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.
Seasonal variation in demand
E.g. Ice Cream Factories
Agora on employment and departmental space allocation
18 MonthsPlanning Horizon/Levels
Aggregate planning: Intermediate-range capacity planning, usually covering 2 to 12 months. (Also called Macro planning)
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
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 variablesAggregate Planning Approaches
Demand that achieves a balance of expected demand and supply
DemandLevel and Chase Strategies
Level Output Strategy
Chase Demand Strategy
6 that achieves a balance of expected demand and supply
An NSU UG student that achieves a balance of expected demand and supply
One year expenses
transportation 1000 x 12 = 12000
food and meal 2000 x 10 = 20000
summer 5000 x 2 = 10000
others 500 x 12 = 6000
Total 88,000Example - a personal plan
A NSU UG student that achieves a balance of expected demand and supply
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
saving 107000 - 88000 = 19000
Objective: income meets expenses; maximize saving; etc. (What do you call this?)Example - a personal plan
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
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.
Backorders (depend on customers’ willingness)
Develop new demand (market) during off-peak periodOptions to affect demand level
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 controlOptions to affect capacity
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
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?
Average to problems involving allocation of scarce resources in terms of cost minimization.
Beginning Inventory + Ending Inventory
2Example - solution
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
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)
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
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.
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 2Projected On-hand Inventory
Relevant important ideas
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 servicesAggregate Planning in Services
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 MPSCalculating ATP
Different sales forecast - Same total: 120 units, starts lower, goes higher
Production adjusts to meet demand
Produce if projected balance falls below 5 units
Extra on-hand inventory is “cycle stock”
5 unit “trigger” is safety stock
Indented BOM that make it difficult to establish a suitable measure of capacity.
Hubs & Rims
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.
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 configurationsFinal Assembly Schedule
No changes means lost sales
Frozen zone- no changes at all
>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