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Chapter 13 Aggregate Planning. Seasonal variation in demand E.g. Ice Cream Factories Agora on employment and departmental space allocation. Long range. Intermediate range. Short range. Now. 2-3 months. 18 Months. Planning Horizon/Levels.

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Chapter 13 aggregate planning

Chapter 13Aggregate Planning

Seasonal variation in demand

E.g. Ice Cream Factories

Agora on employment and departmental space allocation


Planning horizon levels

Long range

Intermediate range

Short

range

Now

2-3 months

18 Months

Planning Horizon/Levels

Aggregate planning: Intermediate-range capacity planning, usually covering 2 to 12 months. (Also called Macro planning)



Why do it

To develop a feasible production plan on an aggregate level that achieves a balance of expected demand and supply

usually demand and supply are converted to aggregate units such as labour-hours, working days, general product units, etc.

Why do it?

Objective of Aggregate Planning


Planning Sequence that achieves a balance of expected demand and supply


Aggregate planning approaches

Maintain a level workforce that achieves a balance of expected demand and supply

Maintain a steady output rate

Match demand period by period

Use a combination of decision variables

Aggregate Planning Approaches


Level and chase strategies

Demand that achieves a balance of expected demand and supply

Demand

Demand

Level and Chase Strategies

Quantity

Normal

capacity

Level Output Strategy

Output less

than demand

Output

level

Output exceeds

demand

Chase Demand Strategy

Output above

normal

Normal

capacity

Output below

normal


Cumulative graph

6 that achieves a balance of expected demand and supply

7

1

2

3

4

5

8

9

10

Cumulative Graph

Cumulative output/demand

Cumulative

production

Cumulative

demand


Example a personal plan

An NSU UG student that achieves a balance of expected demand and supply

One year expenses

tuition 40,000

transportation 1000 x 12 = 12000

food and meal 2000 x 10 = 20000

summer 5000 x 2 = 10000

others 500 x 12 = 6000

Total 88,000

Example - a personal plan


Example a personal plan1

A NSU UG student that achieves a balance of expected demand and supply

plan income

Bank loan, etc 40000

private tutoring 2000 x 12 = 24000

part time job 2000 x 10 = 20000

summer job 6500 x 2 = 13000

family money 1000 x 10 = 10000

Total 107000

saving 107000 - 88000 = 19000

Objective: income meets expenses; maximize saving; etc. (What do you call this?)

Example - a personal plan


General steps in ap

1. Forecast demand in the period that achieves a balance of expected demand and supply

2. Develop plan(s) to meet the demand by setting levels on output, employment, inventory, etc.

3. The plans are refined or reworked until a feasible and satisfactory plan is uncovered.

General steps in AP


Options to affect demand level

Pricing that achieves a balance of expected demand and supply

e.g., shift demands from peak periods to off-peak periods. The more the elasticity, the more effective pricing will be on the demand pattern.

Promotion

Backorders (depend on customers’ willingness)

Develop new demand (market) during off-peak period

Options to affect demand level


Options to affect capacity

Hire and fire workers - depends on the intensity of labour used, the strength of the union, corporate culture, labour laws, etc.

Overtime/slack time - to keep a skilled workforce and allows employee to increase earnings

Partime workers - depend on nature of work

Inventories - smooth production and buffer against demand surge; could be costly

Subcontracting - capacity increase in a short time without heavy investment; less control

Options to affect capacity


Mathematical techniques

Linear programming: Methods for obtaining optimal solutions to problems involving allocation of scarce resources in terms of cost minimization.

Linear decision rule: Optimizing technique that seeks to minimize combined costs, using a set of cost-approximating functions to obtain a single quadratic equation.

Mathematical Techniques


Summary of planning techniques
Summary of Planning Techniques to problems involving allocation of scarce resources in terms of cost minimization.


Example
Example to problems involving allocation of scarce resources in terms of cost minimization.

The VP of Operations is about to prepare the aggregate plan that will cover six periods in the horizon. The company has forecasted the following demand:

The output cost is $2 per unit at regular time; $3 per unit at overtime; $6 per unit if subcontracted. Average inventory cost is $1 per unit per period. Back orders are possible, however, the Company estimated the cost to be $5 per unit per period. The initial inventory is zero. There are 15 workers and each worker is able to produce 20 units of the product per period. Can you help the VP to develop an aggregate plan?


Example solution

Average to problems involving allocation of scarce resources in terms of cost minimization.

inventory

Beginning Inventory + Ending Inventory

=

2

Example - solution

  • Suppose the VP wants to use a leveling (capacity) approach, I.e., maintaining a steady rate of output. The total output by the workers at the regular time is 20 x 15 x 6 = 1800 which equals to the forecast demand.


Example chase demand

The VP learned that a regular worker is retiring. Rather than hiring new worker, the VP decides to use overtime. However, the maximum amount of overtime output is 40 units per period. Suggest an aggregate plan for the VP

Regular worker produce 14 x 20 units = 280 units per period. The total deficiency is 120 units. These 120 units can be satisfied in 3 periods by overtime and can be produced during the periods of high demand (for cost consideration. Of course, you can put them in other periods too.)

Example- Chase demand


Solved problems problem 1
Solved Problems: Problem 1 than hiring new worker, the VP decides to use overtime. However, the maximum amount of overtime output is 40 units per period. Suggest an aggregate plan for the VP


Quantitative approach
Quantitative approach than hiring new worker, the VP decides to use overtime. However, the maximum amount of overtime output is 40 units per period. Suggest an aggregate plan for the VP

Suppose the VP wants to use a more quantitative approach that use overtime only and have in mind that the cost be minimized. Can you help him?

Let us define the following notation:

Pt = No. of units produced via regular time at period t, t=1, …, 6

Dt= Demand (in No. of units) at period t, t=1, …, 6

Ot= No. of units produced at period t in overtime, t=1, …, 6

It = Inventory level (in No. of units) at the end of period t, t=1, …, 6


For ease of handling, we introduce the concept of back order Bt at period t. The following is a kind of “conservation law”

It = It-1 + Pt - Dt , t = 1, …, 6.

The Objective function is given by:

Notice that I0 = 0 and B0 = 0, (D1, …, D6) = (200,200,300,400,500,200)


Disaggregating the aggregate plan

The aggregate plan gives Bthe

level of demand and supply

in aggregate units

at the macro level

In order for the company to execute the plan, it needs to disaggregate the plan into appropriate units for implementation and monitoring. The output of this process is a master schedule and a master production schedule.

Disaggregating the aggregate plan


Master Scheduling Process B

A master schedule is a schedule (usually in the form of a table) indicating the quantity and timing (I.e., delivery times) for individual products or a group of individual products.

Inputs

Outputs






Projected on hand inventory

Beginning Inventory B

Forecast is larger than Customer orders in week 3

Customer orders are larger than forecast in week 1

Forecast is larger than Customer orders in week 2

Projected On-hand Inventory

Figure 13.8


Suppliments

Suppliments B

Relevant important ideas




Aggregate planning in services

Services generally have variable processing requirements that make it difficult to establish a suitable measure of capacity.

Capacity availability can be difficult to predict

Services occur when they are rendered. Services cannot be stockpiled or inventoried so they do not have this option. It is considered "perishable,“

An empty hotel room cannot be held and sold later

Demand for service can be difficult to predict

Labor flexibility can be an advantage in services

Aggregate Planning in Services


Time fences in mps
Time Fences in MPS that make it difficult to establish a suitable measure of capacity.

  • Time Fences – points in time that separate phases of a master schedule planning horizon.

Period

“frozen”(firm orfixed)

“liquid”(open)

“slushy”somewhatfirm


Calculating atp

Calculated that make it difficult to establish a suitable measure of capacity. only in current week and any week with MPS>0

Current period: on-hand plus any current period MPS, minus all orders in that and subsequent periods until next MPS

Later periods: MPS – all orders until next MPS

Calculating ATP


Level production plan
level production plan that make it difficult to establish a suitable measure of capacity.

Different sales forecast - Same total: 120 units, starts lower, goes higher


Chase production strategy
“Chase” production strategy that make it difficult to establish a suitable measure of capacity.

Production adjusts to meet demand


Lot size of 30 units
Lot size of 30 units that make it difficult to establish a suitable measure of capacity.

Produce if projected balance falls below 5 units

Extra on-hand inventory is “cycle stock”

5 unit “trigger” is safety stock


!@#$&&&*())) that make it difficult to establish a suitable measure of capacity.


Bom formats

Indented BOM that make it difficult to establish a suitable measure of capacity.

Bike

Frame Assembly

Components

Frame

Wheel Assembly

Wheel

Hubs & Rims

Spokes

Tires

BOM formats

  • Single-level BOM only shows one layer down.

Wheel Assembly

Wheel

Tires


Low level code numbers
Low-Level Code Numbers that make it difficult to establish a suitable measure of capacity.

  • Lowest level in structure item occurs

  • Top level is 0; next level is 1 etc.

  • Process 0s first, then 1s

  • Know all demand for an item

  • Where should blue be?

LLC

0

1

2

3

4

The low-level code controls the sequence in which the materialis planned in an MRP run: First the materials with low-level code 0 areplanned, then the materials with low-level code 1, and so on. The lowerthe low-level code, the higher the number that is assigned to thematerial.


Llc drawing
LLC Drawing that make it difficult to establish a suitable measure of capacity.

  • Item only appears in one level of LLC drawing

  • Easier to understand

  • Simplifies calculations

LLC

0

1

2

3

4


Final assembly schedule

Master Production schedule is that make it difficult to establish a suitable measure of capacity. anticipated build schedule

FAS is actual build schedule

Exact end-item configurations

Final Assembly Schedule


Schedule stability

Stable schedule means stable component schedules, more efficient

No changes means lost sales

Frozen zone- no changes at all

Time fences

>24 wks, all changes allowed (water)

16-23 wks substitutions, if parts there (slush)

8-16 minor changes only (slush)

< 8 no changes (ice)

Schedule Stability


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