IOA- C13 28-29-30 th July

1. IOA- C1328-29-30th July

2. Chapter 13Aggregate Planning Seasonal variation in demand E.g. Ice Cream Factories Agora on employment and departmental space allocation

3. Long range Intermediate range Short range Now 2-3 months 18 Months Planning Horizon/Levels

4. AP and Master scheduling

5. Aggregate plan and master schedule for electric motors

6. Planning Sequence Corporate strategies and policies Economic, competitive, and political conditions Aggregate demand forecasts Establishes operations and capacity strategies Business Plan Establishes operations capacity Aggregate plan Establishes schedules for specific products Master schedule

7. Aggregate Planning • Begin with forecast of aggregate demand • Production plan is the output of aggregate planning • Update plan periodically – rolling planning horizon always covers the next 12 – 18 months Balance demand & capacity

8. Aggregate Planning Inputs

9. Aggregate Planning Strategies

10. Demand OptionsDemand increased to match capacity • 1. Pricing. Varying pricing to increase demand Hotels, airlines, movie theatre, sale at ____ • 2. Promotion. Advertising, direct marketing, and other forms of promotion are used to shift demand. Breakfast menu! • 3. Back ordering. By postponing delivery on current orders demand is shifted- smoothing demand. Reservations vs. walk-ins • 4. New demand creation. A new, but complementary demand. Peak time bus need- off peak trips!

11. Capacity Options- Increase/decrease capacity to match demand • 1. Hire/lay off. • Hire and layoff workers • Shops at vacation spots- checkout lanes • Hiring cost of skilled worker • 2. Overtime- temporary increase in capacity without the added expense of hiring • 3. Part-time- on-call basis, and typically without the benefits given to full-time workers.

12. Capacity Options- Increase/decrease capacity to match demand … • 4. Inventory- Finished-goods inventory can be built up in periods of slack demand • no temporary labor, and no overtime • 5. Subcontracting • Additional capacity temporarily • 6. Cross-training- flexibility when scheduling capacity. • 7. Other methods- novel ways • sharing employees with counter-cyclical companies

13. Aggregate Planning Strategies for uneven demand

14. Chase Strategy • Plan to exactly match the forecast of demand • by adding or laying off employees to change the level of production • overtime or subcontracting might also be used • no inventories would be accumulated

15. Level Production Strategy • When demand exceeds the average requirement in some months and is below average in others, a production plan could be developed to • produce at the constant rate • accumulating inventory • meet the above average demands • cumulative demand (forecast) never exceeds the cumulative averages (production), so no initial inventory is needed to prevent shortages. • some backorders could be allowed

16. Stable Work-Force Strategy • Stable work force capable of • producing same amount of product per month on regular time • Production might be increased by using overtime • Some workers would be idle if demand is too low • Build up some inventory during what might otherwise be idle time periods

18. Determine demand for each period Determine capacities for each period Identify policies that are pertinent Determine units costs Develop alternative plans and costs Select the best plan that satisfies objectives. Otherwise return to step 5. How to make Aggregate Planning

19. Average inventory Beginning Inventory + Ending Inventory = 2 Cumulative GraphWhat kind of strategy? Figure 13.3 Cumulative output/demand Cumulative production Cumulative demand 6 7 1 2 3 4 5 8 9 10

20. Linear programming: Methods for obtaining optimal solutions to problems involving allocation of scarce resources in terms of cost minimization. Simulation models: Computerized models that can be tested under different scenarios to problems. Mathematical Techniques

21. Summary of Planning Techniques Table 13.7

22. 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 Aggregate Planning in Services

23. Aggregate Plan to Master Schedule

24. Determines quantities needed to meet demand Interfaces with Marketing Capacity planning Production planning Distribution planning Master Scheduling

25. The MPS Process- Inputs/Outputs Capacity Consts. Company Policies Product Charact. Economic Considerations Placed Orders MPS Master Production Schedule: When & How Much to produce for each Product * Projected inventory * Uncommitted inventory … Forecasted Demand • Current and Planned • Availability, eg., • Initial Inventory, • Initiated Production, • Subcontracted quantities Planning Horizon Time unit Capacity Planning

26. Time Fences in MPS Period “frozen”(firm orfixed) “liquid”(open) “slushy”somewhatfirm Time Fences – points in timethat separate phases of a master schedule planning horizon. Figure 13.12

27. Projected On-hand Inventory - = Projected on-handinventory Inventory fromprevious week Current week’srequirements

28. 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 Calculating ATP

29. Beginning Inventory 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 Projected On-hand Inventory Figure 13.8

30. Solved Problems: Problem 1

31. More on MPS

32. Provides basis for: Making good use of manufacturing resources Making customer delivery promises Resolving tradeoffs between sales and manufacturing Attaining strategic objectives in the sales and operations plan Master Production Schedule

33. What is “Master Production Scheduling?”- the Production Plan • Start with Aggregate plan • Aggregate Sales & Ops Plan • Output level designed to meet targets • Disaggregates • Converts into specific schedule for each item • “The role of the sales and operations plan is to balance supply and demand volume, while the MPS specifies the mix and volume of the output” • MPS shows when products will be available in future

34. Master Production Scheduling Techniques • Available inventory • = inventory position at end of week • = starting inventory + MPS – forecast • Plan to have positive inventory level • Buffer in case production below plan • Or demand higher than anticipated • MPS row is amount to make • MRP system has to figure out how to make it

35. Level demand, level production plan

36. Level production plan Different sales forecast Same total: 120 units, starts lower, goes higher

37. “Chase” production strategy Production adjusts to meet demand

38. Lot size of 30 units Produce if projected balance falls below 5 units Extra on-hand inventory is “cycle stock” 5 unit “trigger” is safety stock

39. Indented BOM Bike Frame Assembly Components Frame Wheel Assembly Wheel Hubs & Rims Spokes Tires BOM formats • Single-level BOM only shows one layer down. Spokes Wheel Tires

40. Low-Level Code Numbers • Lowest level in structure item occurs • Top level is 0; next level is 1 etc. • Process 0s first, then 1s • Know all demand for an item • Where should blue be? LLC 0 1 2 3 4

41. LLC Drawing • Item only appears in one level of LLC drawing • Easier to understand • Simplifies calculations LLC 0 1 2 3 4

42. Master Production schedule is anticipated build schedule FAS is actual build schedule Exact end-item configurations Final Assembly Schedule

43. Stable schedule means stable component schedules, more efficient No changes means lost sales Frozen zone- no changes at all Time fences >24 wks, all changes allowed (water) 16-23 wks substitutions, if parts there (slush) 8-16 minor changes only (slush) < 8 no changes (ice) Schedule Stability

44. HW

45. Explain what aggregate planning is and how it is useful. Identify the variables decision makers have to work with in aggregate planning and some of the possible strategies they can use. Describe some of the graphical and quantitative techniques planners use. Prepare aggregate plans and compute their costs. Learning Objectives