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Aggregate Planning. Operations Management Dr. Ron Tibben-Lembke. Learning Objectives. Describe planning Distinguish the types of plans Define aggregate scheduling Relate aggregate scheduling to the overall planning process Explain aggregate scheduling options Develop aggregate schedules.

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aggregate planning

Aggregate Planning

Operations Management

Dr. Ron Tibben-Lembke

learning objectives
Learning Objectives
  • Describe planning
  • Distinguish the types of plans
  • Define aggregate scheduling
  • Relate aggregate scheduling to the overall planning process
  • Explain aggregate scheduling options
  • Develop aggregate schedules
example
Example

You’ve started a new company. You’ve developed 2 production plans:

Month Forecast Plan 1 Plan 2 Jan 900 900 800 Feb 700 700 800 Mar 800 800 800

You estimate 1 worker can make 100 units per month. Which plan do you use? How many workers do you hire? How do you meet demand?

planning
Planning
  • Setting goals & objectives
    • Example: Meet demand within the limits of available resources at the least cost
  • Determining steps to achieve goals
    • Example: Hire more workers
  • Setting start & completion dates
    • Example: Begin hiring in Jan.; finish, Mar.
  • Assigning responsibility
types of plans
Types of Plans

Management Level

High

Long-Range

Facility location

Top Executives

Intermediate-Range

Aggregate plans

Operations Managers

Short-Range

Dispatching

Supervisors

Low

Today

3 months

1 year

18 months

5 years

aggregate scheduling
Aggregate Scheduling
  • Production quantity & timing of production for intermediate future
    • Usually 3 to 18 months into future
  • Combines (‘aggregates’) production
    • Expressed in common units
      • Example: Hours, dollars, equivalents (e.g., FTE students)
      • Time to make ‘average’ product
relationships of aggregate schedule
Relationships of Aggregate Schedule

Aggregate

Forecast &

Resource

Production

Firm Orders

Availability

Planning

Work force

Inventory

Material

Master

Subcontractors

Requirements

Production

Planning

Scheduling

No, modify CRP, MRP, or MPS

Capacity

Shop

Requirements

Realistic?

Floor

Yes

Planning

Schedules

aggregate level scheduling
Aggregate Level Scheduling

Aggregate Schedule:Month Jan Feb Mar Apr MayNo. of Chips 600 650 620 630 640

© 1995 Corel Corp.

aggregate schedule example
Aggregate Schedule Example

Aggregate Schedule:Month Jan Feb Mar Apr MayNo. of Chips 600 650 620 630 640

Master Production Schedule:MonthJan Feb Mar Apr MayP4 1.5 ghz 300 200 310 300 340P4 1.7 ghz 300 450 310 330 300

aggregate scheduling goals
Aggregate Scheduling Goals
  • Meet demand
  • Use capacity efficiently
  • Meet inventory policy
  • Minimize cost
    • Labor
    • Inventory
    • Plant & equipment
    • Subcontract
aggregate scheduling options
Promotion & price

Back ordering

Counterseasonal product mixing

Aggregate Scheduling Options

Capacity

Demand

  • Inventory
  • Hire or layoff
  • Overtime or idle
  • Subcontract
  • Part-time workers
  • Outsource
costs
Costs
  • “Smoothing” costs:
    • Hiring: advertise, interview, train
    • Firing: severance, bad morale, future hiring
  • Holding costs - charged on inv At end
  • Shortage costs
  • Labor costs / overtime, materials
  • Subcontracting / outsourcing
aggregate scheduling strategies
Aggregate Scheduling Strategies
  • Level scheduling strategy
    • Produce same amount every day
    • Keep work force level constant
    • Vary non-work force capacity or demand
    • Often results in lowest production costs
  • Chase strategy
    • Hire / Fire workers to make production capacity meet necessary production
aggregate scheduling strategies14
Aggregate Scheduling Strategies
  • Mixed strategy
    • Combines 2 or more aggregate scheduling options

Overtime

Price

MixedStrategy

Sub-contract

Inventory

aggregate scheduling methods
Aggregate Scheduling Methods
  • Graphical & charting techniques
    • Popular & easy-to-understand
    • Trial & error approach
  • Mathematical approaches
    • Linear Programming
    • Simulation
    • More involved, but usually better answers
jc company p 292
JC Company p. 292
  • Materials Cost: $100/unit
  • Labor: 5 hours per unit, $4/hr RT, $6/hr OT
    • Subcontract $20/unit ($120 - $100 matl savings)
    • Holding cost $1.5/unit/mo
    • Stockout cost $5/unit/mo
    • Hiring cost $200
    • Firing cost $250
    • Starting inventory 400 units, safety stock 25%
exhibit 11 3
Exhibit 11.3
  • Goal of 25% of sales as “safety stock”
  • For planning, assume safety stock never used
hire and fire no ot plan 1
Hire and Fire, no OT: Plan 1
  • Start with workers needed for month 1
  • May have too many at end
constant workforce plan 2
Constant Workforce: Plan 2
  • Total D = 8,000 units
  • 5*8,000 = 40,000 hours
  • 125 days total = 1,000 hrs
  • 40,000/1,000 = 40 workers
  • No penalty missing safety stock
subcontract plan 3
Subcontract: Plan 3
  • April has lowest demand
  • 21 days * 8 hrs = 168
  • 850*5/168 = 25.3 workers
  • Subcontract rest
constant workers with ot 4
Constant Workers with OT: 4
  • Find # workers to do all except biggest mos in RT
  • Trial and error
  • Not enough safety stock
linear programming parameters
Linear Programming Parameters

CH = hiring cost CF = firing cost

CI = Inv. Cost CR = reg production

CO = Ovt. Cost CI = idle cost

CS = subcontract nt = days in period t

K = daily prod. I0 = Inventory to start

W0 = workers to start

Dt = Demand for t

variables
Variables

It = Inventory for t Ot = Overtime

Wt = workers for t Ut = idle time

Ht = hired in t St = subcontracted

Ft = fired in t

Pt= production for t

  • All must be >= 0
constraints
Constraints
  • Workforce conservation

Wt = Wt-1 + Ht - Ft

  • Units Conervation

It = It-1 + Pt + St - Dt

  • Production and workforce level

Pt= K*nt*Wt + Ot - Ut

Each of these must be satisfied for all t

lp considerations
LP Considerations
  • LP can be modified to include minimum inv. level each period
  • Negative inventory can be allowed
  • Care needed when rounding
conclusion
Conclusion
  • Described role of aggregate planning
  • Described types of plans
  • Explained aggregate scheduling options
  • Developed aggregate schedules
    • Chase, Level, and Hybrid
    • Linear Programming