Logistics Chap 06 Planning

*Lecturers: Ho Trung Thao ([email protected])

Chapter 6Planning Resources*

AIMS OF THE LESSONAt the end of the lesson, you will have acquired sufficient knowledge to:DISCUSS the role of planning in logisticsMEASURE the capacity of a supply chainUSE a standard approach to capacity planningDISCUSS some practical difficulties with capacity planningSEE how to design medium-term tactical plansEXPAND the tactical plans into short-term schedules

OUTLINETypes of planningCapacity planningDefinitionBottle necksMatching capacity and demandAdjusting capacityProblem with capacity planningShort-term adjustments to capacityChanging capacity over timeTactical planningAggregate planningGenerating alternative plansPlanning cyclesShort-term schedulesDefinitionApproach to schedulingCase study Primal AutopartsProject Network planningDiscussion questions

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TYPES OF PLANNING (1) Why do we have to make plan? All activities have to be planned i.e. design timetables to show when they will be done. Delivery plans, for example, might show the planned schedules for deliveries over the next month. No plan, organization can only work from hour-to-hour, without any continuity, and in constant danger of meeting unexpected circumstances that it cannot cope with.

Long-range plansLong term capacityLocation / layoutIntermediate plans (General levels)EmploymentOutputShort-range plans (Detailed plans)Machine loadingJob assignments

TYPES OF PLANNING (2)

Capacity plans, which make sure there is enough capacity to meet long-term demand.

Aggregate plans, which give summaries of the work done in related activities, typically by month at each location.

Master schedules, which show a detailed timetable for all activities, typically by week.

Short-term schedules, which show detailed timetables for jobs and resources, typically by day.TYPES OF PLANNING (3)

CAPACITY PLANNING (1)

Definitions Bottlenecks Matching capacity and demand

DefinitionCapacity of a supply chain sets the maximum amount of product that can be delivered to final customers in a given time.

Designed Capacity is the maximum possible throughput in ideal conditions.

Effective Capacity is the maximum realistic throughput in normal conditions.

Actual Throughput is normally lower than effective capacity.

CAPACITY PLANNING (2)

Not all parts of a supply chain have the same capacity. There must be some part that limits overall throughput, and this forms a bottleneck.The bottlenecks in a supply chain limit its overall capacity. BottlenecksCAPACITY PLANNING (3)

http://www.baskent.edu.tr/~kilter*

The main bottling plant at J&R Softdrinks has a capacity of 80,000 litres a day, and works a seven-day week. It fills standard bottles of 750 ml,

and these are passed to a packing area which can form up to 20,000 cases a day with 12 bottles each. The packing area works a five-day week.

The cases are taken to warehouses by a transport company whose 8 lorries can each carry 300 cases, and make up to 4 trips a day for 7 days a week. There are two main warehouses , each of which can handle up to 30,000 cases a week. Local deliveries are made from the warehouses by a fleet of small vans that can handle everything passed to them by the warehouse.

What is the capacity of this part of the distribution system? How can J&R increase the capacity? Bottlenecks- exampleCAPACITY PLANNING (4)

The bottling plant has a capacity of 80,000 litres a day, or:7 80,000/0.75 = 746,666 bottles a week

The packing area has a capacity of 20,000 cases a day, or:5 12 20,000 = 1,200,000 bottles a week

The transport companys lorries can handle 300 cases on each journey, so their capacity is:7 4 8 300 12 = 806,400 bottles a week

Each warehouse can handle 30,000 cases a week, giving a capacity of:2 30,000 12 = 720,000 bottles a week

We know that the capacity of the delivery vans is greater than the capacity of the warehouses. Bottlenecks- example solutionCAPACITY PLANNING (5)

Bottlenecks- example solutionCAPACITY PLANNING (6)

The capacity of this part of the supply chain is the smallest of these separate capacities, and this is 720,000 bottles a week in the warehouses.

J&R can only increase capacity by expanding the warehouses. Improving other parts of the supply chain will have no effect at all. Bottlenecks- example solutionCAPACITY PLANNING (7)

The aim of capacity planning is to match the available capacity of facilities to the demands put on them.

If capacity is less than demand, bottlenecks restrict the movement of materials, and customer service declines;

if capacity is greater than demand, the organization can move all its materials but it has spare capacity and underused resources. Matching Capacity and DemandCAPACITY PLANNING (8)

Anne Jenkins has a contract to deliver 100 computer systems a week to schools in South Wales.

The systems have customized software installed, which takes an hour to test before delivery.

The testing is done by trained staff, who achieve an average efficiency of 75%.They work a single eight-hour shift five days a week, but could move to double shifts or have overtime at weekends. How many testers should Anne employ?CAPACITY PLANNING (9) Matching Capacity and Demand- example

Each tester is available for 8 5 = 40 hours a week. Average efficiency is 75%, so their useful time is 40 0.75 = 30 hours a week. Each computer takes 1 hour to test, so each employee can test 30 systems a week.

Hence: designed capacity = 40 units a tester a week effective capacity = 30 units a tester a weekCAPACITY PLANNING (10) Matching Capacity and Demand- example solution

There are several ways of meeting the demand of 100 units a week:

Working a single shift on weekdays would need 100/30 = 3.33 testers. If Anne only employs full-time testers, she has to round this up to 4. Then the utilization of each would be 3.33/4 = 0.83 or 83%.

Employing 3 testers full-time, and one part-time tester for 1/3 time would meet all capacity with 100% utilization.

Using overtime at the weekends would need 3 full time testers who are willing to finish 10 tests at the weekend (working 10 / 0.75 = 13.3 hrs).

CAPACITY PLANNING (11) Matching Capacity and Demand- example solution

1. examine forecast demand and translate this into a capacity needed2. find the capacity available in present facilities3. identify mismatches between capacity needed and that available4. suggest alternative plans for overcoming any mismatch5. compare these plans and find the best6. implement the best and monitor performance This is a standard approach to all kinds of planning, which is sometimes called resource requirement planning.The main steps in capacity planningCAPACITY PLANNING (12)

Problems with capacity planning

Short-term adjustments to capacity

Changing capacity over time

ADJUSTING CAPACITY (1)

Problems with capacity planningDemand comes in small quantities and can take almost any value, while capacity comes in large discrete amounts.There is no way of exactly matching the discrete capacity to a continuous demand. Use one of three basic strategies:(a) more or less match capacity to demand, so that there is sometimes excess capacity and sometimes a shortage(b) make capacity at least equal to demand by early expansion, which needs more investment in facilities and gives lower utilization.(c) only add capacity when the additional facilities would be fully used, which has lower investment and high utilization, but restricts throughput.

ADJUSTING CAPACITY (2)

(a) more or less match capacity to demand, so that there is sometimes excess capacity and sometimes a shortage

ADJUSTING CAPACITY (3)

(b) make capacity at least equal to demand by early expansion, which needs more investment in facilities and gives lower utilizationCapacity expansionADJUSTING CAPACITY (4)

(c) only add capacity when the additional facilities would be fully used, which has lower investment and high utilisation, but restricts throughputADJUSTING CAPACITY (5)

Changing capacity concerns the size of any changes. It might be better to have a few large increases rather than more smaller onesADJUSTING CAPACITY (6)

There are two ways of making these short-term adjustments to capacity:

capacity management adjusts capacity to match demanddemand management adjusts demand to match available capacity.ADJUSTING CAPACITY (7)Short-term Adjustment to Capacity Planning

Ways of adjusting capacity include:

changing the work pattern to match demand employing part-time staff to cover peak demandsusing outside contractorsrenting or leasing extra facilities adjusting the speed of working rescheduling maintenance periods making the customer do some work, such as packing their own bags in supermarketsADJUSTING CAPACITY (8)

Ways to adjust demand include:

vary the price limit the customers served, by demanding specific qualifications change the marketing effort offer incentives to change demand patterns, such as off-peak travel rates change related products to encourage substitution, such as holiday destinations vary the lead time use a reservation or appointment system use stocks to cushion demand.ADJUSTING CAPACITY (9)

In practice, the effective capacity of a supply chain can change quite markedly.Learning curve: The more often you repeat something, the easier it becomes and the faster you can do itADJUSTING CAPACITY (10)Changing Capacity over Time

Preventive maintenance and rational replacement policies.READ Example (page 148-149)

ADJUSTING CAPACITY (11)Changing Capacity over Time

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Aggregate plansOverall approach of tactical planningGenerating alternative plansPlanning cycles

Tactical plans bridge the gap between longer term strategic plans and operational details.

They show how the capacity will be used, and develop medium-term timetables for activities.

Different names are used for this level of planning, but the most common are aggregate plans and master schedules.TACTICAL PLANNING (1)

AGGREGATE PLANNING makes the tactical decisions that translate forecast demand and available capacity into schedules for families of activities.TACTICAL PLANNING (2)Aggregate Plans

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

Aggregate ConceptThe method is based on notion of aggregate units. They may be

Actual units of productionWeight (tons of steel)Volume (gallons of gasoline)Dollars (Value of sales)Fictitious aggregate units

Example of fictitious aggregate units.One plant produced 6 models of washing machines:Model # hrs. Price % salesA 55324.228532K 42424.934521L 98985.139517L 38005.242514M 26245.452510M 38805.872506

Question: How do we define an aggregate unit here?

Example continuedNotice: Price is not necessarily proportional to worker hours (i.e., cost): why?

One method for defining an aggregate unit requires: .32(4.2) + .21(4.9) + . . . + .06(5.8) = 4.8644 worker hours.

Forecasts for demand for aggregate units can be obtained by taking a weighted average (using the same weights) of individual item forecasts.

Aggregate planners are looking for answers to questionsShould we keep throughput at a constant level, or change it to meet varying demand? How should we use stocks to meet changing demand?Should we vary the size of the workforce with demand?Can we change work patterns to meet changing demand?Should we use subcontractors or outside organizations to cover peak demands?Can we allow shortages, perhaps with late delivery?Can we smooth the demand?TACTICAL PLANNING (3)Aggregate Plans

At the end of the aggregate planning, an organization has schedules for its major types of activity, typically for each month, at each location.

The next stage is to add more detail, and this is done in the master schedules.

The MASTER SCHEDULE gives a timetable for activities, typically for each week. Its aim is to achieve the activities described in aggregate plans as efficiently as possible.TACTICAL PLANNING (4)Aggregate Plans

Overall approach of tactical planningResource requirement planning - six steps (remind)Step 1 translate forecasts and other info. into a demand for resourcesStep 2 find the resources currently availableStep 3 identify mismatches between resources needed and availableStep 4 suggest alternative plans for overcoming any mismatchesStep 5 compare these plans and find the bestStep 6 implement the best plan and monitor performance.TACTICAL PLANNING (5)

Overall approachof tactical planningTACTICAL PLANNING (6)

TACTICAL PLANNING (7) Tactical Planning- example A&B Coaches of Blackpool plan their capacity in terms of coach-days.

Forecasts: expected annual demands for the next two years to average 400,000 full-day passengers and 750,000 half-day passengers.

A&B have: 61 coaches, each with an effective capacity of 40 passengers a day for 300 days a year. Breakdowns and other unexpected problems reduce efficiency to 90%.

86 drivers who work an average of 220 days a year, but illness and other absences reduce their efficiency to 85%.

If there is a shortage of coaches the company can buy extra ones for 110,000 or hire them for 100 a day. If there is a shortage of drivers they can recruit extra ones at a cost of 20,000 a year, or hire them from an agency for 110 a day.

How can the company approach its tactical planning?

TACTICAL PLANNING (8) Tactical Planning- example solutionStep 1 Translate forecasts and other information into a demand for resources 400,000 full-day passengers are equivalent to 400,000/40 = 10,000 coach days a year, or 10,000/300 = 33.33 coaches.

750,000 half-day passengers are equivalent to 750,000 / (40 300 2) = 31.25 coaches.

Adding these two gives the total demand as 64.58 coaches. Each coach needs 300/220 drivers, so the company needs a total of 88.06 drivers.

Step 2 Find the resources currently available The company has 61 coaches, but the efficiency of 90% gives an availability of 61 0.9 = 54.9 coaches.

There are 86 drivers, but an efficiency of 85% reduces this to 86 0.85 = 73.1 drivers.

TACTICAL PLANNING (9) Tactical Planning- example solutionStep 3 Identify mismatches between resources needed and available Without details of the timing. There is a total shortage of: 64.58 54.9 = 9.68 coaches and 88.06 73.1 = 14.96 drivers.

Step 4 Suggest alternative plans for overcoming any mismatches To buy 10 coaches would cost 1,100,000. To hire coaches to make up the shortage would cost 9.68 300 100 = 290,400 a year. There is, of course, the alternative of buying some coaches and hiring others.

To hire 15 drivers would cost 300,000 a year, while using temporary drivers from an agency would cost 14.96 220 110 = 362,032 a year. There is also the option of hiring some drivers and making up shortages from an agency.

Step 5 Compare these plans and find the bestWe do not have enough information to make the final decisions, and we have only outlined some of the alternatives. This very limited analysis might suggest a reasonable solution of buying eight coaches and making up any shortages by hiring, and hiring 12 drivers and making up the shortage from the agency.

Aggregate Planning StrategiesReactive: Alter capacity to match demandPure strategyChaseLevel regular productionMixed strategyTrial-and-ErrorLinear programming: Finding optimal if exists.Proactive: Alter demand to match capacityMixed: Some of each

Pure Strategies (Chase or Level)Hiring cost= $100 per workerFiring cost= $500 per worker Inventory carrying cost= $0.50 pound per quarter Regular production cost per pound= $2.00 Production per employee= 1,000 pounds per quarter Beginning work force= 100 workersExample:

Chase Demand StrategySpring80,00080,00080020Summer50,00050,00050030Fall120,000120,000120700Winter150,000150,000150300

10050 SALESPRODUCTIONWORKERSWORKERSWORKERSQUARTERFORECASTPLANNEEDEDHIREDFIREDCost of Chase Demand Strategy(400,000 X $2.00) + (100 x $100) + (50 x $500) = $835,000 Product quantityProduction cost/lbHired WorkersHiring CostFired WorkersFiring Cost

Level Production StrategyProduct quantityProduction cost/lbInventoryInventory Carrying Cost

One of the most important concerns the way that alternative plans are generated and compared.

The most common methods of generating plans1. Negotiations2. Adjust previous plans3. Other intuitive methods4. Graphical methods5. Spreadsheet calculations6. Simulation: 7. Expert systems. 8. Mathematical modelTACTICAL PLANNING (10) Generating Alternative Plans

Planning is not a job that is done once and is then finished. It is continuous, and as plans for one period are finalized and implemented, planning moves on to the next period.TACTICAL PLANNING (11)Planning Cycles

SHORT-TERM SCHEDULES give detailed timetables for jobs, people, materials, equipment and all other resources. The aim of these schedules is to organize the resources needed for the master schedule, giving low costs, high utilizations, or achieving some other measure of performance.

DefinitionSHORT-TERM SCHEDULES (1)

Two ways:

Backward scheduling, where schedulers know when a job has to be finished. Then they can work back through all the activities to find the date when the job must be started.

Forward scheduling, where schedulers know when a job can start. Then they can work forward through all activities to find the date when the job will be finished. Approach to SchedulingSHORT-TERM SCHEDULES (2)

Scheduling Rules

four scheduling rules for assigning jobs:

First come, first servedMost urgent job firsShortest job firstEarliest due date first Approach to SchedulingSHORT-TERM SCHEDULES (3)

Zambrucci Transport has to schedule the following six jobs for a heavy lift crane. How can it design a reasonable schedule? Approach to Scheduling- exampleSHORT-TERM SCHEDULES (4)

The simplest way of tackling this problem is to use some decision rules. Using first come, first served gives the schedule:The jobs are finished by day 52. Approach to Scheduling- example solutionSHORT-TERM SCHEDULES (5)Total: 190 days in system

Approach to Scheduling- example solution- Shortest firstSHORT-TERM SCHEDULES (6) The average time in the system (which is the same as the average finish time) is 134/6 = 22.3 days, compared with 190/6 = 31.7 days for first come, first served. By day 36 this schedule has finished five journeys, while the previous schedule had only finished three.Total: 134 days in system

This gives a maximum lateness of 4 days for jobs D and F, and an average lateness of 10/6 = 1.7 days. Approach to Scheduling- example solution- Minimum the maximum latenessSHORT-TERM SCHEDULES (6)minimize the maximum lateness by taking jobs in order of due date

This gives a maximum lateness of 4 days for jobs D and F, and an average lateness of 10/6 = 1.7 days. Approach to Scheduling- example solution- Minimum the maximum latenessSHORT-TERM SCHEDULES (6)minimize the maximum lateness by taking jobs in order of due date

Home work 04(Due: next class)Prob. 1, 2, 3, 4 (page 164-165).

***Capacity is the maximum rate of output of a process or system. It can be the number of physical units produced, the number of services performed Accounting, finance, marketing, operations, purchasing, and human resources all need capacity information to make decisions

The basic questions in capacity planning are:What type of capacity is needed?How much is needed?When is it needed?**********

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