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.
Chapter 13Aggregate Planning
Seasonal variation in demand
E.g. Ice Cream Factories
Agora on employment and departmental space allocation
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.
Objective of Aggregate Planning
Maintain a level workforce
Maintain a steady output rate
Match demand period by period
Use a combination of decision variables
Level Output Strategy
Chase Demand Strategy
An NSU UG student
One year expenses
transportation1000 x 12 = 12000
food and meal2000 x 10 = 20000
summer5000 x 2 = 10000
others 500 x 12 = 6000
A NSU UG student
Bank loan, etc40000
private tutoring2000 x 12 = 24000
part time job2000 x 10 = 20000
summer job6500 x 2 = 13000
family money1000 x 10 = 10000
saving107000 - 88000 = 19000
Objective: income meets expenses; maximize saving; etc. (What do you call this?)
1.Forecast demand in the period
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.
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 period
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
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.
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?
Beginning Inventory + Ending Inventory
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.)
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)
The aggregate plan gives the
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.
Master Scheduling Process
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.
Another MPS problem
Another MPS problem solution
Another MPS problem solution …
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
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 services
Calculated 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
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
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 anticipated build schedule
FAS is actual build schedule
Exact end-item configurations
Stable schedule means stable component schedules, more efficient
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)