AGGREGATE PLANNING (Ref S.N. Chari-p-32.

1)

Introduction: Production planning in the intermediate range of time is

termed as “aggregate planning” . it is thus called because the demand on
facilities and available capacities is specified in aggregate quantities., eg:
aggregate quantities of thousands of liters of paint, or tones of fabrication
work, or number of automobiles, etc. this means that the total
demand(expected) is measured without regard to the product mix that
makes up this figure.

Meaning: the aggregate planning is made within broad frame work of the
long-range plan. Usually, the planning horizon for such plans ranges
from a month to a year. The physical plant and equipment capacity
would be fixed over this planning horizon. Therefore, the sales orders
have to be met by strategies like using overtime, hiring of extra staff
(temporary) or layoff of such persons , carrying inventory or giving a
subcontract.
The intermediate planning time-horizon derives its ‘intermediate’
character due to the ‘type’ of decisions that need to be taken, given a
certain framework of long-term decisions which have been taken. What
the actual time span of such planning should be-six months or 24 months
or less than six months-is dependent upon the business, technology and
production system of the particular organization.
The first step for such planning would be make a sales forecast of
demand for the intermediate range. And based on this sales forecast one
has to develop the aggregate production strategy. A production aggregate
plan can be developed by the following procedure.
Checking as to whether the total requirements for the forecast period are
within the combined equipments and manpower capacity of the plant. If
the forecasted sales requirements cannot be met by existing plant capacity
including any additional capacity that can be installed within the
intermediate planning period, the sales forecast may have to be scaled
down to the maximum capacity that is available during the aggregate
planning period.
Now the alternative production plans have to be made and the one that is
most economical will be selected. We could be have a production plan
which closely follows peaks and valleys in the production requirements
forecast or we could have a steady production rate equaling the average
of these peaks and valleys. There could be other plans which could be
combinations of these two plans.

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STRATEGIES AND COSTS

In trying to met the demand with the production capacity in the

intermediate range we have the following different strategies at hand.
1. Overtime and Under time
2. Hiring and Layoff, working single or multiple shifts
3. Carrying inventories to meet the peak demands
4. Having backlog of orders
5. Sub-contracting to other companies
6. Turning down some sales demands.

Each of these strategies has a cost factor associated with it.

The marginal cost of overtime is not difficult to estimate, whereas, the
cost of under time are not that easy to determine. The hiring costs
include the costs of selections, the costs of training and the cost of
maintaining additional records. Moreover, there are cost associated with
learning on-the job of a newly hired employee. The cost of inventory
include the capital cost for carrying the inventory, the cost of
obsolescence, taxes and insurance, etc. the stock out cost are the costs
due to lost sale or the loss of goodwill of the customer. These might be
somewhat difficult to estimate. The cost of sub-contracting is the amount
by which the sub-contracting cost is greater than the manufacturing cost
at the higher level of production.
The combination , rather than a single strategy, will usually result
in the most economical plan. A few mathematical methods are presented
below which employ a combination of the different strategies mentioned
above which will lead to minimum cost. The whole idea behind this
exercise is to plan different amounts of overtime, hiring, inventory,
backlogs of orders and sub-contracting such that the different levels of
demand for different future periods are met most economically. The most
common model used is that of linear programming.

Linear Programming Model

The production requirements specify the quantities of product to be made
available in each of the several time periods in the future. Te limits on
production capacity can be expressed as the maximum quantities of
product that can be produced in regular and overtime operation in each of
the time intervals to e planned. When one has to increase production
capacity within the regular time, one has to hire more labour, and vice-
versa for decreasing the production capacity.

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 The total of opening inventory plus accumulated production
planned must equal or exceed the accumulated expected demand at every
point in the period in the planning horizon. The job will be to minimize
the sum of the costs incurred over the aggregate planning horizon. In
simple algebra, we can express the regular-time production limit
¹(constraint) as follows:
P¹ ≤ M¹
Where P¹ is the scheduled regular time production in period 1, and M¹ is
the maximum regular-time production that can be scheduled in period 1.
similarly, write for the second period:
P² ≤ M²
And for the third period: P³ ≤ M³ and so on.
We can write similar inequalities for the ‘overtime’ strategy. Once again
the caoacity estimates must be made before hand. This time, they include
the maximum overtime production that can be scheduled in each period.
The overtime limits (constraint) for the first period can be written as:
T ¹ ≤ Y¹
Where T ¹ is the scheduled overtime in period 1 and
Y¹ is the previously estimated overtime production capacity in period 1.

Similarly for the period 2 we can express:

T² ≤ Y² and for third period: T³ ≤ Y³ and so on.

Now we have the restriction that the total of opening a inventory plus
accumulated production planned must equal or exceed accumulated
expected sales in each of these periods. This restriction (constraint) can
be expressed for the first period as:
P1 + T1 >D¹
(assuming that the initial level of inventory is zero)
where D1 is aggregate demand for period 1. for period 2, we can express
the constraints as
P1 + T1 – D1 + P2 + T2 > D2.
(P1 + P2) + (T1 + T2) > ( D1 + D2) *******

Transportation Problem

Bowman has indicated a transportation Problem approach to aggregate

planning. The model considering a combination of only the three
strategies of (i) regular time production (ii) overtime production and (iii)
inventory.
Where M i =Maximum regular time production possible during period ’i’
Y I = Maximum overtime Production Possible during period ‘i’

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 Di= Demand (market) during period ‘I’
I i = Inventory at the of period
r = regular time cost of production, per unit
v = Overtime cost of production, pr unit
c = cost of carrying the inventory pr unit per period
L = total slack = I o + € M i + €Ÿi - € Di – I n
X = very high cost, so that those cells are forbidden.
TABLE = ( CHARI P-32.5) REFER
HMMS ( Holt , Modigliani, Muth and simon) Model
In the previous model linear programming model the cost functions or
relationships ere assumed to be linear, that means cost relations were
assumed to consist of fixed elements, plus elements which varied
directly in proportion to the variables specified in a plan-amount of
overtime, amount of inventory, etc. the cost of carrying the first unit in
inventory was supposed to be the same as the cost of carrying the one
hundredth unit in inventory. The cost of hiring the first employee was
supposed to be the same as the cost hiring the one hundredth employee.
The HMMS model uses quadratic functions for the different costs such as
over time, inventory, hiring model instead of simplified linear
programming model.
For this model the following costs are considered.
1. costs relating to production level with optimal workforce.
2. Hiring costs
3. Layoff costs
4. Overtime costs
5. Under time costs
6. Inventory holding costs
7. Back-order costs
HMMS model fit a quadratic function approximation. Thus the hiring and
layoff costs are expressed as:
HMMS Model: Hiring and Layoff Costs

Quadratic
approximation
for the cost
0
workers laidoff workers hired

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over time costs are incurred when production levels exceed the regular
time production capacity of the workforce. These costs depend on tow
variables the size of the workforce at a given time and the aggregate
production rate. For a given production rate, the larger the workforce
level, the less the overtime that is required.

The Control Process, ASSEMBLY LINE BALANCING

Basic production Planning Problem, Visual Grouping of work Elements
Heuristics Method, Kilbridge and Wester Method
Other methods for Assembly Line Balancing have to be read.
EVOLUTION OF MRP –II
While MRP that has grown out of traditional production and inventory
management does an excellent job of planning for the materials, such a
technique cannot be fully effective in achieving the business objectives
unless it takes into account the other resources of a manufacturing
organization. Without such integration the planning for materials may not
be able to mesh properly with the production schedules, the production
plans in the longer term, the planned production capacities and more
importantly the other resources required for the manufacturing function
such as human resources, the machines and the finance. Therefore
planning for the requirement of materials has to take into consideration
the business plans, the financial plans, the available human resources at
any point in time, the available capacities, the machines also the aspects
of logistics such as shipping status. Because of these needs and
considerations there evolved an integrated manufacturing management
system called manufacturing resource planning (MRP- II) has been
defined by APICS ( American Production and Inventory Control System)
A method for effective planning of all the resources of manufacturing
company . ideally it addresses operational planning in units, financial
planning in dollars and has a simulation capability to answer ‘what-if’
questions. It is made up of a variety of functions each linked together.
Business planning, Production Planning, Master Production scheduling,
Material requirement Planning, Capacity Requirement Planning, and the
execution system for capacity and priority. Outputs from these systems
would be integrated with financial reports, such as the business plan, the
purchase commitment report, shipping budget, inventory production , etc.
Thus MRP-II is a logical extension that goes beyond the computations for
materials requirement. It aims at addressing the entire manufacturing
function rather than a single task within that function. This is very
significant improvement in terms of integration that has been achieved by
the use of IT, . the developments in IT have made these improvements
more and more possible. (EVOLUTION TO ERP, Benefits of ERP

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Implementation of ERP, costs of Installing ERP, Steps in ERP implementation. SAP,
BaaN, what next ERP?, ELECTRONIC COMMERCE, Web and
Relationship, B2B and B2C e-commerce,, significance to OM.

BA1651 PRODUCTION MANAGEMENT

1. Global /trade operations and supply network application

2. EOQ, EBQ Models, Quantity discount models

3. MRP II systems Introduction to ERP, e-business and e-operations

strategies.

4. Aggregate planning theory and problems

5. Forecasting – Types, Methods ( moving average methods)

6. Johnson’s Algorithm for job sequencing (n job thro’ 2 machines, n

jobs thro’ 3 machines, n jobs thro’ m machines

7. PERT / CPM

8. Fixed Position, and Production, Process, Flexible), Methodologies

(Distance Minimising

9. Time study, methods-time measurement, Work Sampling, White color

measurement and learning curves, Using WM to increase productivity.

10. CRAFT, ALDAP, CAM, CAD, CIM, JIT, KANBAN.