Chap 012

Chapter 12 - Aggregate Operations Planning

Chapter 12Aggregate Operations Planning

Learning Objectives for Chapter 12

1. Understand what sales and operations planning is and how it coordinates manufacturing, logistics, service, and marketing plans.

2. Construct aggregate plans that employ different strategies for meeting demand.

3. Describe what yield management is and why it is an important strategy for leveling demand.

True / False Questions

1. The aggregate operations plan translates annual and quarterly business plans into broad labor and output plans for the intermediate term of 3 to 18 months. True False

2. The objective of the aggregate operations plan is to insure that the marketing and sales plans are realistic. True False

3. The aggregate operations plan differs in virtually every aspect in service organizations as contrasted with manufacturing organizations. True False

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4. The sales and marketing plans are typically developed separately from the aggregate operations plan as a way of cross-checking results to insure the integrity of assumptions about the future. True False

5. Aggregate sales and operations planning occurs in a company about every 3 to 18 months. True False

6. Aggregation in sales and operations planning is by groups of customers on the supply side and by product families on the demand side of the firm's supply chain. True False

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7. Accurate medium-range planning increases the likelihood of operating within the limits of a budget. True False

8. The main purpose of the aggregate production plan is to specify the optimal combination of workforce level and inventory on hand. True False

9. The International Aggregate Planning Society (IAPS) has developed aggregate operations planning guidelines which are followed by a majority of manufacturing firms. True False

10. The sales and operations planning process consists of a series of meetings. True False

11. The sales and operations planning process is made up of a variety of analytical techniques which interact to produce short and intermediate term goals. True False

12. Subcontracting is viewed as a risky strategy because the firm may loose control of product design and pricing. True False

13. The aggregate operations plan should not be updated but should be followed precisely until the planning horizon has passed. True False

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14. Fixed and variable costs incurred in producing a given product type in a given time period are relevant aggregate operations planning costs. True False

15. Backordering costs incurred in producing a given product type in a given time period are relevant aggregate operations planning costs. True False

16. Foregone profit margins are considered as relevant aggregate operations planning costs. True False

17. Costs incurred in hiring, training and laying off personnel are considered relevant aggregate operations planning costs. True False

18. The aggregate operations plan is developed from the master schedule and the strategic capacity plan. True False

19. The widespread adoption of computing technology has led to the virtual abandonment of simple cut-and-try charting and graphical methods to develop aggregate operations plans. True False

20. The increasing complexity of modern operations management has made simple cut-and-try charting and graphical methods formerly used to develop aggregate operations plans impractical and obsolete. True False

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21. In a services organization strategic capacity planning follows process planning. True False

22. In a logistics organization vehicle dispatching immediately precedes vehicle loading. True False

23. Yield management is the process of allocating the right type of capacity to the right type of customer at the right prices at the right time to maximize revenue or yield. True False

24. Order scheduling is the step in the aggregate operations planning process that immediately follows material requirements planning. True False

25. The master production schedule is a crucial input into the aggregate operations plan. True False

26. In services, once the aggregate staffing level is determined, the focus is on short-term workforce and customer scheduling. True False

27. The aggregate operations planning variable "production rate" refers to the number of units completed per unit of time. True False

28. The aggregate operations planning variable "workforce level" refers to the number of workers needed to accomplish the planned production. True False

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29. The aggregate operations planning variable "inventory on hand" refers to the balance of unused inventory carried over from the previous time period. True False

30. Because a level production strategy does not require adjustment in the short-to-medium term, aggregate sales and operations planning is not required. True False

31. The essence of yield management is the ability to manage supply. True False

32. One of the conditions that make yield management effective is when inventory is easily stored and held for a time when demand is stronger. True False

33. Yield management is an important tool that can be used to shape demand patterns. True False

34. Firms facing cyclical demand fluctuations would be wise to introduce complementary products whose cycles are the same as their current products. True False

35. Firms that match the production rate to the order rate by hiring and laying off employees as the order rate varies are following what is known as the chase strategy. True False

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Multiple Choice Questions

36. In an overview of the major operations planning activities in a typical organization, which of the following activities precedes aggregate sales and operations planning? A. Process planningB. Workforce schedulingC. Master production schedulingD. Materials requirements planningE. Order scheduling

37. In an overview of the major operations planning activities in a typical logistics organization, which of the following activities follows aggregate sales and operations planning? A. Process planningB. Workforce schedulingC. Vehicle loadingD. Materials requirements planningE. Order scheduling

38. In an overview of the major operations planning activities in a typical service organization, which of the following activities follows aggregate sales and operations planning? A. Process planningB. Workforce schedulingC. Master schedulingD. Materials requirements planningE. Order scheduling

39. In an overview of the major operations planning activities in a typical logistics organization, which of the following activities immediately follows aggregate sales and operations planning? A. Process planningB. Strategic capacity planningC. Vehicle dispatchingD. Vehicle capacity planningE. Warehouse receipt planning

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40. The main purpose of aggregate operations planning is to specify the optimal combination of which of the following? A. Workforce levels and inventory on handB. Inventory on hand and financing costs for that inventoryC. The strategic plan and the products available for saleD. The workforce level and the degree of automationE. Operational costs and the cash flow to support operations

41. In conducting aggregate operations planning there are a number of required inputs. Which of the following are inputs considered external to the firm? A. Inventory levels and market demandB. Raw material availability and competitor's behaviorC. Current workforce and economic conditionsD. Current physical capacity and market demandE. Subcontractor capacity and inventory levels

42. In conducting aggregate operations planning there are a number of required inputs. Which of the following are inputs considered external to the firm? A. Competitors' behavior and economic conditionsB. Market demand and inventory levelsC. Subcontractor capacity and current workforceD. Economic conditions and current physical capacityE. Raw material availability and inventory levels

43. In conducting aggregate operations planning there are a number of required inputs. Which of the following are considered inputs internal to the firm? A. Inventory levels and economic conditionsB. Market demand and subcontractor capacityC. Current physical capacity and current workforceD. Competitor behavior and current workforceE. Current physical capacity and raw material availability

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44. Which of the following is a production planning strategy presented in the textbook? A. LevelB. StrategicC. BalancedD. SynchronousE. Optimal

45. Which of the following is considered a "pure" production planning strategy? A. Variable workforce, stable work hoursB. Lag demandC. Level playing fieldD. Stable workforce, variable work hoursE. Product warehouse

46. Matching the production rate to the order rate by hiring and laying off employees as the order rate varies is which of the following pure production planning strategies? A. Stable workforce, variable work hoursB. ChaseC. LevelD. Meeting demandE. Minimizing inventory

47. Maintaining a stable workforce working at a constant output rate while shortages and surpluses are absorbed by fluctuating inventory levels, order backlogs and allowing lost sales is which of the following production planning strategies? A. Stable workforce, variable work hoursB. ChaseC. LevelD. Full employmentE. Skill maintenance

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48. Which of the following costs are relevant to aggregate operations planning? A. Sunk costsB. Transaction costsC. Backordering costsD. Legal costsE. Fixed costs

49. Using the cut-and-try method for aggregate operations planning we can determine the production requirement in units of product. If the beginning inventory is 100 units, the demand forecast is 1,200, and the necessary safety stock is 20% of the demand forecast, which of the following is the production requirement? A. 1,200B. 1,300C. 1,340D. 1,500E. 1,540

50. Using the cut-and-try method for aggregate operations planning we can determine the production requirement in units of product. If the beginning inventory is 500 units, the demand forecast is 1,000, and the necessary safety stock is 10% of the demand forecast, which of the following is the production requirement? A. 1,000B. 600C. 550D. 450E. 100

51. An advantage of the level strategy for aggregate operations planning is which of the following? A. Total costs through the entire system are minimized.B. There is a smooth flow throughout the production systemC. There is variety for the workers through the mixing of models producedD. The risk of backorders is minimizedE. Customer service is improved

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52. An advantage of the level strategy for aggregate operations planning is which of the following? A. Purchased items from vendors can be delivered when and where neededB. High level of scheduling allows for workers to have lots of overtimeC. System can better accommodate unexpected large ordersD. Financial requirements are minimized through lower finished goods inventoryE. It is easier to apply linear programming or simulation

53. Which of the following methods requires generating several alternative aggregate plans? A. Trial and errorB. Production smoothingC. Graphing and chartingD. Aggregate plan simulationE. Cut and try

54. From an operational perspective yield management is most effective under which of the following circumstances? A. Demand cannot be segmented by customerB. Inventory is perishableC. Fixed costs are low and variable costs are highD. The customer is a "captive" of the systemE. The firm doing yield management is very profitable

55. From an operational perspective yield management is least effective under which of the following circumstances? A. Demand can be segmented by customerB. The product can be sold in advanceC. Demand is highly variableD. Fixed costs are high and variable costs are lowE. Demand is stable and close to capacity

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56. From an operational perspective yield management is least effective under which of the following circumstances? A. Demand can be segmented by customerB. The product can be sold in advanceC. The product can be kept to be sold when demand is strongerD. Fixed costs are high and variable costs are lowE. Demand is highly variable

Fill in the Blank Questions

57. What are the four main categories of cost relevant to aggregate operations planning?1. ____________________________2. ____________________________3. ____________________________4. ____________________________ ________________________________________

58. Using the cut-and-try method for aggregate operations planning we can determine the production requirement in units of product. If the beginning inventory is 400 units, the demand forecast is 900 units, and the required safety stock is 10% of the demand forecast, what is the production requirement? ___________ ________________________________________

59. Using the cut-and-try method for aggregate operations planning we can determine the production requirement in units of product. If beginning inventory is 4,000 units, the demand forecast is 2,900 units, and the required safety stock is 10% of the demand forecast, what is the production requirement? ____________ ________________________________________

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60. What are the five conditions named in the text that support yield management from an operational perspective?1. ____________________________2. ____________________________3. ____________________________4. ____________________________5. ____________________________ ________________________________________

61. What are four advantages of level production that make it the backbone of JIT production?1. ____________________________2. ____________________________3. ____________________________4. ____________________________ ________________________________________

Essay Questions

62. What are the three basic production planning strategies?1. ____________________________2. ____________________________3. ____________________________

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63. Explain how yield management works and why some companies are able to use it to manage demand patterns?

64. Describe the aggregate sales and operations planning process.

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Chapter 12 Aggregate Operations Planning Answer Key

True / False Questions

1. The aggregate operations plan translates annual and quarterly business plans into broad labor and output plans for the intermediate term of 3 to 18 months. TRUE

AACSB: AnalyticDifficulty: EasyLearning Objective: 1Taxonomy: KnowledgeTopic: What Is Sales and Operations Planning?

2. The objective of the aggregate operations plan is to insure that the marketing and sales plans are realistic. FALSE


3. The aggregate operations plan differs in virtually every aspect in service organizations as contrasted with manufacturing organizations. FALSE

AACSB: AnalyticDifficulty: EasyLearning Objective: 2Taxonomy: KnowledgeTopic: The Aggregate Operations Plan

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4. The sales and marketing plans are typically developed separately from the aggregate operations plan as a way of cross-checking results to insure the integrity of assumptions about the future. FALSE

AACSB: AnalyticDifficulty: EasyLearning Objective: 1Taxonomy: UnderstandingTopic: What Is Sales and Operations Planning?

5. Aggregate sales and operations planning occurs in a company about every 3 to 18 months. FALSE


6. Aggregation in sales and operations planning is by groups of customers on the supply side and by product families on the demand side of the firm's supply chain. FALSE

AACSB: AnalyticDifficulty: MediumLearning Objective: 1Taxonomy: UnderstandingTopic: What Is Sales and Operations Planning?

7. Accurate medium-range planning increases the likelihood of operating within the limits of a budget. TRUE


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8. The main purpose of the aggregate production plan is to specify the optimal combination of workforce level and inventory on hand. TRUE


9. The International Aggregate Planning Society (IAPS) has developed aggregate operations planning guidelines which are followed by a majority of manufacturing firms. FALSE


10. The sales and operations planning process consists of a series of meetings. TRUE

AACSB: AnalyticDifficulty: MediumLearning Objective: 1Taxonomy: KnowledgeTopic: What Is Sales and Operations Planning?

11. The sales and operations planning process is made up of a variety of analytical techniques which interact to produce short and intermediate term goals. FALSE


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12. Subcontracting is viewed as a risky strategy because the firm may loose control of product design and pricing. FALSE

AACSB: AnalyticDifficulty: EasyLearning Objective: 2Taxonomy: UnderstandingTopic: The Aggregate Operations Plan

13. The aggregate operations plan should not be updated but should be followed precisely until the planning horizon has passed. FALSE


14. Fixed and variable costs incurred in producing a given product type in a given time period are relevant aggregate operations planning costs. TRUE


15. Backordering costs incurred in producing a given product type in a given time period are relevant aggregate operations planning costs. TRUE


12-18


16. Foregone profit margins are considered as relevant aggregate operations planning costs. FALSE

AACSB: AnalyticDifficulty: MediumLearning Objective: 2Taxonomy: UnderstandingTopic: The Aggregate Operations Plan

17. Costs incurred in hiring, training and laying off personnel are considered relevant aggregate operations planning costs. TRUE


18. The aggregate operations plan is developed from the master schedule and the strategic capacity plan. FALSE


19. The widespread adoption of computing technology has led to the virtual abandonment of simple cut-and-try charting and graphical methods to develop aggregate operations plans. FALSE


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20. The increasing complexity of modern operations management has made simple cut-and-try charting and graphical methods formerly used to develop aggregate operations plans impractical and obsolete. FALSE


21. In a services organization strategic capacity planning follows process planning. TRUE


22. In a logistics organization vehicle dispatching immediately precedes vehicle loading. FALSE


23. Yield management is the process of allocating the right type of capacity to the right type of customer at the right prices at the right time to maximize revenue or yield. TRUE

AACSB: AnalyticDifficulty: EasyLearning Objective: 3Taxonomy: UnderstandingTopic: Yield Management

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24. Order scheduling is the step in the aggregate operations planning process that immediately follows material requirements planning. TRUE


25. The master production schedule is a crucial input into the aggregate operations plan. FALSE


26. In services, once the aggregate staffing level is determined, the focus is on short-term workforce and customer scheduling. TRUE


27. The aggregate operations planning variable "production rate" refers to the number of units completed per unit of time. TRUE


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28. The aggregate operations planning variable "workforce level" refers to the number of workers needed to accomplish the planned production. TRUE


29. The aggregate operations planning variable "inventory on hand" refers to the balance of unused inventory carried over from the previous time period. TRUE


30. Because a level production strategy does not require adjustment in the short-to-medium term, aggregate sales and operations planning is not required. FALSE


31. The essence of yield management is the ability to manage supply. FALSE

AACSB: AnalyticDifficulty: EasyLearning Objective: 3Taxonomy: KnowledgeTopic: Yield Management

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32. One of the conditions that make yield management effective is when inventory is easily stored and held for a time when demand is stronger. FALSE

AACSB: AnalyticDifficulty: MediumLearning Objective: 3Taxonomy: UnderstandingTopic: Yield Management

33. Yield management is an important tool that can be used to shape demand patterns. TRUE

AACSB: AnalyticDifficulty: EasyLearning Objective: 3Taxonomy: UnderstandingTopic: Yield Management

34. Firms facing cyclical demand fluctuations would be wise to introduce complementary products whose cycles are the same as their current products. FALSE


35. Firms that match the production rate to the order rate by hiring and laying off employees as the order rate varies are following what is known as the chase strategy. TRUE


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Multiple Choice Questions

36. In an overview of the major operations planning activities in a typical organization, which of the following activities precedes aggregate sales and operations planning? A. Process planningB. Workforce schedulingC. Master production schedulingD. Materials requirements planningE. Order scheduling


37. In an overview of the major operations planning activities in a typical logistics organization, which of the following activities follows aggregate sales and operations planning? A. Process planningB. Workforce schedulingC. Vehicle loadingD. Materials requirements planningE. Order scheduling


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38. In an overview of the major operations planning activities in a typical service organization, which of the following activities follows aggregate sales and operations planning? A. Process planningB. Workforce schedulingC. Master schedulingD. Materials requirements planningE. Order scheduling


39. In an overview of the major operations planning activities in a typical logistics organization, which of the following activities immediately follows aggregate sales and operations planning? A. Process planningB. Strategic capacity planningC. Vehicle dispatchingD. Vehicle capacity planningE. Warehouse receipt planning


12-25


40. The main purpose of aggregate operations planning is to specify the optimal combination of which of the following? A. Workforce levels and inventory on handB. Inventory on hand and financing costs for that inventoryC. The strategic plan and the products available for saleD. The workforce level and the degree of automationE. Operational costs and the cash flow to support operations


41. In conducting aggregate operations planning there are a number of required inputs. Which of the following are inputs considered external to the firm? A. Inventory levels and market demandB. Raw material availability and competitor's behaviorC. Current workforce and economic conditionsD. Current physical capacity and market demandE. Subcontractor capacity and inventory levels

AACSB: AnalyticDifficulty: MediumLearning Objective: 1Taxonomy: UnderstandingTopic: What Is Sales and Operations Planning?

42. In conducting aggregate operations planning there are a number of required inputs. Which of the following are inputs considered external to the firm? A. Competitors' behavior and economic conditionsB. Market demand and inventory levelsC. Subcontractor capacity and current workforceD. Economic conditions and current physical capacityE. Raw material availability and inventory levels


12-26


43. In conducting aggregate operations planning there are a number of required inputs. Which of the following are considered inputs internal to the firm? A. Inventory levels and economic conditionsB. Market demand and subcontractor capacityC. Current physical capacity and current workforceD. Competitor behavior and current workforceE. Current physical capacity and raw material availability


44. Which of the following is a production planning strategy presented in the textbook? A. LevelB. StrategicC. BalancedD. SynchronousE. Optimal


45. Which of the following is considered a "pure" production planning strategy? A. Variable workforce, stable work hoursB. Lag demandC. Level playing fieldD. Stable workforce, variable work hoursE. Product warehouse


12-27


46. Matching the production rate to the order rate by hiring and laying off employees as the order rate varies is which of the following pure production planning strategies? A. Stable workforce, variable work hoursB. ChaseC. LevelD. Meeting demandE. Minimizing inventory


47. Maintaining a stable workforce working at a constant output rate while shortages and surpluses are absorbed by fluctuating inventory levels, order backlogs and allowing lost sales is which of the following production planning strategies? A. Stable workforce, variable work hoursB. ChaseC. LevelD. Full employmentE. Skill maintenance


48. Which of the following costs are relevant to aggregate operations planning? A. Sunk costsB. Transaction costsC. Backordering costsD. Legal costsE. Fixed costs


12-28


49. Using the cut-and-try method for aggregate operations planning we can determine the production requirement in units of product. If the beginning inventory is 100 units, the demand forecast is 1,200, and the necessary safety stock is 20% of the demand forecast, which of the following is the production requirement? A. 1,200B. 1,300C. 1,340D. 1,500E. 1,540

AACSB: AnalyticDifficulty: MediumLearning Objective: 2Taxonomy: AnalysisTopic: The Aggregate Operations Plan

50. Using the cut-and-try method for aggregate operations planning we can determine the production requirement in units of product. If the beginning inventory is 500 units, the demand forecast is 1,000, and the necessary safety stock is 10% of the demand forecast, which of the following is the production requirement? A. 1,000B. 600C. 550D. 450E. 100


12-29


51. An advantage of the level strategy for aggregate operations planning is which of the following? A. Total costs through the entire system are minimized.B. There is a smooth flow throughout the production systemC. There is variety for the workers through the mixing of models producedD. The risk of backorders is minimizedE. Customer service is improved


52. An advantage of the level strategy for aggregate operations planning is which of the following? A. Purchased items from vendors can be delivered when and where neededB. High level of scheduling allows for workers to have lots of overtimeC. System can better accommodate unexpected large ordersD. Financial requirements are minimized through lower finished goods inventoryE. It is easier to apply linear programming or simulation


53. Which of the following methods requires generating several alternative aggregate plans? A. Trial and errorB. Production smoothingC. Graphing and chartingD. Aggregate plan simulationE. Cut and try


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54. From an operational perspective yield management is most effective under which of the following circumstances? A. Demand cannot be segmented by customerB. Inventory is perishableC. Fixed costs are low and variable costs are highD. The customer is a "captive" of the systemE. The firm doing yield management is very profitable


55. From an operational perspective yield management is least effective under which of the following circumstances? A. Demand can be segmented by customerB. The product can be sold in advanceC. Demand is highly variableD. Fixed costs are high and variable costs are lowE. Demand is stable and close to capacity


56. From an operational perspective yield management is least effective under which of the following circumstances? A. Demand can be segmented by customerB. The product can be sold in advanceC. The product can be kept to be sold when demand is strongerD. Fixed costs are high and variable costs are lowE. Demand is highly variable


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Fill in the Blank Questions

57. What are the four main categories of cost relevant to aggregate operations planning?1. ____________________________2. ____________________________3. ____________________________4. ____________________________ (1.) Basic production costs; (2.) Costs associated with changes in the production rate; (3.) Inventory holding costs; (4.) Backordering costs.

AACSB: AnalyticDifficulty: MediumLearning Objective: 2Taxonomy: KnowledgeTopic: The Aggregate Operations Plan

58. Using the cut-and-try method for aggregate operations planning we can determine the production requirement in units of product. If the beginning inventory is 400 units, the demand forecast is 900 units, and the required safety stock is 10% of the demand forecast, what is the production requirement? ___________ 590

AACSB: AnalyticDifficulty: EasyLearning Objective: 2Taxonomy: AnalysisTopic: The Aggregate Operations Plan

59. Using the cut-and-try method for aggregate operations planning we can determine the production requirement in units of product. If beginning inventory is 4,000 units, the demand forecast is 2,900 units, and the required safety stock is 10% of the demand forecast, what is the production requirement? ____________ 0 (zero)

AACSB: AnalyticDifficulty: EasyLearning Objective: 2Taxonomy: AnalysisTopic: The Aggregate Operations Plan

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60. What are the five conditions named in the text that support yield management from an operational perspective?1. ____________________________2. ____________________________3. ____________________________4. ____________________________5. ____________________________ (1.) Demand can be segmented by customer; (2.) Fixed costs are high and variable costs are low; (3.) Inventory is perishable; (4.) Product can be sold in advance; (5.) Demand is highly variable.

AACSB: AnalyticDifficulty: HardLearning Objective: 3Taxonomy: KnowledgeTopic: Yield Management

61. What are four advantages of level production that make it the backbone of JIT production?1. ____________________________2. ____________________________3. ____________________________4. ____________________________ (1.) The entire system can be planned to minimize inventory and work-in-process; (2.) Product modifications are up-to-date because of the low level of work-in-process; (3.) There is a smooth flow throughout the production system; (4.) Purchased items can be delivered by vendors when needed.

AACSB: AnalyticDifficulty: MediumLearning Objective: 2Taxonomy: KnowledgeTopic: The Aggregate Operations Plan

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Essay Questions

62. What are the three basic production planning strategies?1. ____________________________2. ____________________________3. ____________________________

(1.) Chase; (2.) Stable workforce—variable work hours; (3.) Level.


63. Explain how yield management works and why some companies are able to use it to manage demand patterns?

Yield management is discussed in the text on pages 372-374. It is, in essence, a method used by service firms (typically) that have limited and inflexible capacity to match short-term demand to that capacity. The technique capitalizes on short-term supply/demand relationships involving price with the service firm manipulating price either upwards or downwards to just fill their available capacity. Lower matinee movie prices, discount air-fares, lowered weekend hotel rates and higher weekend golf course green fees are examples of yield management. A successful answer to this question will also indicate that firms that are successful at using yield management have excellent forecasting skills and a well trained staff who are skilled at dealing with customers who may be disappointed to find an activity which they have booked turns out to have no room for them.

AACSB: AnalyticDifficulty: HardLearning Objective: 3Taxonomy: SynthesisTopic: Yield Management

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64. Describe the aggregate sales and operations planning process.

In the text, this is addressed on page 356. The aggregate sales and operations planning process is essentially a series of meetings designed to insure that all facets of the business are "on the same page." Although sophisticated analysis both precedes and flows from the process, it is the open and honest communications that takes place in these meetings that truly adds value to the process. The process synchronizes the needs of sales and operations over a three to eighteen month horizon, seeking to develop a collaborative relationship. In addition to sales and operations executives, senior management is intimately involved in the process.


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Chap 012

Documents

relevant aggregate operations

aggregate sales

aggregate plans

true false questions

aggregate production

planning horizon

sales plans

accurate mediumrange