Aggregate planning

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Aggregate planning

Rajendran Ananda Krishnan


Aggregate planning

Aggregate planning involves planning the best quantity to produce in the intermediate-range horizon (3 months to one year) and planning the lowest cost method of providing the adjustable capacity to accommodate the production requirements.

For Example

At the end of the aggregate production planning exercise , a garments manufacturer may arrive at the following planProduce at the rate of 9000 meters of cloth everyday during the months of January to march

Increase it to 11000 meters during April to august and change the production rate 10,000 meters during September to December Carry 10% of monthly production as inventory during the first nine months of productionWork on a one-shift basis throughout the year with 20% overtime during July to October


Model Type(bicycle)

Machine Hrs Required

Monthly Demand

Basic 30 1000

Deluxe 60 500

Sports 90 250

Aggregate units for production planningSl.No Product Aggregate unit of Capacity1 Phenyl Acetic acid Metric tonnes2 Data entry system Numbers3 Mini Computer Value in Rs4 Printed circuit board Square meters5 Alloy iron casing Metric tonnes6 Cement Metric tonnes


Inputs to and Outputs from Aggregate Production Planning


Necessary Demand fluctuation

Ex- Demands for garments in India-high (aug-sept) –festive season Capacity fluctuations

Capacity available- 10% lower in the month of FebDifficulty level in altering production rates

Ex- manufacturing Diesel gen sets at the rate of 4000- 5000 Benefits of multi-period planning

Supply and demand not match exactly on a period by period basis in an organization


A framework for aggregate production planning

Alternatives for modifying supply

Alternatives for modifying demand

Targeted demand to be fulfilled

Arriving at effective period by period demand to be

met

Actual period-by-period supply schedules

Arriving at period-by-period supply schedules

Forecasting


Alternatives for managing demand

1. Reservations of capacity

Shifting the demand from one period to another

Ex- Multi specialty health care unit-appointment system

Electronic equipment

2. Influencing demand

Influence the demand during a particular period through some mechanisms and induce the customers to voluntarily shift the demand to other periods when there is a low demand

Differential tariffs- telecommunication co’s

Special off-season discounts

Videocon and BPL – Wait-buy-save scheme


Alternatives for managing Supply

Modifying supply can be done in one of the following ways

1. Inventory based alternatives

Ex- Arvind Mills- forecast demand for denim

April-june-35000 mts/mnt, july-sept- 55000, Avg production capacity-45000

Fast food restaurant

Back ordering- is a method of pushing an order to future period on account of insufficient inventory or capacity to supply during the current period

Stock out – inability to supply

Ex - watch manufacturing company

October actual demand- 40000, capacity- 30,000 , on hand inventory- 5000.


• Capacity Adjustment Alternatives

Two factors affect capacity in any organization The number of working hours The number of people employed Hiring/layoff workers Varying Shifts Varying working hours- OT • 3. Capacity augmented alternatives Subcontracting- ITI –PCB boards Rescheduling maintenance New capacity


Strategies for aggregate planning

APP Strategy

APP alternatives applicable

Level Strategy

Inventory based alternativesA. Build inventoryB. Back order

Chase Strategy

Capacity augmentation alternatives a. Over time/ under timeb. Vary no. of shiftsc. Hire/layoff workers

Capacity augmentation alternativesSubcontract/ outsourceAdd a new capacity


Master Production SchedulingMPS sets the quantity of each end item to be completed in each

time period ( week /month/quarter) of the short-range planning horizon

Objectives of Master Production Scheduling1. To schedule end items to be completed promptly and when

promised to customers.2. To avoid overloading or under loading the production

facility so that production capacity is efficiently utilized and low production costs result.

Functions of MPS:• Translating aggregate plans• Evaluating alternative master schedules• Generating material and capacity requirements• Facilitating information processing• Maintaining priorities• Utilizing the capacity effectively


Master Production Schedule - Flow Chart


Material Requirements PlanningMaterial Requirements Planning is a computerized information system

that aids the planning of materials in manufacturing organizations.

MRP is a computer based system in which the given MPS is exploded in to the required amounts of raw materials, parts and sub assemblies ,needed to produce the end items in each time period (week or month) of the planning horizon

Objectives of MRP1. To improve customer service by meeting delivery schedules

promised and shortening delivery lead times.2. To reduce inventory costs by reducing inventory levels.3. To improve plant operating efficiency by better use of productive

resources. Three main purposes of a basic MRP system are to:

• Control inventory levels• Assign operating priorities• Assign capacity to load production systems.


Operation of MRP System


Bills of material or product structure file

• This file provides the information regarding all the materials, parts and sub-assemblies that go in to the end of the product. Is having series of levels each of which represents a stage in the manufacture of the end product

• The product structure graphically depicts the dependency relationships among various items that make up the end product


Level

Connecting Table 1

Telephone

Base Unit 1

B.Cover plate 1

Speaker 1

Panel Board 1

Operating Unit 1

Screw 4

Screw 4

Control Panel 1

Button Assy 1

Dial 3Screw 12Button 12 Screw 3

Connecting jack 2 Hand Set 1

Microphone

1

H.Cover plate 2

Level-0

L-1

L-2

L-3

L-4


Inventory status file• The inventory status file gives the complete and up-tp-date

information on the on-hand quantities, gross requirements, scheduled receipts and planned order releases for the item. It also includes other information such as lot sizes, lead times, safety stock levels and scrap allowances etc…

Net requirement for a period =

Gross requirement for the period – Scheduled receipt for the period + on hand inventory at the end of the period


MRP -Outputs• Primary

1. Planned orders- A schedule indicating the amount and timing of future orders

2. Order Release- authorizing the execution of planned orders

3. Changes- to planned orders , revision of due dates, order quantities, cancellation of orders.

Secondary Performance control reports- evaluation of system operations Planning Reports- data useful for assessing future MRP Exception reports- any major discrepancies encountered , late

and over due orders, excessive scraps


Capacity Requirement Planning

• It is a technique for determining what labor /personnel equipment capacities are needed to meet the production objectives symbolized in the master production schedule and MRP

• The process of determining the short range capacity requirements


Capacity Requirement Planning


CRP

CRP Inputs Planned orders and Released orders from the MRP System Loading information from the work centre status file Routing information from the shop routing file Changes with modify capacity, give alternative routings or

alterd planned orders

CRP Outputs• Rescheduling information which call for capacity

modifications or revisions of MPS• Verification of planned orders for MRP system • Load Reports


• Automobile factory- no of vehicles• Steel mill- tonnes of steel

Airlines- no of seatsHospitals- no of bedsUniversity- no of students


Hierarchical Approach ton planning

Business Plan

Marketing Plan Financil plan

Production plan ( Capacity)

CRP

MPS

MRP

Shop floor Control

Detail Scheduling


Capacity Planning

• Production capacity is defined as the maximum production rate of a facility or a plant

Measurement of Capacity

Capacity of a plant can be expressed as the rate of output, units per day or per week or per month, tonnes per month, gallons per hour, labor hour per day

Capacity may be measured in terms of inputs or output of the conversion process


• Capacity Decisions• Major considerations in capacity decisions are

a. What size of plant? How much capacity to install?b. When capacity is needed? When to phase-in capacity or

phase-out capacity?c. At what cost? How to budget for the cost?

• Factors Affecting Determination of Plant Capacity1. Market demand for a product/service.2. The amount of capital that can be invested.3. Degree of automation desired.4. Level of integration (i.e., vertical integration).5. Type of technology selected.6. Flexibility for capacity addition


Capacity planning involves activities such as:a. Assessing existing capacityb. Forecasting future capacity needsc. Identifying alternative ways to modify capacityd. Evaluating financial, economical and technological capacity

alternativese. Selecting a capacity alternative most suited to achieve the

strategic mission of the firm. Capacity planning involves capacity decisions that must merge consumer demands with human, material and financial resources of the organization.


Types of capacity• 1. Fixed capacity• Adjustable Capacity• Design Capacity• System Capacity• Potential Capacity• Immediate capacity• Effective Capacity• Normal Capacity• Actual Capacity

Aggregate planning

Technology

period demand

production requirements

avg production capacity

capacity requirements

production planningsl

monthly production

capacity effectivelyhttps

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