Aggregate+Planning Week4

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AGGREGATE PLANNING

Rachmat A. Anggara

9th of April 2010


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PRASETIYA MULYA BUSINES SCHOOL

OPERATION MANAGEMENT FLOW

Masterproduction

schedule andMRP

systems

Detailedwork

schedules

Processplanning and

capacitydecisions

Aggregateplan for

production

Figure 13.2

Productdecisions

Demandforecasts,

orders

Marketplace and

demand

Research

and

technology

Rawmaterialsavailable

Externalcapacity

(subcontractors)

Workforce

Inventoryon

hand


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Aggregate Planning

Aggregate planning is an operationalactivity which does an

aggregate plan for theproduction process, in advance of 2 to 18

months, to give an idea to managementas to what quantity of

materials and otherresources are to be procured and when, so thatthe totalcost of operations of the organization is kept to the

minimum over that period.

WorkforceFacilities

Inventory carrying

Back ordersHiring/firingOvertimeInventory changessubcontracting
http://en.wikipedia.org/wiki/Operations_managementhttp://en.wikipedia.org/wiki/Production,_costs,_and_pricinghttp://en.wikipedia.org/wiki/Managementhttp://en.wikipedia.org/wiki/Resource_(project_management)http://en.wikipedia.org/w/index.php?title=Cost_of_operation&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Cost_of_operation&action=edit&redlink=1http://en.wikipedia.org/wiki/Resource_(project_management)http://en.wikipedia.org/wiki/Managementhttp://en.wikipedia.org/wiki/Production,_costs,_and_pricinghttp://en.wikipedia.org/wiki/Operations_management


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Aggregate Planning Inputs

Resources

- Workforce

- Facilities

Demand forecast

Policy statements

- Subcontracting

- Overtime- Inventory levels

- Back orders

Costs

Inventory carrying

Back orders

Hiring/firing

Overtime

Inventory changes

subcontracting


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Aggregate Planning Outputs

Total cost of a plan

Projected levels of inventoryInventoryOutputEmployment

SubcontractingBackordering


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Aggregate Planning Strategies

Capacity Options

(intervening the resources)

vs Demand Options

(intervening the input)

Changing inventory levels Influencing demand

Hiring or layoffs Backordering

Varying production rate Counterseasonal product

mixing

Subcontracting

Using part-time workers


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Input Process Output

Demand options Capacity options




Advantages-disadvantages

Option Advantages Disadvantages Some Comments

Changinginventorylevels

Changes in humanresources aregradual or none;no abrupt

productionchanges

Inventory holdingcost may increase.Shortages mayresult in lost sales.

Applies mainly toproduction, notservice, operations

Varyingworkforcesize by hiringor layoffs

Avoids the costs ofother alternatives

Hiring, layoff, andtraining costs maybe significant

Used where size oflabor pool is large






Varyingproductionrates throughovertime or

idle time

Matches seasonalfluctuationswithout hiring/training costs

Overtimepremiums; tiredworkers; may notmeet demand

Allows flexibilitywithin theaggregate plan

Sub-contracting

Permits flexibilityand smoothing ofthe firms output

Loss of qualitycontrol; reducedprofits; loss of

future business

Applies mainly inproductionsettings






Using part-time workers

Is less costly andmore flexible thanfull-time workers

High turnover/training costs;quality suffers;scheduling difficult

Good for unskilledjobs in areas withlarge temporarylabor pools

Influencingdemand

Tries to use excesscapacity.Discounts drawnew customers.

Uncertainty indemand. Hard tomatch demand tosupply exactly.

Creates marketingideas. Overbookingused in somebusinesses.






Back orderingduring high-demandperiods

May avoidovertime. Keepscapacity constant.

Customer must bewilling to wait, butgoodwill is lost.

Allows flexibilitywithin theaggregate plan

Counter-seasonalproduct and

servicemixing

Fully utilizesresources; allowsstable workforce

May require skills orequipment outsidethe firms areas of

expertise

Risky findingproducts orservices with

opposite demandpatterns



Methods for Aggregate Planning

Chase strategy

Match output rates todemand forecast for

each period

Vary workforce levels orvary production rate

Favored by many serviceorganizations

Level strategy

Daily production isuniform

Use inventory or idletime as buffer

Stable production

leads to betterquality andproductivity




70

60

50

40

30

0 Jan Feb Mar Apr May June

Productionrateperworki

ngday

Level production using averagemonthly forecast demand

Forecast demand

Level strategy




70

60

50

40

30

0 Jan Feb Mar Apr May June

Produc

tionrateperworkin

gday

Forecast demand and

monthly production

Chase strategy



Graphical & Charting Methods

1. Determine the demand for each period

2. Determine the capacity for regular time,overtime, and subcontracting each period

3. Find labor costs, hiring and layoff costs, andinventory holding costs

4. Consider company policy on workers and stocklevels

5. Develop alternative plans and examine their totalcosts



Aggregate planning example!

Month Expected DemandProduction

DaysDemand Per Day

(computed)

J an 900 22 41

Feb 700 18 39

Mar 800 21 38

Apr 1,200 21 57

May 1,500 22 68

J une 1,100 20 55

6,200 124

Averagerequirement =

Total expected demand

Number of production days

= = 50 units per day6,200

124

LEVEL STRATEGY




70

60

50

40

30

0 Jan Feb Mar Apr May June = Month 22 18 21 21 22 20 = Number of

working days

P

roductionrateperworkingday

Level production using averagemonthly forecast demand

Forecast demand


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MonthProduction at

50 Units per DayDemandForecast

MonthlyInventoryChange

EndingInventory

J an 1,100 900 +200 200

Feb 900 700 +200 400

Mar 1,050 800 +250 650

Apr 1,050 1,200 -150 500

May 1,100 1,500 -400 100

J une 1,000 1,100 -100 0

1,850Total units of inventory carried over from one

month to the next = 1,850 units

Workforce required to produce 50 units per day = 10 workers


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Costs Calculations

Inventory carrying $9,250 (= 1,850 units carried x $5per unit)

Regular-time labor 49,600 (= 10 workers x $40 per

day x 124 days)Other costs (overtime,

hiring, layoffs,subcontracting) 0

Total cost $58,850


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Month Expected DemandProduction

DaysDemand Per Day

(computed)

J an 900 22 41

Feb 700 18 39

Mar 800 21 38

Apr 1,200 21 57

May 1,500 22 68

J une 1,100 20 55

6,200 124

Production = Expected Demand

CHASE STRATEGY


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70

60

50

40

30

0 Jan Feb Mar Apr May June = Month 22 18 21 21 22 20 = Number of

working days

P

roductionrateper

workingday

Forecast demand =

monthly production


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MonthForecast(units)

DailyProdRate

Basic ProductionCost

(demand x 1.6hrs/unit x $5/hr)

Extra Cost ofIncreasingProduction(hiring cost)

Extra Cost ofDecreasingProduction(layoff cost) Total Cost

J an 900 41 $ 7,200 $ 7,200

Feb 700 39 5,600 $1,200

(= 2 x $600)6,800

Mar 800 38 6,400 $600

(= 1 x $600)7,000

Apr 1,200 57 9,600$5,700

(= 19 x $300) 15,300

May 1,500 68 12,000$3,300

(= 11 x $300) 15,300

J une 1,100 55 8,800 $7,800

(= 13 x $600)16,600

$49,600 $9,000 $9,600 $68,200


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Cost LEVEL CHASE

Inventory carrying $ 9,250 $ 0

Regular labor 49,600 49,600Overtime labor 0 0

Hiring 0 9,000

Layoffs 0 9,600

Subcontracting 0 0

Total cost $58,850 $68,200


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Mathematical Approach

Useful for generating strategies

Transportation Method of LinearProgramming

Produces an optimal plan

Management Coefficients Model

Model built around managers experienceand performance

Other Models

Linear Decision Rule

Simulation

Documents

Aggregate+Planning Week4