose the top

figure representsforecast demand

and suppose the

lower figurerepresents the

aggregate capacityof the company tomeet demand.What we want to dois balance theproduction rate,workforce levels,and inventory tomake these figuresmatch up.

Jan Feb Mar Apr May Jun

45005500

7000

10000

80006000

0

2000

4000

6000

8000

10000


4500 4000

90008000

4000

6000

0

2000

4000

6000

8000

10000


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Inputs to Production Planning

ProductionPlanning

External

capacity

Competitorsbehavior

Raw materialavailability

Marketdemand

Economic

conditions

Currentphysicalcapacity

Currentworkforce

Inventorylevels

Activitiesrequired forproduction

Internal

External


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Types of Aggregate or Production Plans

Level Aggregate Plans

Maintains a constant workforce

Sets capacity to accommodate average demand

Often used for make-to-stock products like appliances

Disadvantage- builds inventory and/or uses back orders

Chase Aggregate Plans

Produces exactly what is needed each period

Sets labor/equipment capacity to satisfy period demands Disadvantage- constantly changing short term capacity


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Types of Aggregate or Production Plans (Cont.)

Hybrid Aggregate Plans

Uses a combination of options

Options should be limited to facilitate execution May use a level workforce with overtime & temps

May allow inventory buildup and some backordering

May use short term sourcing


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Steps for Developing the Aggregate Plan

Step 1- Choose strategy: level, chase, or Hybrid

Step 2- Determine the aggregate production rate

Step 3- Calculate the size of the workforce Step 4- Test the plan as follows:

Calculate Inventory, expected hiring/firing,overtime needs

Calculate total cost of plan Step 5- Evaluate performance: cost, service,

human resources, and operations


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Production Planning Strategies

The following can be used:

Chase production rates are matched to the demand by

hiring and laying off employees

Stable workforce, variable hours

use flexible work schedules and overtime to matchdemands

Levelling

maintain level workforce and constant output

Subcontracting

can subcontract portion of production to deal withperiods of high demand


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Production Planning Example

If we have the following unit demand and cost data, is it

cheaper to use chase orlevelling strategies?

Materials $5/unitHolding costs $1/unit per mo.

Marginal cost of stockout $1.25/unit per mo.

Hiring and training cost $200/worker

Layoff costs $250/worker

Labor hours required 0.15 hrs/unitStraight time labor cost $8/hour

Beginning inventory 250 units

Productive hours/worker/day 7.25

Paid straight hrs/day 8


4500 5500 7000 10000 8000 6000

monthly demand

Chase:Assume you startwith 7 workers

Levelling:Assume you use 6workers throughout


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Production Planning Example: Chase Strategy

7.25 hours/day x 22 days = 159.5 hours

159.5 hours 0.15 hours/unit = 1063.33 units

$8/hour x 8 hours/day x 22 days = $1408

Jan

# days/month 22hrs/worker/mon. 159.5

units/worker 1063.33cost per worker $1,408


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Production Planning Example: Chase Strategy (2)

Jan Feb Mar April May June

# days/month 22 19 21 21 22 20hrs/worker/mon. 159.5 137.75 152.25 152.25 159.5 145

units/worker 1063.33 918.33 1015.00 1015.00 1063.33 966.67cost per worker $1,408 $1,216 $1,344 $1,344 $1,408 $1,280


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4500 250 = 4250 units

4250 units 1063.33 units/worker = 3.997 workers

only need 4 workers so can fire 3(assume we started with 7)

4 workers produced 4 x 1063.33 = 4253 unitsSince we need only 4250, then we have 3 left




demand 4500begin inv. 250

net req. 4250workers req. 3.997

hired 0fired 3

# workers 4end inv 3


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demand 4500 5500 7000 10000 8000 6000begin inv. 250 3 13 118 268 774

net req. 4250 5497 6987 9882 7732 5226workers req. 3.997 5.986 6.884 9.736 7.271 5.406hired 0 2 1 3 0 0

fired 3 0 0 0 2 2# workers 4 6 7 10 8 6

end inv 3 13 118 268 774 574


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$1408/worker x 4 workers = $5 632

$250/layoff x 3 layoffs = $750

4250 units x $5/unit = $21 250




demand 4500 5500 7000 10000 8000 6000begin inv. 250 3 13 118 268 774


fired 3 0 0 0 2 2# workers 4 6 7 10 8 6

end inv 3 13 118 268 774 574

material cost $21,250labour cost $5,632hiring cost $0firing cost $750


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Total cost: $255 540




demand 4500 5500 7000 10000 8000 6000begin inv. 250 3 13 118 268 774


fired 3 0 0 0 2 2# workers 4 6 7 10 8 6

end inv 3 13 118 268 774 574

material cost $21,250 $27,485 $34,935 $49,410 $38,660 $26,130labour cost $5,632 $7,296 $9,408 $13,440 $11,264 $7,680hiring cost $0 $400 $200 $600 $0 $0firing cost $750 $0 $0 $0 $500 $500


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Production Planning Example: Levelling Strategy

1063.33 units/worker x 6 workers = 6380 units

6380 units 4250 units = 2130 units




demand 4500begin inv. 250

net req. 4250production 6380

end inv 2130surplus 2130

shortage 0


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Production Planning Example: Levelling Strategy (2)




demand 4500 5500 7000 10000 8000 6000begin inv. 250 2130 2140 1230 -2680 -4300

net req. 4250 3370 4860 8770 10680 10300production 6380 5510 6090 6090 6380 5800

end inv 2130 2140 1230 -2680 -4300 -4500surplus 2130 2140 1230 0 0 0

shortage 0 0 0 2680 4300 4500


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$1408/worker x 6 workers = $8 448$5/units x 6380 units = $31 900

$1/unit x 2130 surplus units = $2 130




demand 4500 5500 7000 10000 8000 6000begin inv. 250 2130 2140 1230 -2680 -4300


end inv 2130 2140 1230 -2680 -4300 -4500surplus 2130 2140 1230 0 0 0

shortage 0 0 0 2680 4300 4500

labour cost $8,448material cost $31,900carrying cost $2,130stockout cost $0


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Total cost: $249 100




demand 4500 5500 7000 10000 8000 6000begin inv. 250 2130 2140 1230 -2680 -4300


end inv 2130 2140 1230 -2680 -4300 -4500surplus 2130 2140 1230 0 0 0

shortage 0 0 0 2680 4300 4500

labour cost $8,448 $7,296 $8,064 $8,064 $8,448 $7,680material cost $31,900 $27,550 $30,450 $30,450 $31,900 $29,000carrying cost $2,130 $2,140 $1,230 $0 $0 $0stockout cost $0 $0 $0 $3,350 $5,375 $5,625


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Example Problem

With the following demand forecast and production data,

which production plan is best?1. Chase strategy on 8-hour day

2. Constant workforce strategy

3. Produce to meet minimum expected demand and subcontract forextra production

4. Produce to meet expected demand for all but first two months anduse overtime to meet additional requirements


demand 1800 1500 1100 900 1100 1600# days 22 19 21 21 22 20

Materials $100/unitHolding costs $1.50/unit per monthMarginal cost of stockout $5/unit per monthMarginal subcontracting cost $20/unitHiring and training cost $200/workerLayoff costs $250/worker

Labour hours required 5 hours/unitRegular labour cost $4/hour Overtime labour cost $6/hour Beginning inventory 400 unitsSafety stock 25% monthly demand


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Level Plan Example

Level production rate= 28,000 units/7 periods= 4000 units

Level workforce= (4000 units x .64 std.)/160 = 16 people


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Chase Plan Example

Chase hires and fires staff to exactly meet each periods demand Period 1 = (500 units x .64 std.)/160 = 2 people, need to fire 16 people

Documents

Aggregate Production Planning in Industrial Engineering