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Topic-11. Aggregate production planning. Production/Operations Planning Why?. Helps define organization’s purpose and goals Reduction of risks Increases individual motivation promotes management development Helps organization maintain control Assists organization in adapting to changes

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Topic 11 l.jpg

Topic-11

Aggregate production planning


Production operations planning why l.jpg
Production/Operations Planning Why?

  • Helps define organization’s purpose and goals

  • Reduction of risks

  • Increases individual motivation promotes management development

  • Helps organization maintain control

  • Assists organization in adapting to changes

  • Facilitates more efficient coordination among internal operations

  • Prevents unplanned unproductive work from supplanting planned work


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Aggregate Production Planning

  • Objective of aggregate production planning (APPA):

    1. Reduce the total slack within the organization to improve productivity

    2. Provide a feasible basis for low level production planning and scheduling


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Aggregate Production Planning

  • Two general approaches to APP:

    1. Monolithic: a comprehensive approach to determine the production plan for all levels of items in a single procedure

    2. Hierarchic: a step-by-step approach to disaggregate total demand into product groups and individual items then planning for each level.


Aggregate measure of demand l.jpg
Aggregate Measure of Demand

  • Measured by output:

    1. Broader Category (TV/ VCR)

    2. Product Group (Medical Equipment)

    3. Aggregate Unit (Weight/ Volume…)

  • Measured by input

    1. Machine-Hour

    2. Labor-Hour

    3. No. of Production Lines


The concept of aggregation product before aggregation l.jpg
The Concept of Aggregation:Product before Aggregation


The concept of aggregation workforce before aggregation l.jpg
The Concept of Aggregation:Workforce before Aggregation


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Aggregate Measure of Demand

  • Why measured by aggregate units?

    * Forecasting on aggregate unit is more accurate than that on individual item

    * Provide the flexibility to absorb possible uncertainty

    * Specify best combination plan for organization’s resources

    * Provide feasible basis for further disaggregating into lower level planning



Reduce seasonal variations in aggregate demand l.jpg
Reduce Seasonal Variations in Aggregate Demand

  • Aggregate demand: the total demand for all products/services produced by a production facility, usually there are significant seasonal variations in aggregate demand

  • Overall objective of APP: to matching capacity with demand fluctuations


Reduce seasonal variations in aggregate demand ii l.jpg
Reduce Seasonal Variations in Aggregate Demand (II)

  • Major approaches to reduce seasonal variations in aggregate demand:

  • 1.shift demand from the periods with high requirements to the periods with low requirements through:

    * price incentives

    * new promotion


Reduce seasonal variations in aggregate demand iii l.jpg
Reduce Seasonal Variations in Aggregate Demand (III)

2. adopt products/services that have counter-seasonal or counter-cyclical demand patterns such as:

  • Electronic heater vs. electronic fan

  • Swimming training vs. skating training


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Factors in Aggregate Production Planning

  • External factors:

    1. Market Demand

    2. Economic Conditions

    3. RM Availability

    4. Competitors Behaviors

    5……………


Factors in aggregate production planning14 l.jpg

Internal factors:

Production rate

Inventory level

Backlog policy

7. Union agreement

8. Capital Limit

2. Workforce level

4. Subcontracting

6. Physical Plant Capacity

9. ………………….

(Only top 5 factors are controllable in APP planning.)

Factors in Aggregate Production Planning


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Aggregate Planning

  • Why aggregate planning is necessary:

    1.Fully load facilities/minimize overloading

    and under-loading

    2.Ensure enough capacity available to satisfy expected demand

    3. Plan for the orderly and systematic changes of production capacity to meet peaks and valleys of expected demand

    4. Ger the most output for the amount of resources available


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Aggregate Planning (II)

  • Medium-tern capacity adjustments

    1.workforce level:

    * hire of layoff full-time workers

    * hire or layoff contract workers

    2. utilization of the work force

    overtime/idle time/reduce hours worked

    3. inventory level

    4. subcontract


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Aggregate Planning (III)

  • Solution approaches

  • informal or trial-and-error approach

  • mathematically optimal approaches

  • computer search

  • heuristics


Overview of manufacturing planning activities l.jpg

Corporate

Strategic

Planning

Financial

Planning

Business

Forecasting

Product and

Market

Planning

Resource

(Capacity)

Planning

Aggregate

Production

Planning

Item

Forecasting

Master

Production

Scheduling (MPS)

Rough-cut

Capacity

Planning (RCP)

Find

Assembly

Scheduling

(FAS)

Materials

Planning

Capacity

Requirements

Planning

Production

Activity

Control (PAC)

Purchase

Planning

Input/ Output Planning and Control

Overview of manufacturing Planning Activities

Long Range

Medium Range

Short Range


Aggregate planning strategies l.jpg
Aggregate Planning Strategies

  • Pure strategies:

    1. Varying Workforce Level

    2. Varying Production Rate

    3. Varying Inventory Level

    4. Varying Subcontracting Amount

    5. Varying Backlog Policy

    6…………………………….

    (There are cost implications associated with each strategy.)


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Aggregate Planning Strategies

  • Mixed strategies:

    1. Varying both Workforce Level and Inventory Level

    2. ………………( many possible combinations)


Extreme aggregate planning strategies constant output and constant capacity l.jpg

Inventory

Capacity =

Output

Demand

Extreme Aggregate Planning Strategies- Constant Output and Constant Capacity

Level

Strategy


Extreme aggregate planning strategy variable output and constant capacity l.jpg

Overtime

Idle Time

Output Capacity

Demand

Extreme Aggregate Planning Strategy- Variable Output and Constant Capacity


Extreme aggregate planning strategy variable output and variable capacity l.jpg
Extreme Aggregate Planning Strategy-Variable Output and Variable Capacity

Chase

Strategy

(Ideal.

Case)

Demand

Output

Capacity


Planning strategies l.jpg
Planning Strategies

  • Chase Strategy: Adjust production rates or staff levels to match demand requirements over planning horizon

    • Hires and layoffs

    • Overtime

    • Extra shifts or subcontracting

    • Not anticipation inventory or under-time

  • Level Strategy: Maintains a constant production rate or workforce level over the planning horizon

    • Anticipation inventory

    • Under-time

    • Sometimes overtime and backlogs

  • Mixed Strategy: The best strategy may be a mixed strategy of anticipation inventory buildup during slack periods, only minor workforce level changes and overtime


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Matching (Chasing) Strategy

  • Capacity in each time period is varied to exactly match the forecasted aggregate demand in that time period

  • Capacity is varied by changing the workforce level.

  • Finished-goods inventories are minimal

  • Labor/materials costs tend to be high due to frequent changes

  • Production rate is dictated by the forecasted aggregate demand

  • Convert the forecasted aggregate demand into the required workforce level using production time information

  • The primary costs of this strategy are the costs of changing workforce levels from period to period


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Level Capacity Strategy

  • Capacity is held level over the planning horizon

  • The difference between the constant production rate and the demand rate is made up by inventory, backlog, overtime, part-time labor and/or subcontracting

  • Assume that the amount produced each period is constant, no hiring or layoffs

  • The gap between the amount planned to be produced and the forecasted demand is filled with either inventory or backorders

  • The primary costs of this strategy are inventory carrying and backlogging costs

  • Period-ending inventories or backlogs are determined using the inventory balance equation


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Strategies Importance of APP

  • A game plan for top management to control the firm

  • To clearly define production tasks—provide agreement between operations/marketing/finance/engineering functions

  • Provide required information for long range capacity planning


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Strategies Importance of APP (II)

  • Planning techniques:

  • Optimization

  • Heuristics methods

  • Computer simulation models


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Calculation Examples

  • Your Supplement: p.11-12 to 11-14.

    2. Your Supplementary: Problems #1 & 2.

    p.11- 27.


An example in aggregate planning l.jpg

This example is simplified in two respects:

All regular time labor that is employed in any period are assumed to be fully utilized in production (that is, there is no idle time).

In order to simplify calculations, the workforce is hired/ fired in labor hour increments rather that is worker increments.

An Example in Aggregate Planning

The manufacturer uses these cost estimates:

CR- Regular time production = $12.00 per labor hour

CO- Overtime production = $18.00 per labor hour

CI- Inventory carrying costs = $ 7.00 per labor hour/quarter

CH- Hiring costs = $ 6.00 per labor hour

CF- Firing costs = $ 3.00 per labor hour

Assume that the existing labor force is 240,000 labor hours per quarter and that there is no beginning inventory.


Overtime only policy l.jpg
Overtime Only Policy

40

0

60

240

960

240

240

0

40

0

40

0

40

0

60

40

140

The cost of this aggregate plan would be:

TC= 12(960,000) +18(40,000) +7(140,000)

= 13,330,000

Example of Trail and Error Spreadsheet Approach


Hiring and firing policy l.jpg

Hiring and Firing Policy

40

0

0

280

180

260

960

0

0

0

40

0

40

0

80

0

40

120

0

100

0

0

100

The cost of this aggregate plan would be:

TC= 12(960,000)+18(0)+7(40,000)+6(120,000)+3(100,000)

=12,820,000


Slide34 l.jpg
2. If each employee works 480 hours per quarter, how many employees (if any) do you plan to hire or fire in each quarter?


Master production scheduling l.jpg

Master production scheduling employees (if any) do you plan to hire or fire in each quarter?


Master production schedule for products x y z l.jpg
Master Production Schedule for Products X, Y, Z employees (if any) do you plan to hire or fire in each quarter?


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Master Production Scheduling employees (if any) do you plan to hire or fire in each quarter?(MPS)

  • MPS is a detailed production schedule for end-products (or service), specified period with the exactly quantities

  • Three major input to MPS

    1. forecasts of end-product demand

    2. actual orders received from customers

    3. aggregate production planning (APP)


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Master Production Scheduling employees (if any) do you plan to hire or fire in each quarter?(MPS)

  • Objective of MPS: develop a Master production schedule for each end-product to meet the specified demand of each period under given production leadtime and capacity


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Master Production Scheduling employees (if any) do you plan to hire or fire in each quarter?(MPS)

  • Time fences in MPS 4 section are divided with time fence points in MPS to reflect their scheduling flexibility:

    * frozen: 1st section in which all schedule are fixed

    * firm: 2nd section where schedules can be changed if needed

    * full: 3rd section with full capacity scheduled but changes is ok

    * Open section: last few periods, capacity available for new orders


Where planning and scheduling meet l.jpg

Planning employees (if any) do you plan to hire or fire in each quarter?

Scheduling

Planning

Bill of Materials

Resource

characteristics

Finite

Constraint

Model

And Engine

Aggregates:

product and resource

families

Machine setup

characteristics

Forecast and order

balancing

Detailed routings/

operations

Where Planning and Scheduling Meet?

Advanced planning and scheduling share a common core, but each has its

own set of functions that others does not fulfill


Product structure production planning and capacity planning l.jpg
Product Structure, Production Planning and Capacity Planning employees (if any) do you plan to hire or fire in each quarter?

  • Development of MPS:

    1. Select MPS items

    2. Determine MPS planning horizon

    3. Develop an initial schedule

    4. Rough-cut capacity analysis


Slide43 l.jpg
Overall View of the Inputs to a Standard Material Requirements Planning Program and the reports Generated by the Program

Aggregate

Production Plan

Forecast of

demand form

random

customers

Firm Orders

from known

customers

Inventory

transactions

Engineering

design

changes

Master Production

Schedule (MPS)

Material Planning

(MRP computer

program)

Bill of material

file

Inventory

records file

Primary reports

Secondary reports

Planned-order schedules

for inventory and

production control

Exceptions reports

Planning reports

Reports for performance control


Determining the mps planning horizon l.jpg
Determining the MPS Planning Horizon Requirements Planning Program and the reports Generated by the Program

Bill of Material for Product - P

End Product –P

LT= 1 Week

Part –A

LT= 2 Weeks

Part –B

LT= 1 Week

Part –C

LT= 2 Weeks

Part –D

LT= 3 Weeks

Note: LT= Lead Time


Determining the mps planning horizon45 l.jpg
Determining the MPS Planning Horizon Requirements Planning Program and the reports Generated by the Program

1 2 3 4 5 6

A

Lead Time

Set- Back Chart

C

D

B

D

Minimum MPS

Planning Horizon


Master scheduling overview l.jpg
Master Scheduling Overview Requirements Planning Program and the reports Generated by the Program

  • Master scheduling consists of following these steps:

  • Step1: disaggregate total demand for a product group into detailed demand forecasting for each item in the group.

  • Step2:determine the expected demand of each period from the forecasted demand and actual customer orders

  • Step3:develop an initial production schedule based on: cost tradeoff and schedule feasibility

  • Step4:perform the rough-cut capacity planning to ensure that there will be enough capacity to meet the disaggregated demands for all items.


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Step-1: Disaggregating the Demand Forecast Requirements Planning Program and the reports Generated by the Program

The first step in developing a master schedule is to take the aggregate plan and break it down into forecasts for each product by each week in your planning horizon.

For example, suppose you had the following monthly forecast for product group A:

For example, you might then disaggregate this forecast for Products A1, A2 and A3 by weeks as follows:

10 10 10 1014 14 16 1614 14 11 11


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Step-2: Determining Expected Demand Requirements Planning Program and the reports Generated by the Program

The Second Step is to determine expected demand for each product in each period. You do this by reconciling forecasts against the customer orders already received and due in each period

A simple way to obtain the expected demand is to establish a reconciliation rule. Two examples of such rules are:


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Using the greater value in each period of either: Requirements Planning Program and the reports Generated by the Program

  • The forecast for that period

  • The customer orders due in that period

    Thus, as example of this rule is:

15 20 20 15 15 15 20 15


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For Periods 1-4 use the Customer Order and for Periods 5-8 Use the Greater Value of Either:

  • The Forecast for that Period

  • The Customer Orders Due that Period

    Thus, an example of this rule is:

10 20 20 5 15 15 20 15


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Step-3: Developing an Initial Schedule Use the Greater Value of Either:

The Third Step is to Develop Initial Schedule (normally called a “Master Schedule“ for each product to satisfy the expected demand.

Three Alternatives Master Schedule to cover an Expected Demand Pattern are:

Alternative A

Alternative B

Alternative C

1 Production

Run

135

8 Production

Run

15 20 20 15 15 15 20 15

3 Production

Run

35 45 35


Step 3 cost trade offs l.jpg
Step 3: Cost Trade-Offs Use the Greater Value of Either:

When choosing among Alternative Master Schedules, you need to consider your Cost Trade Offs. Three costs of particular concern:

  • Setup Cost

    • The cost for preparing a production run. Assuming fixed, not related to the Quantity to be produced

  • Inventory Holding Costs

    • The cost for carrying items over a certain period of time, related to the Quantity to be carried

  • Utilization (Over/ Under Capacity) Costs

    • Undercapacity Cost

    • Overcapacity Cost


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Step 3: Potential Feasibility Problems Use the Greater Value of Either:

  • The Development of a Master Schedule can Create Two Types of Feasibility Problems:

    • Capacity Feasibility- to be verified by “Rough- Cut” capacity planning

    • Raw material Availability- to be verified by “Materials Requirements Planning” (MRP)


Step 4 performing rough cut capacity planning l.jpg

For example, assume that you have the Capacity to produce “roughly” 100 units of Product A each week. Also assume that you have the following Master Schedule for product A1, A2, and A3.

You would need to modify this schedule because the total requirements exceeds your “rough” capacity in weeks 3 and 6. One possible modification would be.

Step-4: Performing “Rough-Cut” Capacity Planning

The last Step is to Analyze the Capacity Requirements generated by the Master

Schedule for the Operating System as a whole (and/or for certain key work

centers in the system). This analysis is called “Rough-Cut” Capacity Planning.

Note: the total planned production for each item has not changed,

but has been redistributed through time.


Master production scheduling55 l.jpg
Master Production Scheduling “roughly” 100 units of Product A each week. Also assume that you have the following Master Schedule for product A1, A2, and A3.

  • Objectives of MPS

  • Determine the quantity and timing of completion of end items over a short-range planning horizon

  • Schedule end items to be completed promptly and when promised to the customer

  • Avoid overloading or underloading the production facility so that production capacity is efficiently utilized and low production costs result


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Master Production Scheduling (II) “roughly” 100 units of Product A each week. Also assume that you have the following Master Schedule for product A1, A2, and A3.

  • Developing an MPS:

  • Using input information

  • Customer orders

  • Forecasts

  • Inventory status

  • Production capacity

  • Schedulers place orders in the earliest available open slot of the MPS

  • Schedulers must: Estimate the total demand for products from all sources, assign orders to production slots, make delivery promise to customers and make the detailed calculations for the MPS


See calculation example on your supplement l.jpg
See Calculation Example on Your Supplement “roughly” 100 units of Product A each week. Also assume that you have the following Master Schedule for product A1, A2, and A3.

  • Page. 11-25 to 11-26.


Scheduling example l.jpg

Scheduling Example “roughly” 100 units of Product A each week. Also assume that you have the following Master Schedule for product A1, A2, and A3.

A scissors manufacturer makes three different models of hot-drop, forged trimmers: 9-inch (item 6909), 8-inch (item 6371), and 7-inch (item 6909). The maximum production rate during regular time for all items is 20,000 total units per week. The desired production utilization rate is 87.5% of regular time capacity. The desired average inventory level is 1500 units.

At the present time, there are customer orders for only item 9199. the expected demand for this item over the next eight weeks is:


If there is no beginning inventory a feasible master schedule for this item would be l.jpg
If there is no beginning inventory, a feasible master schedule for this item would be:

0

8500

1000

1000

500

3000

0

0

8500

1000

1000

500

3000

0

0

0


Sum of ending inventories 8 500 1 000 1 000 500 3 000 0 0 0 14 000 l.jpg
Sum of ending inventories: (8,500+1,000+1,000+500+3,000+0+0+0) = 14,000

Sum of ending inventory

Number of periods

14,000

8

=

=

1750 (> 1500)

Average Utilization =

Total master schedule units .

(reg. time capacity per period) (number of periods)

17,500+17,500+…+….. . . +17,500

(20,000X8)

=

=

86.25% (<87.5%)

Average inventory =


If there is no beginning inventory a feasible master schedule for this item would be61 l.jpg
If there is no beginning inventory, a feasible master schedule for this item would be:

0

7000

2000

0

500

1000

0

0

7000

2000

0

500

1000

0

0

1500


Sum of ending inventories 7 000 2 000 0 500 1 000 0 0 1 500 12 000 l.jpg
Sum of ending inventories: (7,000+2,000+0+500+1,000+0+0+1,500)=12,000

Sum of ending inventory

Number of periods

12,000

8

=

=

1,500

Total master schedule units .

(reg. time capacity per period)(number of periods)

Average Utilization

=

(16,000+20,000+…+…+…+14,000+19,000)

(20,000X8)

=

87.58% (>87.50%)

=

Average inventory=


Slide63 l.jpg

Total Capacity = 8X20,000 = 160,000 (7,000+2,000+0+500+1,000+0+0+1,500)=12,000

Desired Utilization = 87.5%

Required MPS Quantity = (160,000X87.5%)

= 140,000

Average= 140,000/8 = 17.5 per week