Aggregate Planning

1 1 2002 South-Western/Thomson Learning 2002 South-Western/Thomson Learning TMTM

Slides preparedSlides preparedby John Loucksby John Loucks

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Chapter 13Chapter 13Chapter 13Chapter 13

Production PlanningProduction Planning

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OverviewOverviewOverviewOverview

Production-Planning HierarchyProduction-Planning Hierarchy Aggregate PlanningAggregate Planning Master Production SchedulingMaster Production Scheduling Types of Production-Planning and Control SystemsTypes of Production-Planning and Control Systems Wrap-Up: What World-Class Companies DoWrap-Up: What World-Class Companies Do

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Production Planning HierarchyProduction Planning HierarchyProduction Planning HierarchyProduction Planning Hierarchy

Master Production Scheduling Master Production Scheduling

Production Planning and Control SystemsProduction Planning and Control Systems

Pond DrainingPond DrainingSystemsSystems

Aggregate PlanningAggregate Planning

PushPushSystems Systems

PullPullSystemsSystems

Focusing onFocusing onBottlenecksBottlenecks

Long-Range Capacity PlanningLong-Range Capacity Planning

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Production Planning HorizonsProduction Planning HorizonsProduction Planning HorizonsProduction Planning Horizons

Master Production Scheduling Master Production Scheduling







Long-Range Capacity PlanningLong-Range Capacity PlanningLong-RangeLong-Range

(years)(years)

Medium-RangeMedium-Range(6-18 months)(6-18 months)

Short-RangeShort-Range(weeks)(weeks)

Very-Short-RangeVery-Short-Range(hours - days)(hours - days)

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Production Planning: Units of MeasureProduction Planning: Units of MeasureProduction Planning: Units of MeasureProduction Planning: Units of Measure

Master Production SchedulingMaster Production Scheduling







Long-Range Capacity PlanningLong-Range Capacity PlanningEntire Entire

Product LineProduct Line

ProductProductFamilyFamily

SpecificSpecificProduct ModelProduct Model

Labor, Materials,Labor, Materials,MachinesMachines

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Why Aggregate Planning Is NecessaryWhy Aggregate Planning Is NecessaryWhy Aggregate Planning Is NecessaryWhy Aggregate Planning Is Necessary

Fully load facilities and minimize overloading and Fully load facilities and minimize overloading and underloadingunderloading

Make sure enough capacity available to satisfy Make sure enough capacity available to satisfy expected demandexpected demand

Plan for the orderly and systematic change of Plan for the orderly and systematic change of production capacity to meet the peaks and valleys of production capacity to meet the peaks and valleys of expected customer demandexpected customer demand

Get the most output for the amount of resources Get the most output for the amount of resources availableavailable

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InputsInputsInputsInputs

A forecast of aggregate demand covering the selected A forecast of aggregate demand covering the selected planning horizon (6-18 months)planning horizon (6-18 months)

The alternative means available to adjust short- to The alternative means available to adjust short- to medium-term capacity, to what extent each medium-term capacity, to what extent each alternative could impact capacity and the related costsalternative could impact capacity and the related costs

The current status of the system in terms of The current status of the system in terms of workforce level, inventory level and production rate workforce level, inventory level and production rate

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OutputsOutputsOutputsOutputs

A production plan: aggregate decisions for each A production plan: aggregate decisions for each period in the planning horizon aboutperiod in the planning horizon about workforce levelworkforce level inventory levelinventory level production rateproduction rate

Projected costs if the production plan was Projected costs if the production plan was implementedimplemented

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Medium-Term Capacity AdjustmentsMedium-Term Capacity AdjustmentsMedium-Term Capacity AdjustmentsMedium-Term Capacity Adjustments

Workforce levelWorkforce level Hire or layoff full-time workersHire or layoff full-time workers Hire or layoff part-time workersHire or layoff part-time workers Hire or layoff contract workers Hire or layoff contract workers

Utilization of the work forceUtilization of the work force OvertimeOvertime Idle time (undertime) Idle time (undertime) Reduce hours workedReduce hours worked

. . . more. . . more

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Medium-Term Capacity AdjustmentsMedium-Term Capacity AdjustmentsMedium-Term Capacity AdjustmentsMedium-Term Capacity Adjustments

Inventory levelInventory level Finished goods inventoryFinished goods inventory Backorders/lost salesBackorders/lost sales

SubcontractSubcontract

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ApproachesApproachesApproachesApproaches

Informal or Trial-and-Error ApproachInformal or Trial-and-Error Approach Mathematically Optimal ApproachesMathematically Optimal Approaches

Linear ProgrammingLinear Programming Linear Decision RulesLinear Decision Rules

Computer SearchComputer Search HeuristicsHeuristics

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Pure Strategies for the Informal ApproachPure Strategies for the Informal ApproachPure Strategies for the Informal ApproachPure Strategies for the Informal Approach

Matching DemandMatching Demand Level CapacityLevel Capacity

Buffering with inventoryBuffering with inventory Buffering with backlogBuffering with backlog Buffering with overtime or subcontractingBuffering with overtime or subcontracting

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Matching Demand StrategyMatching Demand StrategyMatching Demand StrategyMatching Demand Strategy

Capacity (Production) in each time period is varied to Capacity (Production) in each time period is varied to exactly match the forecasted aggregate demand in exactly match the forecasted aggregate demand in that time periodthat time period

Capacity is varied by changing the workforce levelCapacity is varied by changing the workforce level Finished-goods inventories are minimalFinished-goods inventories are minimal Labor and materials costs tend to be high due to the Labor and materials costs tend to be high due to the

frequent changesfrequent changes

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Developing and EvaluatingDeveloping and Evaluatingthe Matching Production Planthe Matching Production Plan

Developing and EvaluatingDeveloping and Evaluatingthe Matching Production Planthe Matching Production Plan

Production rate is dictated by the forecasted Production rate is dictated by the forecasted aggregate demandaggregate demand

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

The primary costs of this strategy are the costs of The primary costs of this strategy are the costs of changing workforce levels from period to period, i.e., changing workforce levels from period to period, i.e., hirings and layoffshirings and layoffs

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Level Capacity StrategyLevel Capacity StrategyLevel Capacity StrategyLevel Capacity Strategy

Capacity (production rate) is held level (constant) Capacity (production rate) is held level (constant) over the planning horizonover the planning horizon

The difference between the constant production rate The difference between the constant production rate and the demand rate is made up (buffered) by and the demand rate is made up (buffered) by inventory, backlog, overtime, part-time labor and/or inventory, backlog, overtime, part-time labor and/or subcontractingsubcontracting

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Developing and EvaluatingDeveloping and Evaluatingthe Level Production Planthe Level Production PlanDeveloping and EvaluatingDeveloping and Evaluatingthe Level Production Planthe Level Production Plan

Assume that the amount produced each period is Assume that the amount produced each period is constant, no hirings or layoffsconstant, no hirings or layoffs

The gap between the amount planned to be produced The gap between the amount planned to be produced and the forecasted demand is filled with either and the forecasted demand is filled with either inventory or backorders, i.e., no overtime, no idle inventory or backorders, i.e., no overtime, no idle time, no subcontractingtime, no subcontracting

. . . more. . . more

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Developing and EvaluatingDeveloping and Evaluatingthe Level Production Planthe Level Production PlanDeveloping and EvaluatingDeveloping and Evaluatingthe Level Production Planthe Level Production Plan

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

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

EIEItt = EI = EIt-1t-1 + (P + (Ptt - D - Dt t ))

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Aggregate Plans for ServicesAggregate Plans for ServicesAggregate Plans for ServicesAggregate Plans for Services

For standardized services, aggregate planning may be For standardized services, aggregate planning may be simpler than in systems that produce productssimpler than in systems that produce products

For customized services,For customized services, there may be difficulty in specifying the nature and there may be difficulty in specifying the nature and

extent of services to be performed for each extent of services to be performed for each customercustomer

customer may be an integral part of the production customer may be an integral part of the production systemsystem

Absence of finished-goods inventories as a buffer Absence of finished-goods inventories as a buffer between system capacity and customer demandbetween system capacity and customer demand

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Preemptive TacticsPreemptive TacticsPreemptive TacticsPreemptive Tactics

There may be ways to manage the extremes of There may be ways to manage the extremes of demand:demand: Discount prices during the valleys.... have a saleDiscount prices during the valleys.... have a sale Peak-load pricing during the highs .... electric Peak-load pricing during the highs .... electric

utilities, Nucorutilities, Nucor

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Master Production Scheduling (MPS)

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Objectives of MPSObjectives of MPSObjectives of MPSObjectives of MPS

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

Schedule end items (finished goods and parts shipped Schedule end items (finished goods and parts shipped as end items) to be completed promptly and when as end items) to be completed promptly and when promised to the customer.promised to the customer.

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

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The rules for schedulingThe rules for scheduling

No ChangeNo Change+/- 5%+/- 5%

ChangeChange

+/- 10%+/- 10%

ChangeChange

+/- 20%+/- 20%

ChangeChange

+/- 20%+/- 20%

ChangeChangeFrozenFrozen

FirmFirm

FullFullOpenOpen

1-21-2 weeksweeks

2-42-4weeksweeks

4-64-6weeksweeks

6+ 6+ weeksweeks

Time FencesTime FencesTime FencesTime Fences

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Time FencesTime FencesTime FencesTime Fences

The rules for scheduling:The rules for scheduling: Do not change orders in the frozen zoneDo not change orders in the frozen zone Do not exceed the agreed on percentage changes Do not exceed the agreed on percentage changes

when modifying orders in the other zoneswhen modifying orders in the other zones Try to level load as much as possibleTry to level load as much as possible Do not exceed the capacity of the system when Do not exceed the capacity of the system when

promising orders.promising orders. If an order must be pulled into level load, pull it If an order must be pulled into level load, pull it

into the earliest possible week without missing the into the earliest possible week without missing the promise.promise.

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Developing an MPSDeveloping an MPSDeveloping an MPSDeveloping an MPS

Using input informationUsing input information Customer orders (end items quantity, due dates)Customer orders (end items quantity, due dates) Forecasts (end items quantity, due dates)Forecasts (end items quantity, due dates) Inventory status (balances, planned receipts)Inventory status (balances, planned receipts) Production capacity (output rates, planned Production capacity (output rates, planned

downtime)downtime) Schedulers place orders in the earliest available open Schedulers place orders in the earliest available open

slot of the MPSslot of the MPS . . . more. . . more

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Developing an MPSDeveloping an MPSDeveloping an MPSDeveloping an MPS

Schedulers must:Schedulers must: estimate the total demand for products from all estimate the total demand for products from all

sourcessources assign orders to production slotsassign orders to production slots make delivery promises to customers, andmake delivery promises to customers, and make the detailed calculations for the MPSmake the detailed calculations for the MPS

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Example: Master Production SchedulingExample: Master Production SchedulingExample: Master Production SchedulingExample: Master Production Scheduling

Arizona Instruments produces bar code Arizona Instruments produces bar code scanners for consumers and other manufacturers on a scanners for consumers and other manufacturers on a produce-to-stock basis. The production planner is produce-to-stock basis. The production planner is developing an MPS for scanners for the next 6 weeks.developing an MPS for scanners for the next 6 weeks.

The minimum lot size is 1,500 scanners, and The minimum lot size is 1,500 scanners, and the safety stock level is 400 scanners. There are the safety stock level is 400 scanners. There are currently 1,120 scanners in inventory. The estimates currently 1,120 scanners in inventory. The estimates of demand for scanners in the next 6 weeks are shown of demand for scanners in the next 6 weeks are shown on the next slide.on the next slide.

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Demand EstimatesDemand Estimates

CUSTOMERS CUSTOMERS

BRANCH WAREHOUSES BRANCH WAREHOUSES

MARKET RESEARCH MARKET RESEARCH

PRODUCTION RESEARCHPRODUCTION RESEARCH

500500

200200

00

1010

11

00

5050

300300

10001000

00

00

500500

400400

22 33 44

200200

000000

300300500500

00101000

700700

6655

10001000

200200

WEEKWEEK

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ComputationsComputations

CUSTOMERS CUSTOMERS

BRANCH WAREHOUSES BRANCH WAREHOUSES

MARKET RESEARCH MARKET RESEARCH

PRODUCTION RESEARCHPRODUCTION RESEARCH

500500

200200

00

1010

11

00

5050

300300

10001000

00

00

500500

400400

22 33 44

200200

000000

300300500500

00101000

700700

6655

10001000

200200

WEEKWEEK

TOTAL DEMAND TOTAL DEMAND

BEGINNING INVENTORY BEGINNING INVENTORY

REQUIRED PRODUCTIONREQUIRED PRODUCTION

ENDING INVENTORYENDING INVENTORY

710710

11201120

00

410410 560560

15001500

410410

13501350

11601160

15001500

900900

560560

700700

12501250950950460460

46046011601160

150015001500150000

10101010 12001200

950950

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MPS for Bar Code ScannersMPS for Bar Code Scanners

SCANNER PRODUCTIONSCANNER PRODUCTION 00 15001500 15001500 150015001500150000

11 22 33 44 6655

WEEKWEEK

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Rough-Cut Capacity PlanningRough-Cut Capacity PlanningRough-Cut Capacity PlanningRough-Cut Capacity Planning

As orders are slotted in the MPS, the effects on the As orders are slotted in the MPS, the effects on the production work centers are checkedproduction work centers are checked

Rough cut capacity planningRough cut capacity planning identifies underloading identifies underloading or overloading of capacityor overloading of capacity

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Example: Rough-Cut Capacity PlanningExample: Rough-Cut Capacity PlanningExample: Rough-Cut Capacity PlanningExample: Rough-Cut Capacity Planning

Texprint Company makes a line of computer Texprint Company makes a line of computer printers on a produce-to-stock basis for other printers on a produce-to-stock basis for other computer manufacturers. Each printer requires an computer manufacturers. Each printer requires an average of 24 labor-hours. The plant uses a backlog average of 24 labor-hours. The plant uses a backlog of orders to allow a level-capacity aggregate plan. of orders to allow a level-capacity aggregate plan. This plan provides a weekly capacity of 5,000 labor-This plan provides a weekly capacity of 5,000 labor-hours.hours.

Texprint’s rough-draft of an MPS for its Texprint’s rough-draft of an MPS for its printers is shown on the next slide. Does enough printers is shown on the next slide. Does enough capacity exist to execute the MPS? If not, what capacity exist to execute the MPS? If not, what changes do you recommend?changes do you recommend?

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Rough-Cut Capacity AnalysisRough-Cut Capacity Analysis

PRODUCTIONPRODUCTION 100100 200200 200200 280280250250

11 22 33 44 55

WEEKWEEK

TOTALTOTAL

10301030

LOADLOAD 24002400 48004800 48004800 6720672060006000 2472024720

CAPACITYCAPACITY 50005000 50005000 50005000 5000500050005000 2500025000

UNDERUNDER or or OVEROVER LOAD LOAD 26002600 200200 200200 1720172010001000 280280

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Rough-Cut Capacity AnalysisRough-Cut Capacity Analysis The plant is underloaded in the first 3 weeks The plant is underloaded in the first 3 weeks

(primarily week 1) and it is overloaded in the last 2 (primarily week 1) and it is overloaded in the last 2 weeks of the schedule.weeks of the schedule.

Some of the production scheduled for week 4 and Some of the production scheduled for week 4 and 5 should be moved to week 1.5 should be moved to week 1.

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Demand ManagementDemand ManagementDemand ManagementDemand Management

Review customer orders and promise shipment of Review customer orders and promise shipment of orders as close to request date as possibleorders as close to request date as possible

Update MPS at least weekly.... work with Marketing Update MPS at least weekly.... work with Marketing to understand shifts in demand patternsto understand shifts in demand patterns

Produce to order..... focus on incoming customer Produce to order..... focus on incoming customer ordersorders

Produce to stock ..... focus on maintaining finished Produce to stock ..... focus on maintaining finished goods levelsgoods levels

Planning horizon must be as long as the longest lead Planning horizon must be as long as the longest lead time itemtime item

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Types of Production-PlanningTypes of Production-Planningand Control Systemsand Control Systems

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Types of Production-PlanningTypes of Production-Planningand Control Systemsand Control Systems

Pond-Draining SystemsPond-Draining Systems Push SystemsPush Systems Pull SystemsPull Systems Focusing on BottlenecksFocusing on Bottlenecks

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Pond-Draining SystemsPond-Draining SystemsPond-Draining SystemsPond-Draining Systems

Emphasis on holding inventories (reservoirs) of Emphasis on holding inventories (reservoirs) of materials to support productionmaterials to support production

Little information passes through the systemLittle information passes through the system As the level of inventory is drawn down, orders are As the level of inventory is drawn down, orders are

placed with the supplying operation to replenish placed with the supplying operation to replenish inventoryinventory

May lead to excessive inventories and is rather May lead to excessive inventories and is rather inflexible in its ability to respond to customer needsinflexible in its ability to respond to customer needs

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Push SystemsPush SystemsPush SystemsPush Systems

Use information about customers, suppliers, and Use information about customers, suppliers, and production to manage material flowsproduction to manage material flows

Flows of materials are planned and controlled by a Flows of materials are planned and controlled by a series of production schedules that state when batches series of production schedules that state when batches of each particular item should come out of each stage of each particular item should come out of each stage of productionof production

Can result in great reductions of raw-materials Can result in great reductions of raw-materials inventories and in greater worker and process inventories and in greater worker and process utilization than pond-draining systemsutilization than pond-draining systems

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Pull SystemsPull SystemsPull SystemsPull Systems

Look only at the next stage of production and Look only at the next stage of production and determine what is needed there, and produce only thatdetermine what is needed there, and produce only that

Raw materials and parts are pulled from the back of Raw materials and parts are pulled from the back of the system toward the front where they become the system toward the front where they become finished goodsfinished goods

Raw-material and in-process inventories approach Raw-material and in-process inventories approach zerozero

Successful implementation requires much preparationSuccessful implementation requires much preparation

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Focusing on BottlenecksFocusing on BottlenecksFocusing on BottlenecksFocusing on Bottlenecks

Bottleneck OperationsBottleneck Operations Impede production because they have less capacity Impede production because they have less capacity

than upstream or downstream stagesthan upstream or downstream stages Work arrives faster than it can be completedWork arrives faster than it can be completed Binding capacity constraints that control the Binding capacity constraints that control the

capacity of the systemcapacity of the system Optimized Production Technology (OPT)Optimized Production Technology (OPT) Synchronous ManufacturingSynchronous Manufacturing

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Synchronous ManufacturingSynchronous ManufacturingSynchronous ManufacturingSynchronous Manufacturing

Operations performance measured byOperations performance measured by throughput (the rate cash is generated by sales)throughput (the rate cash is generated by sales) inventory (money invested in inventory), andinventory (money invested in inventory), and operating expenses (money spent in converting operating expenses (money spent in converting

inventory into throughput)inventory into throughput) . . . more. . . more

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Synchronous ManufacturingSynchronous ManufacturingSynchronous ManufacturingSynchronous Manufacturing

System of control based on: System of control based on: drum (bottleneck establishes beat or pace for other drum (bottleneck establishes beat or pace for other

operations)operations) buffer (inventory kept before a bottleneck so it is buffer (inventory kept before a bottleneck so it is

never idle), andnever idle), and rope (information sent upstream of the bottleneck rope (information sent upstream of the bottleneck

to prevent inventory buildup and to synchronize to prevent inventory buildup and to synchronize activities)activities)

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Wrap-Up: World-Class PracticeWrap-Up: World-Class PracticeWrap-Up: World-Class PracticeWrap-Up: World-Class Practice

Push systems dominate and can be applied to almost Push systems dominate and can be applied to almost any type of productionany type of production

Pull systems are growing in use. Most often applied Pull systems are growing in use. Most often applied in repetitive manufacturingin repetitive manufacturing

Few companies focusing on bottlenecks to plan and Few companies focusing on bottlenecks to plan and control production. control production.

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End of Chapter 13End of Chapter 13

Aggregate Planning

Documents

moreq q q q q q

necessaryq q q q

subcontractingq q q

implementedq q q

servicesq q q

approachesq q q q informal

level production planq

outputsq q