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The concept of aggregation Chase and level approaches LP approach Master Scheduling Summary Reading: Page 600 625
Learning Objectives
Explain what aggregate planning is and how it is useful. Identify the variables decision makers have to work with in aggregate planning and some of the possible strategies they can use. Describe some of the graphical and quantitative techniques planners use. Prepare aggregate plans and compute their costs.
Planning Horizon
Aggregate planning: Intermediate-range
capacity planning, usually covering 2 to 12 (18) months.
Long range Intermediate range
2 months
1 Year
Long-range plans
Long term capacity Location / layout
Process Planning Longrange Intermediaterange Manufacturing Strategic Capacity Planning Aggregate Planning Services
Master Production Scheduling Material Requirements Planning Order Scheduling Shortrange Weekly Workforce & Customer Scheduling Daily Workforce & Customer Scheduling
An aggregate unit is a fictitious washing machine requiring (.32)(4.2)+(.21)(4.9)+(.17)(5.1)+(.14)(5.2)+(.10)(5.4)+(0.06)(5. 8) = 4.86 labor hours.
Aggregate Planning
Begin with forecast of aggregate demand Forecast intermediate range General plan to meet demand by setting
Output levels Employment Finished goods inventory level
Production plan is the output of aggregate planning Update plan periodically rolling planning horizon always covers the next 12 18 months
Costs
Inventory carrying Back orders Hiring/firing Overtime Inventory changes Subcontracting
Reactive
Alter capacity to match demand
Mixed
Some of each
Demand Options
Pricing Promotion Back orders New demand
Capacity Options
Hire and layoff workers Overtime/slack time Part-time workers Inventories Subcontracting
Basic Strategies
Level capacity strategy:
Maintaining a steady rate of regulartime output while meeting variations in demand by a combination of options.
Chase Approach
Advantages
Investment in inventory is low Labor utilization in high
Disadvantages
The cost of adjusting output rates and/or workforce levels
Level Approach
Advantages
Stable output rates and workforce
Disadvantages
Greater inventory costs Increased overtime and idle time Resource utilizations vary over time
Average Inventory
In practice, we may use either ending inventory criteria or average inventory level criteria
Average Beginning Inventory + Ending Inventory = inventory 2
Example 1
Suppose we have the following unit demand and cost information:
Demand/mo Jan 200 Feb 200 Mar 300 Apr 400 May 500 Jun 200 Total 1,800
Cost Output Regular time: Over time: Subcontract: Inventory Back orders:
$2 per unit $3 per unit $6 per unit $1 per unit per month $5 per unit per period
Suppose the initial inventory is 0. Assuming a level of output rate of 300 units per month with regular time, what is the total cost?
20
Period Demand Output Regular Overtime subcontract Output-demand Inventory Beginning Ending Average Backorder Cost
$4,700
21
Example 2
For the previous example, the company just learned that one person is going to retire. Rather than replace that person, the company would like to stay with the smaller workforce and use overtime to make up for the lost output. The reduced regulartime output is 280 units per month. The maximum amount of overtime output per period is 40 units. Develop a plan and compare it to the previous one.
22
Period Demand Output Regular Overtime subcontract Output-demand Inventory Beginning Ending Average Backorder Cost
80 $4,640
23
Example 3
See the Excel file We assume: no overtime, no subcontracting, we may layoff or hire workers in each period; we consider two scenarios; backorder is allowed and not allowed
Mathematical Techniques
Linear programming: Methods for obtaining optimal solutions to problems involving allocation of scarce resources in terms of cost minimization. Simulation models: Computerized models that can be tested under different scenarios to problems.
LP Approach: an Example
Suppose no firing, no hiring
Solution
Heuristic (trial and error)
Characteristics
Intuitively appealing, easy to understand; solution not necessarily optimal. Computerized; linear assumptions not always valid. Computerized models can be examined under a variety of conditions.
Optimizing
Disaggregation
Master Schedule
Master Scheduling
Master schedule
Determines quantities needed to meet demand Interfaces with
Marketing Capacity planning Production planning Distribution planning
Master Scheduler
Evaluates impact of new orders Provides delivery dates for orders Deals with problems
Production delays Revising master schedule Insufficient capacity
Outputs
Projected inventory
Master Scheduling
1 30 33 31
JUNE 2 3 30 30 20 1 10 -29
4 30 4
5 40 2
JULY 6 7 40 40
8 40
MPS
Review Problems
Problems 1, 5, 8, 13, 15 at page 628 to 631 (use average inventory level to count inventory holding cost when this cost is involved) Problems 21, 22 at page 631