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Process Planning. Long-range. Strategic Capacity Planning. Intermediate-range. Aggregate Sales & Ops. Plan. Manufacturing. Master Production Scheduling. Services. Weekly Workforce & Customer Scheduling. Material Requirements Planning. Short-range. Order Scheduling. Daily Workforce &

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chapter 14 aggregate sales operations planning

Process Planning

Long-range

Strategic Capacity Planning

Intermediate-range

Aggregate Sales & Ops. Plan.

Manufacturing

Master Production Scheduling

Services

Weekly Workforce &

Customer Scheduling

Material Requirements Planning

Short-range

Order Scheduling

Daily Workforce &

Customer Scheduling

Chapter 14. Aggregate Sales & Operations Planning
  • Medium (intermediate) range operations planning
  • To meet the demand at a reasonable cost (to balance demand and supply)
  • To effectively allocate firm’s resources (“optimize”)
the aggregate operations plan
The Aggregate Operations Plan
  • Product group or broad category, hence the term Aggregate (Aggregation)
  • Main purpose: Specify the optimal combination of
    • production rate (units completed per unit of time)
    • workforce level (number of workers)
    • inventory on hand (inventory carried from previous period)
  • This planning is done over an intermediate-range planning period of 3 to 18 months, the most common planning horizon is 12 months
  • The plan needs to be updated at least quarterly or monthly
  • Demand forecast is the key input.
    • The most critical input to (any) planning process.
potentially conflicting objectives in aggregate planning
Potentially Conflicting Objectives in Aggregate Planning
  • Minimize Costs or Maximize Profits
  • Maximize customer service
  • Minimize inventory
  • Minimize changes in production rate
  • Minimize changes in the staffing levels
  • Maximize plant utilization
key strategies for meeting demand
Key Strategies for meeting demand
  • Chase – match the production rate to the order rate by hiring/firing as the order rate varies
  • Stable workforce – variable work hours. Vary output by over/under time, flexible schedules
  • Level - stable workforce working at a constant rate; use inventory/shortages/backordering to meet the demand
  • Mix strategy – two or more of the above in a more complex approach
  • Outsourcing (subcontracting) can also be used to manage demand fluctuations
relevant costs
Relevant Costs

Generally the following are the most common relevant costs:

  • Production costs
  • Costs associated with changing production rates
  • Inventory holding costs
  • Backordering costs
developing an aggregate plan
Developing an Aggregate Plan
  • Aggregate plans are done at an overview level and are not intended to incorporate all aspects of daily operational details.
  • The period-to-period sales, inventory-production relationships must balance.
  • Simple balance equation:
    • Supply = Demand
    • It-1 + Pt = Dt + It
    • This says that total product available in period t is either sold or put into ending inventory.
  • More realistic balance equation could include backorders and subcontracting (if applicable).
  • Various production, overtime, subcontracting limitations must be acknowledged.
  • Consider the following mini-case study:
a simple aggregate plan
A “simple” aggregate plan
  • Given the demand and relevant costs develop the lowest cost production plan.
  • Demand per month, January through December:
    • 988, 800, 725, 538, 675, 775, 913, 1075, 913, 788, 713, 850
  • The variable production cost is estimated to be $10/unit.
  • The production change cost (increase or decrease from month to month) is $2 per unit.
    • This cost captures (estimates) the hiring and layoff costs.
  • The backorder cost is $5 per unit per month and the inventory cost is $1 per unit per month (use ending inventories for costing).
  • The maximum production capacity is 1000 units per month.
  • There is no subcontracting option.
  • At the end of period 12 (December) there should not be any inventory or backorders.
    • 12 month total production must equal to the 12 month total demand. Hence, supply = demand, but can we do it at minimum cost!
  • Excel time!