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CHAPTER 14 AGGREGATE PLANNING. Outline Aggregate Planning Issues Costs Two Strategies Chase Strategy Level Strategy Optimization. Hierarchy of Production Decisions. Master Production Schedule. April. May. 1. 2. 3. 4. 5. 6. 7. 8. Ladder-back chair. 150. 150. Kitchen chair.

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Presentation Transcript
slide1

CHAPTER 14AGGREGATE PLANNING

Outline

  • Aggregate Planning
    • Issues
    • Costs
  • Two Strategies
    • Chase Strategy
    • Level Strategy
  • Optimization
master production schedule
Master Production Schedule

April

May

1

2

3

4

5

6

7

8

Ladder-back chair

150

150

Kitchen chair

120

120

Desk chair

200

200

200

200

Aggregate

production plan

790

550

for chair family

materials requirement planning
Materials Requirement Planning

Back slats

Seat cushion

Leg supports

Seat-frame

boards

Back

legs

Front

legs

slide5

Issues in Aggregate Planning

  • Smoothing
    • Hiring, firing workers
  • Bottleneck problems
    • Sharp change in demand
  • Planning horizon
    • Inaccurate forecasts are associated with too large horizon and planning may be ineffective with too small horizon
  • Nature of Demand
    • Forecasts are usually wrong!
aggregate production planning
Aggregate Production Planning
  • Input
    • Demand forecast
    • Level of resources
    • Relevant cost information
  • Output
    • Aggregate production quantities
      • production, inventory, backorder
    • Level of resources needed
      • Workforce, overtime, machine capacity level, subcontracting
costs in aggregate planning
Costs in Aggregate Planning
  • Smoothing costs
    • Hiring and firing costs
  • Inventory holding costs
    • Cost of capital, storage, insurance, losses
  • Shortage costs
    • Backorder, lost sales
slide8

Costs in Aggregate Planning

  • Production costs
    • Straight time costs
      • Labor costs, regular time ($/hour)
    • Overtime and subcontracting costs
      • Labor costs, overtime costs ($/hour)
      • Cost of subcontracting ($/unit or $/hour)
constraints
Constraints
  • Limits on overtime
  • Limits on layoffs
  • Limits on capital available
  • Limits on stockouts and backorders
slide13

Two Simple Strategies

Demand

  • Chase strategy
    • Zero inventory, no holding cost, no shortages
    • Zero inventory is difficult to achieve

Units

Production

Time

slide14

Two Simple Strategies

Demand

Production

Units

Time

  • Level strategy
    • Stable workforce, no hiring/firing, no overtime,
    • no subcontract
optimization
Optimization
  • Linear Programming
    • Excel Solver
  • Difficulty
    • Integer variables: number of workers
example
Example
  • Develop a production plan and calculate the annual cost for a firm whose demand forecast is fall, 10, 000; winter, 8,000; spring 7,000; summer, 12,000. Inventory at the beginning of fall is 500 units. At the beginning of fall you currently have 30 workers, but you plan to hire temporary workers at the beginning of summer and lay them off at the end of summer. In addition, you have negotiated with the union an option to use the regular workforce on overtime during winter or spring if the overtime is necessary to prevent stock-outs at the end of those quarters. Overtime is not available during fall. (Continued...)
example1
Example

Relevant costs are: hiring, $100 for each temp; layoff, $200 for each worker laid off; inventory holding, $5 per unit-quarter; backorder, $10 per unit; straight time, $5 per hour; overtime $8 per hour. Assume that the productivity is 0.5 units per worker hour, with eight hours per day and 60 days per season.

  • Develop a production plan using

(1) all the constraints as stated

(2) chase strategy, no overtime, work hours not flexible

(3) chase strategy, no overtime, flexible hours (self study)

slide18

Example

(4) Suppose that a level strategy will be used without any overtime. What is the minimum number of workers required to avoid shortages? Develop a production plan using the minimum number of workers required to avoid shortages.

(5) Assuming that the shortages are allowed and that 6 new workers will be hired in the beginning of the fall term develop a production plan using level strategy and no overtime (self study)

(6) Assuming that the overtime will be used in fall and winter to prevent shortages and that 7 new workers will be hired in the beginning of the fall term, develop a production plan using level strategy with overtime (self study)

slide19

Example

Problem 1: The original problem

slide20

Example

Problem 1: The original problem

Total

slide21

Example (Chase)

Problem 2: Chase, no overtime, work hours not flexible

slide22

Example (Chase)

Problem 2: Chase, no overtime, work hours not flexible

Total

slide23

Example (Chase)

Problem 3: Chase, no overtime, flexible hours

slide24

Example (Level)

Problem 4: Constant workforce, no overtime, no shortages

slide25

Example (Level)

Problem 4: Constant workforce, no overtime, no shortages

Total

slide26

Example (Level)

Problem 5: Constant 36 workers, no overtime, shortages allowed

slide27

Example (Level)

Problem 5: Constant 36 workers, no overtime, shortages allowed

slide28

Example (Level)

Problem 6: Constant 37 workers, overtime to prevent shortages

slide29

Example (Level)

Problem 6: Constant 37 workers, overtime to prevent shortages

slide30

Reading and Exercises

  • Chapter 14 Pages 558-571
  • Problems 4,5