Chapter 13 Aggregate Planning. Seasonal variation in demand E.g. Ice Cream Factories Agora on employment and departmental space allocation. Long range. Intermediate range. Short range. Now. 2-3 months. 18 Months. Planning Horizon/Levels.
Seasonal variation in demand
E.g. Ice Cream Factories
Agora on employment and departmental space allocation
usually demand and supply are converted to aggregate units such as labour-hours, working days, general product units, etc.Why do it?
Objective of Aggregate Planning
Bank loan, etc 40000
private tutoring 2000 x 12 = 24000
part time job 2000 x 10 = 20000
summer job 6500 x 2 = 13000
family money 1000 x 10 = 10000
saving 107000 - 88000 = 19000
Objective: income meets expenses; maximize saving; etc. (What do you call this?)Example - a personal plan
Overtime/slack time - to keep a skilled workforce and allows employee to increase earnings
Partime workers - depend on nature of work
Inventories - smooth production and buffer against demand surge; could be costly
Subcontracting - capacity increase in a short time without heavy investment; less controlOptions to affect capacity
Linear decision rule: Optimizing technique that seeks to minimize combined costs, using a set of cost-approximating functions to obtain a single quadratic equation.Mathematical Techniques
The VP of Operations is about to prepare the aggregate plan that will cover six periods in the horizon. The company has forecasted the following demand:
The output cost is $2 per unit at regular time; $3 per unit at overtime; $6 per unit if subcontracted. Average inventory cost is $1 per unit per period. Back orders are possible, however, the Company estimated the cost to be $5 per unit per period. The initial inventory is zero. There are 15 workers and each worker is able to produce 20 units of the product per period. Can you help the VP to develop an aggregate plan?
Regular worker produce 14 x 20 units = 280 units per period. The total deficiency is 120 units. These 120 units can be satisfied in 3 periods by overtime and can be produced during the periods of high demand (for cost consideration. Of course, you can put them in other periods too.)Example- Chase demand
Suppose the VP wants to use a more quantitative approach that use overtime only and have in mind that the cost be minimized. Can you help him?
Let us define the following notation:
Pt = No. of units produced via regular time at period t, t=1, …, 6
Dt= Demand (in No. of units) at period t, t=1, …, 6
Ot= No. of units produced at period t in overtime, t=1, …, 6
It = Inventory level (in No. of units) at the end of period t, t=1, …, 6
It = It-1 + Pt - Dt , t = 1, …, 6.
The Objective function is given by:
Notice that I0 = 0 and B0 = 0, (D1, …, D6) = (200,200,300,400,500,200)
level of demand and supply
in aggregate units
at the macro level
In order for the company to execute the plan, it needs to disaggregate the plan into appropriate units for implementation and monitoring. The output of this process is a master schedule and a master production schedule.Disaggregating the aggregate plan
A master schedule is a schedule (usually in the form of a table) indicating the quantity and timing (I.e., delivery times) for individual products or a group of individual products.
Relevant important ideas
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 servicesAggregate Planning in Services
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 MPSCalculating ATP
Different sales forecast - Same total: 120 units, starts lower, goes higher
Production adjusts to meet demand
Produce if projected balance falls below 5 units
Extra on-hand inventory is “cycle stock”
5 unit “trigger” is safety stock
The low-level code controls the sequence in which the materialis planned in an MRP run: First the materials with low-level code 0 areplanned, then the materials with low-level code 1, and so on. The lowerthe low-level code, the higher the number that is assigned to thematerial.
FAS is actual build schedule
Exact end-item configurationsFinal Assembly Schedule
No changes means lost sales
Frozen zone- no changes at all
>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