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Aggregate Planning

Aggregate Planning . IDS 605 Busing. Aggregate Planning . The development of a plan for: Output rate for groups or families of products Inventory levels to be maintained Production backlogs Changes in work force to support production strategy over the medium time horizon.

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Aggregate Planning

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  1. Aggregate Planning IDS 605 Busing

  2. Aggregate Planning • The development of a plan for: • Output rate for groups or families of products • Inventory levels to be maintained • Production backlogs • Changes in work force to support production strategy over the medium time horizon

  3. Meeting demand while effectively utilizing a facility • Proactive Strategies: • Produce seasonal complements • Offer discounts and promotions • Increase advertising in slack periods

  4. Meeting demand while effectively utilizing a facility • Reactive Strategies • Change number of employees • Overtime/slack time • Add/eliminate shifts • Plant shutdowns • Use inventory • Subcontract work • Backlogs/backorders • Lose sales

  5. Cost Considerations in Aggregate Planning • Payroll • Hiring/Firing • Overtime • Inventory Carrying • Subcontracting • Back orders, stockouts, lost sales • Promotions and discounts

  6. Aggregate Plan with Varying Work-Force (Chase) Starting employees = 100 Units per employee per month = 1000 Hiring cost per employee = $1000 Layoff cost per employee = $2000 Payroll cost per employee per month = $2000 Forecast Planned Month Demand Production Employees Hired Laid off Jan 100,000 100,000 100 0 0

  7. Aggregate Plan with Varying Work-Force (Chase) Starting employees = 100 Units per employee per month = 1000 Hiring cost per employee = $1000 Layoff cost per employee = $2000 Payroll cost per employee per month = $2000 Forecast Planned Month Demand Production Employees Hired Laid off Jan 100,000 100,000 100 0 0 Feb. 120,000 120,000 120 20 0

  8. Aggregate Plan with Varying Work-Force (Chase) Starting employees = 100 Units per employee per month = 1000 Hiring cost per employee = $1000 Layoff cost per employee = $2000 Payroll cost per employee per month = $2000 Forecast Planned Month Demand Production Employees Hired Laid off Jan 100,000 100,000 100 0 0 Feb. 120,000 120,000 120 20 0 Mar. 105,000 105,000 105 0 15

  9. Aggregate Plan with Varying Work-Force (Chase) Starting employees = 100 Units per employee per month = 1000 Hiring cost per employee = $1000 Layoff cost per employee = $2000 Payroll cost per employee per month = $2000 Forecast Planned Month Demand Production Employees Hired Laid off Jan 100,000 100,000 100 0 0 Feb. 120,000 120,000 120 20 0 Mar. 105,000 105,000 105 0 15 Apr. 110,000 110,000 110 5 0

  10. Aggregate Plan with Varying Work-Force (Chase) Starting employees = 100 Units per employee per month = 1000 Hiring cost per employee = $1000 Layoff cost per employee = $2000 Payroll cost per employee per month = $2000 Forecast Planned Month Demand Production Employees Hired Laid off Jan 100,000 100,000 100 0 0 Feb. 120,000 120,000 120 20 0 Mar. 105,000 105,000 105 0 15 Apr. 110,000 110,000 110 5 0 TOTALS 435 25 15

  11. Aggregate Plan with Varying Work-Force (Chase) Starting employees = 100 Units per employee per month = 1000 Hiring cost per employee = $1000 Layoff cost per employee = $2000 Payroll cost per employee per month = $2000 Forecast Planned Month Demand Production Employees Hired Laid off Jan 100,000 100,000 100 0 0 Feb. 120,000 120,000 120 20 0 Mar. 105,000 105,000 105 0 15 Apr. 110,000 110,000 110 5 0 TOTALS 435 25 15 Cost Payroll: 435 employee-months @ $2,000 = $870,000

  12. Aggregate Plan with Varying Work-Force (Chase) Starting employees = 100 Units per employee per month = 1000 Hiring cost per employee = $1000 Layoff cost per employee = $2000 Payroll cost per employee per month = $2000 Forecast Planned Month Demand Production Employees Hired Laid off Jan 100,000 100,000 100 0 0 Feb. 120,000 120,000 120 20 0 Mar. 105,000 105,000 105 0 15 Apr. 110,000 110,000 110 5 0 TOTALS 435 25 15 Cost Payroll: 435 employee-months @ $2,000 = $870,000 Hiring: 25 employees @ $1,000 = $ 25,000

  13. Aggregate Plan with Varying Work-Force (Chase) Starting employees = 100 Units per employee per month = 1000 Hiring cost per employee = $1000 Layoff cost per employee = $2000 Payroll cost per employee per month = $2000 Forecast Planned Month Demand Production Employees Hired Laid off Jan 100,000 100,000 100 0 0 Feb. 120,000 120,000 120 20 0 Mar. 105,000 105,000 105 0 15 Apr. 110,000 110,000 110 5 0 TOTALS 435 25 15 Cost Payroll: 435 employee-months @ $2,000 = $870,000 Hiring: 25 employees @ $1,000 = $ 25,000 Layoff: 15 employees @ $2,000 = $ 30,000

  14. Aggregate Plan with Varying Work-Force (Chase) Starting employees = 100 Units per employee per month = 1000 Hiring cost per employee = $1000 Layoff cost per employee = $2000 Payroll cost per employee per month = $2000 Forecast Planned Month Demand Production Employees Hired Laid off Jan 100,000 100,000 100 0 0 Feb. 120,000 120,000 120 20 0 Mar. 105,000 105,000 105 0 15 Apr. 110,000 110,000 110 5 0 TOTALS 435 25 15 Cost Payroll: 435 employee-months @ $2,000 = $870,000 Hiring: 25 employees @ $1,000 = $ 25,000 Layoff: 15 employees @ $2,000 = $ 30,000 $925,000

  15. Aggregate Plan with Varying Inventory (Level Workforce) Number of Employees = 105 Units per employee per month = 1,000 Payroll cost per employee per month = $2,000 Beginning inventory = 15,000 units Unit cost of carrying inventory per month = $0.20 Forecast Planned Inventory Month Demand Production Beginning Ending Average Jan 100,000 105,000 15,000 20,000 17,500

  16. Aggregate Plan with Varying Inventory (Level Workforce) Number of Employees = 105 Units per employee per month = 1,000 Payroll cost per employee per month = $2,000 Beginning inventory = 15,000 units Unit cost of carrying inventory per month = $0.20 Forecast Planned Inventory Month Demand Production Beginning Ending Average Jan 100,000 105,000 15,000 20,000 17,500 Feb. 120,000 105,000 20,000 5,000 12,500

  17. Aggregate Plan with Varying Inventory (Level Workforce) Number of Employees = 105 Units per employee per month = 1,000 Payroll cost per employee per month = $2,000 Beginning inventory = 15,000 units Unit cost of carrying inventory per month = $0.20 Forecast Planned Inventory Month Demand Production Beginning Ending Average Jan 100,000 105,000 15,000 20,000 17,500 Feb. 120,000 105,000 20,000 5,000 12,500 Mar. 105,000 105,000 5,000 5,000 5,000

  18. Aggregate Plan with Varying Inventory (Level Workforce) Number of Employees = 105 Units per employee per month = 1,000 Payroll cost per employee per month = $2,000 Beginning inventory = 15,000 units Unit cost of carrying inventory per month = $0.20 Forecast Planned Inventory Month Demand Production Beginning Ending Average Jan 100,000 105,000 15,000 20,000 17,500 Feb. 120,000 105,000 20,000 5,000 12,500 Mar. 105,000 105,000 5,000 5,000 5,000 Apr. 110,000 105,000 5,000 0 2,500

  19. Aggregate Plan with Varying Inventory (Level Workforce) Number of Employees = 105 Units per employee per month = 1,000 Payroll cost per employee per month = $2,000 Beginning inventory = 15,000 units Unit cost of carrying inventory per month = $0.20 Forecast Planned Inventory Month Demand Production Beginning Ending Average Jan 100,000 105,000 15,000 20,000 17,500 Feb. 120,000 105,000 20,000 5,000 12,500 Mar. 105,000 105,000 5,000 5,000 5,000 Apr. 110,000 105,000 5,000 0 2,500 TOTALS 45,000 30,000 37,500

  20. Aggregate Plan with Varying Inventory (Level Workforce) Number of Employees = 105 Units per employee per month = 1,000 Payroll cost per employee per month = $2,000 Beginning inventory = 15,000 units Unit cost of carrying inventory per month = $0.20 Forecast Planned Inventory Month Demand Production Beginning Ending Average Jan 100,000 105,000 15,000 20,000 17,500 Feb. 120,000 105,000 20,000 5,000 12,500 Mar. 105,000 105,000 5,000 5,000 5,000 Apr. 110,000 105,000 5,000 0 2,500 TOTALS 45,000 30,000 37,500 Cost Payroll: 105 employees x 4 months @ $2,000 = $840,000

  21. Aggregate Plan with Varying Inventory (Level Workforce) Number of Employees = 105 Units per employee per month = 1,000 Payroll cost per employee per month = $2,000 Beginning inventory = 15,000 units Unit cost of carrying inventory per month = $0.20 Forecast Planned Inventory Month Demand Production Beginning Ending Average Jan 100,000 105,000 15,000 20,000 17,500 Feb. 120,000 105,000 20,000 5,000 12,500 Mar. 105,000 105,000 5,000 5,000 5,000 Apr. 110,000 105,000 5,000 0 2,500 TOTALS 45,000 30,000 37,500 Cost Payroll: 105 employees x 4 months @ $2,000 = $840,000 Inventory cost: 37,500 average units @ $0.20 =$ 7,500

  22. Aggregate Plan with Varying Inventory (Level Workforce) Number of Employees = 105 Units per employee per month = 1,000 Payroll cost per employee per month = $2,000 Beginning inventory = 15,000 units Unit cost of carrying inventory per month = $0.20 Forecast Planned Inventory Month Demand Production Beginning Ending Average Jan 100,000 105,000 15,000 20,000 17,500 Feb. 120,000 105,000 20,000 5,000 12,500 Mar. 105,000 105,000 5,000 5,000 5,000 Apr. 110,000 105,000 5,000 0 2,500 TOTALS 45,000 30,000 37,500 Cost Payroll: 105 employees x 4 months @ $2,000 = $840,000 Inventory cost: 37,500 average units @ $0.20 =$ 7,500 $847,500

  23. Chase versus Level Plans • Varying workforce (chase demand) • substantial hiring/firing costs • inventory carrying cost low to zero • workforce skill & dedication low • Varying inventory (level workforce) • low to zero hiring/firing costs • inventory carrying costs could be substantial • workforce skill and dedication high • may incur stockouts/backlog

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