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Operations Management as a Competitive Weapon. Module:. Aggregate Planning. OM Course Framework. 3. Dependability - Project Management - JIT. 1. Cost - Design & Selection. 4. Flexibility - Inventory - Supply Chain - Location - Forecasting - Aggregate Planning. 2. Quality - PowerPoint PPT Presentation
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Module:
Aggregate Planning
Operations Management as a Competitive Weapon
2Module: Aggregate Planning
OM Course Framework
1. Cost
- Design & Selection
2. Quality
- TQM
- SQC
3. Dependability
- Project Management
- JIT 4. Flexibility
- Inventory
- Supply Chain
- Location
- Forecasting
- Aggregate Planning
3Module: Aggregate Planning
Learning Objectives
At the end of this module, each student will be able to:
1. Discuss aggregate planning
2. Evaluate aggregate planning
strategies
3. Discuss yield management
4Module: Aggregate Planning
Provides the quantity and timing of
production for intermediate future
Uses (‘aggregate’) production
Involves capacity and demand
variables
Why: Key interface to capital
budgeting process
1. Aggregate Planning
5Module: Aggregate Planning 6
Aggregate Planning Goal For each period in the planning horizon,
specify the appropriate combination of production rate
workforce level
inventory level
Minimize sum of individual period’s
total costs
6Module: Aggregate Planning
2. AP Basic Strategies
Level capacity:
Chase demand:
+
-
+
7Module: Aggregate Planning
Other Considerations
Chase Level
Basic Cost: $ ?? $ ??
Hire & Fire -
Plant & Equipment
Inventory -
Total: $ ????? $ ?????
8Module: Aggregate Planning
3. Yield Management
Objective: Allocate
Capacity
Customers
Price
Time
Maximize Revenue
9Module: Aggregate Planning
Typical Characteristics
1. Capacity
2. Markets
3. Inventory
4. Purchase
5. Demand
10Module: Aggregate Planning
Example
No- Shows% of
Experiences
Cumulative % of
Experiences
0 5 5
1 8 13
2 10 23
3 15 38
4 20 58
5 15 73
6 11 84
7 6 90
8 5 95
9 4 99
10 1 100
100
11Module: Aggregate Planning
Solution Procedure: Marginal Cost
Cu Underestimated demand(Cont. margin)
[Denied reservation; have room]“spoilage”
Co Overestimated demand(Alternative cost)
[Have reservation; no room]“walked” “spill”
12Module: Aggregate Planning
Solution Procedure: Marginal Cost
Example: Cu = $80
Co = $200
Suppose we arbitrarily plan on 2 no-shows.
Actual # of
No-ShowsCost
% of
Experiences
Expected
cost
0 400 5 20.00
1 200 8 16.00
2 0 10 0.00
3 80 15 12.00
4 160 20 32.00
5 240 15 36.00
6 320 11 35.20
7 400 6 24.00
8 480 5 24.00
9 560 4 22.40
10 640 1 6.40
Total $228.007 * Cu = 7*80 = $560
2 * Co = 2*200 = $400
13Module: Aggregate Planning
Solution Procedure: Marginal Cost
0
200
400
600
800
1,000
1,200
0 1 2 3 4 5 6 7 8 9 10
Planned No-Shows
Exp
ecte
d T
ota
l C
ost
($ )
14Module: Aggregate Planning
Solution Procedure: Marginal Cost
Rule: Add no-shows as long as total expected cost is decreasing.
OR: P(Co) > (1 – P)Cu
Stocking level Cu / (Co + Cu)
15Module: Aggregate Planning
Solution Procedure: Marginal Cost
Cu = $80; Co = $200; SL= 80/ (80 + 200) = 0.286 No- Shows
% of
Experiences
Cumulative % of
Experiences
0 5 5
1 8 13
2 10 23
3 15 38
4 20 58
5 15 73
6 11 84
7 6 90
8 5 95
9 4 99
10 1 100
