Chap 14 Aggregate Planning

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McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

Aggregate Planning

Aggregate PlanningChapter 14

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McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

Aggregate Planning

Planning Horizon

Aggregate planning: Intermediate-range capacity planning, usually covering 2 to 12 months.

Shortrange

Intermediate range

Long range

Now 2 months 1 Year

14-3

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

Aggregate Planning

• Short-range plans (Detailed plans)– Machine loading– Job assignments

• Intermediate plans (General levels)– Employment– Output

• Long-range plans– Long term capacity– Location / layout

Overview of Planning Levels

14-4

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

Aggregate Planning

Planning Sequence

Corporatestrategies

and policies

Economic,competitive,and political conditions

Aggregatedemand

forecasts

Business Plan

Production plan

Master schedule

Establishes productionand capacity strategiesEstablishes productionand capacity strategies

Establishesproduction capacity

Establishesproduction capacity

Establishes schedulesfor specific products

Establishes schedulesfor specific products

14-5

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

Aggregate Planning

• Resources– Workforce– Facilities

• Demand forecast

• Policy statements– Subcontracting– Overtime– Inventory levels– Back orders

• Costs– Inventory carrying– Back orders– Hiring/firing– Overtime– Inventory

changes– subcontracting

Aggregate Planning Inputs

14-6

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

Aggregate Planning

• Total cost of a plan

• Projected levels of inventory– Inventory– Output– Employment– Subcontracting– Backordering

Aggregate Planning Outputs

14-7

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

Aggregate Planning

• Pricing

• Promotion

• Back orders

• New demand

Demand Options

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McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

Aggregate Planning

• Hire and layoff workers

• Overtime/slack time

• Part-time workers

• Inventories

• Subcontracting

Capacity Options

14-9

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

Aggregate Planning

Aggregate Planning Strategies

• Maintain a level workforce

• Maintain a steady output rate

• Match demand period by period

• Use a combination of decision variables

14-10

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

Aggregate Planning

Basic Strategies

• Level capacity: – Maintaining a steady rate of regular-time

output while meeting variations in demand by a combination of options.

• Chase demand: – Matching capacity to demand; the planned

output for a period is the expected demand for that period.

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McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

Aggregate Planning

• Determine demand for each period

• Determine capacities for each period

• Identify policies that are pertinent

• Determine units costs

• Develop alternative plans and costs

• Select the best plan that satisfies objectives

Techniques for Aggregate Planning

14-12

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

Aggregate Planning

Cumulative Graph

1 2 3 4 5 6 7 8 9 10

Cumulativeproduction

CumulativedemandC

um

ula

tive

ou

tpu

t/d

eman

d

Figure 14-3

14-13

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

Aggregate Planning

Average Inventory

Averageinventory

Beginning Inventory + Ending Inventory2

=

14-14

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

Aggregate Planning

Mathematical Techniques

Linear programming: Methods for obtaining optimal solutions to problems involving allocation of scarce resources in terms of cost minimization.

Linear decision rule: Optimizing technique that seeks to minimize combined costs, using a set of cost-approximating functions to obtain a single quadratic equation.

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McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

Aggregate Planning

Summary of Planning Techniques

Technique Solution Characteristics

Graphical/charting

Trial anderror

Intuitively appealing, easy tounderstand; solution notnecessarily optimal.

Linearprogramming

Optimizing Computerized; linear assumptionsnot always valid.

Lineardecision rule

Optimizing Complex, requires considerableeffort to obtain pertinent costinformation and to constructmodel; cost assumptions notalways valid.

Simulation Trial anderror

Computerized models can beexamined under a variety ofconditions.

14-16

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

Aggregate Planning

• Services occur when they are rendered

• Demand for service can be difficult to predict

• Capacity availability can be difficult to predict

• Labor flexibility can be an advantage in services

Aggregate Planning in Services

14-17

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

Aggregate Planning

• Master schedule: The result of disaggregating an aggregate plan; shows quantity and timing of specific end items for a scheduled horizon.

• Rough-cut capacity planning: Approximate balancing of capacity and demand to test the feasibility of a master schedule.

Disaggregating

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McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

Aggregate Planning

Master Scheduling Process

MasterScheduling

Beginning inventory

Forecast

Customer orders

Inputs Outputs

Projected inventory

Master production schedule

Uncommitted inventory

Figure 14-5

14-19

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

Aggregate Planning

Projected On-hand Inventory

64 1 2 3 4 5 6 7 8Forecast 30 30 30 30 40 40 40 40

Customer Orders (committed) 33 20 10 4 2

Projected on-hand inventory 31 1 -29

JUNE JULY

Beginning Inventory

Customer orders are larger than forecast in week 1

Forecast is larger than Customer orders in week 2

Forecast is larger than Customer orders in week 3

Figure 14-8

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McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

Aggregate Planning

Time Fences in MPS

Period

1 2 3 4 5 6 7 8 9 10 11 12

frozen

firm full open

Figure 14-12

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McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

Aggregate Planning

Solved Problems: Problem 1