Professional Documents
Culture Documents
C H A P T E R
Aggregate Planning
DISCUSSION QUESTIONS
1.Aggregate planning is concerned with the quantity and
timing of production for the intermediate future; typically
encompassesatimehorizonofthreetoeighteenmonths.
2.Aggregate means combining the appropriate products and
resourcesintogeneral,oroverall,terms.
3.Strategicobjectives:minimizecostovertheplanningperiod,
smoothfluctuationsinworkforce,drivedowninventorylevelsfor
timesensitivestock,andmeetahighlevelofserviceregardlessof
cost.Costminimizationisthemostoftentreatedquantitatively
andisgenerallythemostimportant.
4.Withachasestrategyproductionratesorworkforcelevelsare
adjustedtomatchdemandrequirementsovertheplanninghorizon.
5.A pure strategy is one that varies only one factorfor
example, maintain a constant work force level or maintain a
constantinventory.Tradeoffsareignored.
6.Levelschedulingisanaggregateplaninwhichdailycapaci
tiesareuniformfrommonthtomonth.Theunderlyingphilosophy
isthatstableemploymentleadstobetterquality,lessturnover,
lessabsenteeism,andmoreemployeecommitment.
7.Mixedstrategyisaplanningapproachinwhichtwoormore
options,suchasovertime,subcontracting,hiringandlayoff,etc.,
areused.Therearebothinventorychangesandworkforceandpro
ductionratechangesovertheplanninghorizon.Typically,mixed
strategiesarebetter(resultinlowercosts)thanpurestrategies.
8.Theadvantageofvaryingthesizeoftheworkforceasre
quiredtoadjustproductioncapacityisthatonehasafundamental
ability to change production capacity in relatively small and
preciseincrements.Thedisadvantagesarethatareadysupplyof
skilledlaborisnotalwaysavailable,newlyhiredpersonnelmust
be trained, and firings or layoffs undermine the morale of all
employees and can lead to a widespread decrease in overall
productivity.
9.Mathematicalmodelsarenotmorewidelyusedbecausethey
tendtoberelativelycomplexandareseldomunderstoodbythose
personsperformingtheaggregateplanningactivities.
10.Aggregate planning in services differs from aggregate
planninginmanufacturinginthefollowingways:
Most services are perishable and cannot be inventoried.
Itisvirtuallyimpossibletoproducetheserviceearlyin
anticipationofhigherdemandatalatertime.
Demandforservicesisoftendifficulttopredict.Demand
variationsmaybemoresevereandmorefrequent.
CHAPTER 12A G G R E G AT E P L A N N I N G
Servicesaremorecustomizedthanmanufacturedgoods
and can be offered in many different forms. This
variabilitymakesitdifficulttoallocatecapacity.Units
ofcapacitymayalsobehardtodefine.
Because most services cannot be transported, service
capacitymustbeavailableattheappropriateplaceas
wellasattheappropriatetime.
Service capacity is generally altered by changes in
labor,ratherthanbyequipmentorspace,andlaborisa
highlyflexibleresource.
11.Themasterproductionschedule(MPS)isproducedby
disaggregatingtheaggregateplan.
12.Graphicalaggregateplanningmethods,whilebasedon
trial and error, are useful because they require only limited
computationsandusuallyleadtooptimalsolutions.
13.Limitations ofthe transportationmethod includethatit
doesnotworkwellwhenoneattemptstoincludetheeffectof
hiringandlayoffsinthemodel.
14.Yieldmanagementaddsanothersetofdecisionstothe
aggregate plan, to capacity planning, and to scheduling.
However,oftheseyieldmanagementissues,theaggregateplan
maybetheoneleastaffected.Autorentalcompanies,airlines,
andhotelsnowallvaryinventory(autos,seats,rooms)and
pricestoreflectwaystomaximizetheiryield(profit).Lead
time (vacationers price shop more and are willing to do so
earlier),daysoftheweek,seasons,holidays,andconventions
allimpacttheyield.Inmanycases,theaggregatesupplyisthe
leastaffected.
ETHICAL DILEMMA
1. From the airlines point of view, revenue (yield)
management is crucial. Moreover, many firms,
includinghotels,restaurants,anduniversitiespractice
revenuemanagement.Agoodclassdiscussioncanbe
generated by asking students to discuss how other
organizationspracticeyieldmanagementwithoutall
ofthepublicity(oftenadversepublicity)thatairlines
receive.
Hotelshavevariousapproaches,fromweekend
specials, to points, to computerized pricing to
adjusttodailyvolumechanges.
Restaurants have coupons, early bird specials,
andspecialpricesonslownights.Hugeportionsof
restaurantcustomershavesomesortofdiscount.The
authors have seen one figure that as high as 30
percent of restaurant customers use coupons (the
figurevariessubstantiallydependingonthetypeof
restaurantincluded.).
Universitieshavesomanygrants,scholarships,
and loans that in many universities most of the
students have some sort of deal; this is revenue
managementfortheuniversity.
These yield management techniques are
designedtoappealtovariousmarketsegments.And
the pervasiveness of the techniques proves that it
doeswork.
Fromthecustomersperspectivethereisoften
resentmentatsittingnexttosomeoneontheairplane
whohaspaidhalfasmuchforthesameflightasyou
paidor going to a restaurant and having the
customerwhoarrived15minutesearlierthanyouor
whohasacoupon,payhalfthepriceforthesame
meal.Asenseoffairnesssuggeststhatsomethingis
wrongandsomecustomersresentthedifference.
2. Most customers have come to accept yield
management and take full advantage of the
opportunitiesifaffords.Themultiplepricingofyield
management by definition satisfies more customers
(customers use the services) and the firm utilizes
resourcesmoreeffectively.
3. Manycustomersdotakeexceptiontothevariationin
pricingdifferentpricesforthesameserviceseem
inherently wrong to many people and management
needtobepreparedfortheiratecustomer.
4. Some customers will manipulate the system by
bookingticketsonflightsthathaveastopoverina
citytheytravelto,butwhichhasahigherfarethan
the destination flight. They exit the plane at the
stopover citysaving money. For instance, if the
flight from New York to Chicago is less than the
flight to the stopover citysay Pittsburgh, a
customercanbooktheflighttoChicagobutgetoffin
Pittsburgh. You might ask students to discuss the
ethicsofthismanipulation.
CHAPTER 12A G G R E G AT E P L A N N I N G
And, of course, customers use the system by
findingthepositionsontheyieldmanagementcurve
thatworksforthem.Sometimesthismeansshopping
forticketsweeksinadvanceandtakingtheriskofa
changeinplans,orgoingtotherestaurantearly,or
finding and using those discount coupons. How
muchworkdoyouwanttodoforadiscount?Itturns
outthatsomepeoplewillnotdotheworknecessary
tousethesystemtotheiradvantage.
END-OF-CHAPTER PROBLEMS
12.1
Production
Month
Days
Jan
Feb
Mar
Apr
May
Jun
July
Aug
Sep
Oct
Nov
Dec
22
18
22
21
22
21
21
22
21
22
20
20
252
Forecast
Demand
1,000
1,100
1,200
1,300
1,350
1,350
1,300
1,200
1,100
1,100
1,050
900
13,950
Needed
Production
Each Day
45.5
61.1
54.5
61.9
61.4
64.3
61.9
54.5
52.4
50.0
52.5
45.0
55.4
(on average)
CHAPTER 12A G G R E G AT E P L A N N I N G
12.2(a)Plan5
Month
Jan
Feb
Mar
Apr
May
Jun
Expected
Demand
Production
Days
Demand
Per Day
900
700
800
1,200
1,500
1,100
6,20
0
22
18
21
21
22
20
124
41
39
38
57
68
55
6,200
124
=50units/day
Constantworkforceof6persons;subcontracttomeet
extrademand:Subcontractcost=$10/unit
Averagedailyproductionrequirement
Productionrate/day Persons
6
Month
Expected
Demand
Jan
Feb
Mar
Apr
May
Jun
900
700
800
1,200
1,500
1,100
Hours/day
Hours/unit
8
30units/day
1.6
Production
(@ 30/day) Subcontrac
t
660
540
630
630
660
600
240
160
170
570
840
500
2,48
0
Plan5Costanalysis:
Regularproduction:
CR 6 persons $40 124 $29,760
Subcontractcost@$10/unit:
CSC 2,480units $10 / unit $24,800
Totalcost:
CT $29,760 $24,800 $54,560
(not
preferabletoPlan2at$52,576orPlan4at$53,968).
(b)
Productionrate/day = Persons
Hours /day
Hours /unit
8
35 units /day
1.6
CHAPTER 12A G G R E G AT E P L A N N I N G
Mont
h
Expected
Demand
Production
(@ 35/day)
900
700
800
1,200
1,500
1,100
770
630
735
735
770
700
Jan
Feb
Mar
Apr
May
Jun
Subcontract
130
70
65
465
730
400
1,86
0
Plan6Costanalysis:
Regularproduction:
CR 7 persons $40 124 $34,720
Subcontracting:
CSC 1,860units $10 $18,600
Totalcost:
C 34,720 18,600= $53,320
T
Plan2isstillpreferable,butPlan6haslowercostthan
Plan5.
Comparing:
Plan 1 Plan 2 Plan 3 Plan 4 Plan 5 Plan 6
Carrying
cost
Reg. time
Overtime
Subcont.
Hire
Layof
Total cost
9,250
0
0
400
0
0
49,600 37,696 49,600 39,680 29,760 34,720
0
0
0 13,888 24,800
0
0 14,880
0
0
0 18,600
0
0 9,000
0
0
0
0
0 9,600
0
0
0
58,850 52,576 68,200 53,968 54,560 53,320
Period
1
2
3
4
5
6
7
8
Expected Demand
1,400
1,600
1,800
1,800
2,200
2,200
1,800
1,400
14,20
0
CHAPTER 12A G G R E G AT E P L A N N I N G
12.3(contd)
Plan A
Period
Production
(Result of
Previous
Month)
Demand
Hire
(Units)
Fire
(Units)
Extra
Cost
5 (May)
2,200
1,800
400
20,000
6 (June)
2,200
2,200
7 (July)
1,800
2,200
400
30,000
8 (Aug)
1,400
1,800
400
30,000 (cost to go from 1,800 in August to 1,400 in
Sept)
*Note:Period1demandwasgivenas1,400units.Becausewehave200unitsinbeginninginventory,thedemandtobemetbyproductionisonly1,200
Total Extra Cost: $140,000
units.Inventorycostsat$24,000(=Jan,400;July,400;Aug,400=1,20020)plusstockoutsat$60,000(=March,200;May,400=600100)foraTotal
of$24,00060,000140,000=$224,000.
1 (Jan)
1,200*
1,600
12.4
400
Plan B
Period
Demand
Production
Ending Inv.
0
1
2
3
4
5
6
7
8
1,400
1,600
1,800
1,800
2,200
2,200
1,800
1,400
1,400
1,400
1,400
1,400
1,400
1,400
1,400
1,400
200
200
0
0
0
0
0
0
0
12.5(a)
Subcon (Units)
Extra
Cost
$4,000
400
30,000
400
30,000
800
60,000
800
60,000
400
30,000
Plan C
Period
0
1
2
3
4
5
6
7
8
Demand Production*
1,400
1,600
1,800
1,800
2,200
2,200
1,800
1,400
1,775
1,775
1,775
1,775
1,775
1,775
1,775
1,775
Ending Inv.
200
575
750
725
700
275
0
0
375
recom
mendedoverPlanA(cost=$224,000)orPlanB
(cost=$214,000).
Stockouts (Units)
150
25
Extra
Cost
$11,500
15,000
14,500
14,000
5,500
15,000
2,500
7,500
Total Extra Cost:
CHAPTER 12A G G R E G AT E P L A N N I N G
(b)GraphofPlanC
12.6
320 (a)PlanD:Maximumunitsinovertime=0.20 1,600=
Plan D
Period
Demand
Reg.
(Units)
0
1
2
3
4
5
6
7
8
1,400
1,600
1,800
1,800
2,200
2,200
1,800
1,400
1,600
1,600
1,600
1,600
1,600
1,600
1,600
1,600
O.T.
(Units)
End Inv.
(Units)
320
320
200
200
400
400
200
200
Notingthattheadditionalcostofastockoutismuchgreater
thanthesumoftheadditionalcostsforovertimeplusinventory
storage,onemightlookaheadandscheduleovertimewhere
possible.Theresultingaggregateplanwouldbe:
Stockouts
(Units)
Extra
Cost
$8,000
8,000
4,000
0
280
44,000
280
44,000
10,000
4,000
Total Extra Cost:
$122,000
CHAPTER 12A G G R E G AT E P L A N N I N G
(b)
Period
Period
Demand
Demand
0
10
21
32
43
54
65
76
87
8
1,400
1,400
1,600
1,600
1,800
1,800
1,800
1,800
2,200
2,200
2,200
2,200
1,800
1,800
1,400
1,400
Plan E
Reg.
O.T.
End Inv.
Stockouts Extra
Production
Subcont (Units)
Inv.
Extra
(Units)
(Units)
(Units) Ending
(Units)
Cost
Cost
200
200
1,600
400
$8,000
1,600
400
$8,000
1,600
400
8,000
1,600
400
18,000
8,000
1,600
200
400
1,600
200
18,000
4,000
1,600
200
400
1,600
0
1,600
320
120
18,400
1,600
600
45,000
1,600
320
160
32,000
1,600
600
45,000
1,600
200
10,000
1,600
200 200
15,000
1,600
4,000
1,600
200Total Extra
4,000
Cost:
Total Extra Cost: $129,000
$116,400
Allotherthingsbeingequal,itwouldappearthatPlan
D,withacostof$122,000,shouldberecommended
overPlanE(cost=$129,000).
Note that of all the plans discussed, it would
appearthatPlanC,withacostof$85,500,shouldbe
recommendedoverallothers.
12.7
Month
Expected
Demand
Jul
Aug
Sep
Oct
Nov
400
500
550
700
800
Productionperpersonperday:8hr/person4hours/ DVD
Therefore,eachpersoncanproduce2DVDsperday,or
40DVDspermonth.
Unit
Beg
Inventor
y
Over
Perio Demand
(or
d
Short)
Jun
Jul
Aug
Sep
Oct
Nov
Hours
Productio
n
Over
150
150
10
10
20
0
400
500
550
700
800
Personnel
Required
Units
250
510
540
680
800
1,000
2,040
2,160
2,720
3,200
6.25
12.75
13.50
17.00
20.00
8
6
13
14
17
20
240
520
560
680
800
10
10*
20*
0
0
Costs
Layof Hire: 40
Hire
$40
7
1
3
3
$80
Layof: 80
$160
$280
$40
$120
$120
(a)Aggregateplan,hiring/layoffonly:
(b)Aggregateplan,overtimeonly:
Period
Demand
Production
Production
Ending
(Regular)
(Overtime)
Inv.
Inventory Holding
Cost
@ $8/unit/month
Jun
150
*Inventory(August=10andSept.=20)=308=$240
Jul
400
320
70
560
InventoryCost=308=$240
Aug
500
320
110
Hiring/LayoffCost=
960
Sep
550
320
230
Oct
700 $1,200
320
380
Nov
800
320
480
Note:Incomputingcost,weassumedthat,ifthecapacityofafractionofaworkerwasneeded(wasexcess),oneworkerwashired
Dec
700
320
380
(layedoff).SolutionbyPOMforWindows,inwhichtheincreasecostis$1perunitandthedecreasecostis$2perunit,yieldsa
Total 1,580
$560
similarresult,withatotalextracostof$890.
Unitsmadeon $72=4hr
overtime(OT) each$18
$48=4hr
each$12
1,580($72$48)=$37,920=Extratotal(OT)cost$560holdingcost=$38,480
CHAPTER 12A G G R E G AT E P L A N N I N G
12.8Calculatingaddedcostsforvariousplanningoptions:
Holding:$8/unit/month
Backordering:$16/unit/month
Subcontracting:$40/unit
Overtime:$24/unit($18/hourover8hours:
$72$48=$24)
Hiring:$1/unit
Layoff:$2/unit
Theoptimalstrategyisobviouslytovarytheworkforce
by
hiringandlayoffs.InProblem13.7(a),thecostofthis
strategyisgivenas$960.
An alternative wherein one hires 5 workers in
August
and5moreinOctoberfollows:
Beg.
Unit
Personne
l
Hours Required
Inventor
y
Over
Units
Require
at 20
d
days
Perio Deman
(or
Require
at 4
at 8 hrs
d
d
Short)
d
each
Costs
Productio
Inventory = $8
n
Personnel Units
Over
Hire Layof
Hire: 40
on staf Produce (or Short) $40
d
Jun
Jul
Aug
400
500
150
150
70
250
430
1,000
1,720
8.00
13.00
8
8
13
320
520
70
90
Sep
Oct
550
700
90
60
460
640
1,840
2,560
13.00
18.00
13
18
520
720
60
80
0
5
Month
Jul
Aug
Sep
Oct
Nov
Dec
Expected Demand
1,000
1,200
1,400
1,800
1,800
1,600
(a)PlanA:Minimumrateof1,000/month,subcontract
for
additional.
Plan A
Perio
d
Jul
Aug
Sep
Oct
Nov
Dec
Demand
Production
Ending Inv.
1,000
1,200
1,400
1,800
1,800
1,600
1,000
1,000
1,000
1,000
1,000
1,000
0
0
0
0
0
0
200
400
800
800
600
0
12,000
24,000
48,000
48,000
36,000
$80
Layof: 80
$560
$920
200
$480
$840
= (70 8)
= (90 8) +
= (60 8)
= (80 8) +
10
CHAPTER 12A G G R E G AT E P L A N N I N G
(b) PlanB:Varyworkforce.
Plan B
Period
Jul
Aug
Sep
Oct
Nov
Dec
Demand
Production
(Existing)
Hire (Units)
Layofs
(Units)
1,000
1,200
1,400
1,800
1,800
1,600
1,300
1,000
1,200
1,400
1,800
1,800
200
200
400
300
$18,000
6,000
6,000
12,000
200
12,000
Total Extra Cost:$54,000
12.10(a)
Extra Cost
Plan C
Period
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Demand
Production
(Units)
1,000
1,200
1,400
1,800
1,800
1,600
1,300
1,300
1,300
1,300
1,300
1,300
Subcont.
(Units)
Ending Inv.
Extra Cost
300
600
$15,000
700
17,500
600
15,000
100
2,500
0
24,000
0
18,000
Total Extra Cost:$92,000
400
300
(b)PlanD:Maximumunitsinovertime=0.201,300=260
Plan D
Month Demand Reg. (Units) O.T. (Units) End Inv.
Jul
1,000
1,300
180
120
Aug
1,200
1,300
180
100
Sep
1,400
1,300
100*
180
Oct
1,800
1,300
260
60
Carryoverofinventory:$25/unit
Overtime:$40/unit
$11,700
10,500
8,500
14,000
Hiring:$30/unit
Layoff:$60/unit
Subcontracting:$60/unit
Stockout:$100/unit
12.11Initialdata:
Costs (per unit)
Reg Time
Overtime
Subcontract
Holding
Stockout
Hiring
Layofs
Initial inventory
0
= $ 30
Units last period = 1,500
= $ 15 extra
per
unit
= not available
= 10
= 50
= 40
= 80
CHAPTER 12A G G R E G AT E P L A N N I N G
11
(a)TheChaseplan:
Period
Demand
Quarter
Quarter
Quarter
Quarter
1
2
3
4
Total
Reg.
Time
Producti
on
1,400
1,200
1,500
1,300
1,400
1,200
1,500
1,300
5,400
5,40
0
Overtimeproduction=$0
Subcontract=$0and
Inventoryholdingandshortagecost=$0
Change
100
200
300
200
Hiring
Layofs
0
0
300
0
300
100
200
0
200
500
(b)TheLevelplan:
Period
Demand
Quarter
Quarter
Quarter
Quarter
Total
1
2
3
4
1,400
1,200
1,500
1,300
5,40*
0
Cost
Reg. Time
Production
Inventory
1,350
1,350
1,350
1,350
5,40
0
$162,00
0
50
100
50
0
Holding
0
100
0
0
10
0
$1,00
0
Shortage
50
0
50
0
10
0
$5,00
0
Change
Hiring
150
0
0
0
0
0
0
0
0
$0
Total Cost:
Overtime
Subcontract
Holding
$3
0
45
60
40
Initial inventory
=
0
Production
last = 130
period
0
1,800 cases
1,100 cases
1,600 cases
900 cases
(a)PlanA:Chaseplan
Period
Quarter
Quarter
Quarter
Quarter
Total
Demand
1
2
3
4
1,800
1,100
1,600
900
5,40
0
Cost
Total Cost:: $314,000
Reg. Time
Production
1,800
1,100
1,600
900
5,40
0
$162,00
0
Change
500
700
500
700
Hiring
(Increase)
Terminating
(Decrease)
500
0
500
0
1,00
0
0
700
0
700
1,400
$40,00
0
$112,00
0
Layofs
150
0
0
15
0
$12,00
0
12
CHAPTER 12A G G R E G AT E P L A N N I N G
(b)PlanB:LevelStrategyof1,350cases
Reg. Time
Period
Quarter
Quarter
Quarter
Quarter
Total
1
2
3
4
Forecast
Production
1,800
1,100
1,600
900
5,40
0
1,350
1,350
1,350
1,350
5,400
Hiring
Inventory Holding
450
200
450
0
Cost
$162,000
Analternativewayofviewingthisproblemassigns
thesamecoststoregulartimeproductionandto
hiring (i.e., $162,000 and $2,000) but places
holding cost at $28,000 and shortage cost at
$67,500.Totalcostisthen$259,500.
0
0
0
0
0
$0
Terminati
ng
Shortage Change (Increase) (Decrease
)
450
200
450
0
1,10
0
$165,00
50
0
0
0
50
0
0
0
5
0
$2,00
0
0
0
0
0
$
Terminatin
g
Forecast Production Production Production Inventor Holding Change (Increas (Decrease)
y
e)
Period
Quarter
Quarter
Quarter
Quarter
Total
1
2
3
4
1,800
1,100
1,600
900
5,40
0
1,200
1,200
1,200
1,200
4,80
0
Overtime Subcontract
600
300
0
(d,e)ThebossimplementsPlanCbecauseitisnot
onlythelowestcost,buthastheaddedadvantage
of providing steady employment for the
employeesaftertheinitialfirstquarterlayoff.
12.13Assumingthatbackordersarenotpermitted,thesolution
is:
Totalcost=$11,790
900
Hiring
0
100
0
300
0
100
0
300
40
0
100
0
0
0
0
0
0
0
0
100
0
0
0
10
0
12.14Assumingthatbackordersarenotpermitted,thesolutionis:
Totalcost=$1,186,810
12.15Assumingthatbackordersarenotpermitted,thesolutionis:
Totalcost=$627,100
CHAPTER 12A G G R E G AT E P L A N N I N G
13
14
CHAPTER 12A G G R E G AT E P L A N N I N G
Analternativesolutionis:
Totalcost=$627,100
12.16Assumingthatbackordersarenotpermitted,thesolutionis:
Cost Matrix:
Quarter 1
Quarter 2
Quarter 3
Beg. inv.
0.2
0.4
0.6
0.8
Reg. time 1
Overtime 1
Subcontract 1
1
1.5
2
1.2
1.7
2.2
1.4
1.9
2.4
1.6
2.1
2.6
Reg. time 2
1.5
1
1.2
Overtime 2
2
1.5
1.7
2 and the2.5
12.17(a)Subcontract
The cost matrix
optimal plan2are shown2.2
Totalcost=$100,750
below:
Quarter 4
Ending Inv.
Supply
250
1.8
2.3
2.8
400
80
100
1.4
1.9
2.4
1.6
2.1
2.6
400
80
100
Reg. time 3
Overtime 3
Subcontract 3
2
2.5
3
1.5
2
2.5
1
1.5
2
1.2
1.7
2.2
1.4
1.9
2.4
800
160
100
Reg. time 4
Overtime 4
Subcontract 4
Demand
2.5
3
3.5
500
2
2.5
3
750
1.5
2
2.5
900
1
1.5
2
450
1.2
1.7
2.2
400
80
100
2600/3050
CHAPTER 12A G G R E G AT E P L A N N I N G
Optimal Plan:
Quarter 1
Quarter 2
Beg. inv.
100
150
Reg. time 1
Overtime 1
Subcontract 1
400
Quarter 3
Quarter 4
Ending Inv.
Dummy
80
100
Reg. time 2
Overtime 2
Subcontract 2
400
80
100
Reg. time 3
Overtime 3
Subcontract 3
40
800
100
Reg. time 4
Overtime 4
Subcontract 4
20
100
400
50
500
750
Optimalcost=$2,641
(b)Thecostoftheoptimalplanis$2,641.Alternate
optimalsolutionsarepossible.
(c)Allregulartimeisused.
(d)40unitsarebackorderedinQuarter2andproduced
onovertimeinquarter3atacostof$.50eachfora
totalcostof$20.
900
450
30
100
15
16
CHAPTER 12A G G R E G AT E P L A N N I N G
12.18Assumingthatbackordersarenotpermitted,onesolution,
ofmultipleoptionalsolutions,is:
Totalcost=$90,850
Note:Endinginventoryof20unitsheldtoperiod
6 each require the additional carrying cost of $3 if
produced on regular or overtime. Because they are
optimally produced by subcontracting (which is
available,atanytime),noadditionalcarryingcostis
incurred.
12.19
(a) Method Produce to demand (let workforce vary)
$200
Units
$0
$0
$0
Capacities
Month Demnd Regtm Ovrtm Subcon
Regtm
Ovrtm
Init
Jan
Feb
Mar
Apr
May
June
July
Aug
0
255
294
321
301
330
320
345
340
0
235
255
290
300
300
290
300
290
235
255
290
300
300
290
300
290
20
24
26
1
30
28
30
30
0
15
5
0
0
2
15
20
Tot
2,506
2,260
0
20
24
26
24
30
28
30
30
0
12
16
15
17
17
19
19
20
212
135
Subtotal Costs
2,260 189 57
2,260,000
245,70 102,600
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
20
35
10
0
0
10
0
0
0
0
0
10
0
10
0
0
0
0
75
0
20
0
CHAPTER 12A G G R E G AT E P L A N N I N G
Type
Summary Table
Units
Cost
2,260
189
57
0
0
75
20
$2,260,000
$245,700
$102,600
$0
$0
$0
$0
Regtm
Ovrtm
Subcon
Holdng
Shortg
Increase
Decreas
e
17
0
255
294
321
301
330
320
345
340
0
275
275
275
275
275
275
275
275
Tot
2,506
2,200
Type
0
20
24
26
24
30
28
30
30
0
12
16
15
17
17
19
19
20
212
135
Subtotal Costs
Summary Table
Units
255
275
275
275
275
275
275
275
2,180
2,180,00
0
0
19
26
24
30
28
30
30
$0
$0
$0
0
0
15
2
17
17
19
20
0
0
0
0
0
0
0
0
0
0
5
0
8
0
21
15
0
20
0
0
0
0
0
0
0
0
0
0
0
0
0
0
187 90
243,100 162,000
0
0
49
0
20
0
0
0
Cost
Regtm
2,180
$2,180,000
Ovrtm
187
$243,100
Subcon
90
$162,000
Holdng
0
$0
Shortg
49
$0
Increase
20
$0
Decrease
0
$0
Total cost = $2,585,100, or about $50,000
savings
Capacities
Regtm Ovrtm Subcon
Init
Jan
Feb
Mar
Apr
May
June
July
Aug
0
255
294
321
301
330
320
345
340
0
235
255
290
300
300
290
300
290
Tot
2,506
2,260
0
20
24
26
24
30
28
30
30
0
12
16
15
17
17
19
19
20
212
135
Subtotal Costs
$200
$0
$0
$0
Units
Holdng Shortg Increas Decreas
e
e
Regtm
Ovrtm
Subcon
235
255
290
300
300
290
300
290
20
24
26
1
30
28
30
30
0
15
5
0
0
2
15
20
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
20
35
10
0
0
10
0
0
0
0
0
0
10
0
10
2,260 189
2,260,00 264,600
57
102,600
0
0
0
0
75
0
20
0
18
CHAPTER 12A G G R E G AT E P L A N N I N G
Summary TableOvertime Costs: $1400
Type
Units
Cost
Regtm
2,260
$2,260,00
0
Ovrtm
189
$264,600
Subcon
57
$102,600
Holdng
0
$0
Shortg
0
$0
Increase
75
$0
Decrease
20
$0
Total cost = $2,627,200
Thereisnochangeinthesolutionotherthanhigher
cost.
Init
0
0
0
0
Jan
255
235
20
12
235 20
Feb
294
255
24
16
255 24
Mar
321
290
26
15
290 26
Apr
301
300
24
17
300 1
May
330
300
30
17
300 30
June
320
290
28
19
290 28
July
345
300
30
19
300 30
Aug
340
290
30
20
290 30
Tot
2,506
2,260
212
135
Subtotal
to month
$1,800 $200
$0
$0
$0
Units
Subcon Holdng Shortg Increase Decrea
se
0
15
5
0
0
2
15
20
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
20
35
10
0
0
10
0
0
0
0
0
0
10
0
10
2,260 189 57
$2,260,00 $226,80 $102,60
0
0
0
0
75
0
20
0
2,260
$2,260,000
189
$226,800
57
$102,600
0
$0
0
$0
75
$0
20
$0
Total cost = $2,589,400
Againthereisnochangeinthesolutionotherthan
alowercost.
12.20(a,b)Aggregateplananditscosts
Estimate
d
Billable
Month
hours
Jan
Feb
Mar
Apr
May
June
600
500
1,000
1,200
650
590
Reg. time
CPAs
billable
hours
Reg. Time
cost
Overtime
hours
4
4
4
4
4
4
640
640
640
640
640
640
$20,000
$20,000
$20,000
$20,000
$20,000
$20,000
$120,00
0
40
0
320
320
10
0
650
Totalcost=$120,000+$43,125+$35,000=$198,125
Overtime
cost
$2,500
$0
$20,000
$20,000
$625
$0
$43,12
5
Forrester
hours
Forrester
cost
0
0
40
240
0
0
28
0
0
$0
$5,000
$30,000
$0
$0
$35,00
0
CHAPTER 12A G G R E G AT E P L A N N I N G
19
Estimated
Month
Jan
Feb
Mar
Apr
May
June
Billable
hours
CPAs
Reg.
Time
Billable
Hours
660
550
1,100
1,320
715
649
5
5
5
5
5
5
800
800
800
800
800
800
Reg. Time
Cost
Overtime
Hours
Overtime
Cost
Forrester
Hours
Forrester
Cost
$25,000
$25,000
$25,000
$25,000
$25,000
$25,000
$150,00
0
0
0
300
400
0
0
70
0
$0
$0
$18,750
$25,000
$0
$0
$43,75
0
0
0
0
120
0
0
12
0
$0
$0
$0
$15,000
$0
$0
$15,00
0
(b)Withtheincreaseinbusiness,5accountantsappear
tobenecessary.Thereisstillaneedforovertime
during the tax season (about the same as in
Problem 13.20), but there is a big savings in
Forresters
pay
(which
isdoublethatofovertimeforaregularemployee).
What Cohen needs to do is find additional
accounting activities that his staff can work on
during
the
offpeakseason.
12.22(a)Current modelSingle price at Southeastern
Airlines
Sales 80passengers (Netprice/ seat)
=80 ($140 25) $9,200
(b)Proposedmodeltwopricepoints
is
alwaysparamount.
20
CHAPTER 12A G G R E G AT E P L A N N I N G
CASE STUDIES
1
Normalworkloadduringfallandspringsemesters:
SOUTHWESTERNUNIVERSITY:G
Thiscaseprovidesthestudentwithquantitativeinformationto
develop an aggregate capacity plan, but, as often occurs in
services,demandissovariablethattherearenotmanyviable
staffing alternatives. Students may also be frustrated by the
lackofdetaileddataonthenatureofservicedemandandthe
resources required to meet demand. Even with these
drawbacks,thestudentshouldbeabletogaininsightintothe
aggregate planning problem and help the chief justify his
personnelrequests.Studentsmaywanttotalkwiththepolice
department at their own university to see how it handles
similarproblems.
1.Whichvariationsindemandforpoliceservicesshouldbe
con
sidered in an aggregate plan for resources? Which
variations
canbehandledwithshorttermschedulingadjustments?
Anaggregateplanshouldsetfulltimestaffinglevels;esti
mateparttimeandovertimeneedsforbudgetpurposes;
determine times of the year for training, vacations, and
other nonessential duties; and establish an agreedupon
levelofpoliceservicesfortheuniversitycommunity(i.e.,
Whatroleisthepoliceofficertoplay?Whatresponsetime
tocallsforserviceisappropriate?Whatservicesshouldbe
provided?). Shortterm scheduling adjustments can be
madefordifferentdaysoftheweek, shifts, andspecial
events.
2.Evaluatethecurrentstaffingplan.Whatdoesitcost?Are
26officerssufficienttohandlethenormalworkload?
Costofcurrentstaffingplan:
Salaries:
26 officers $28,000 per year
Overtime:
2,400 hours per year $18 per hour
Subcontractors:
40 officers 9 hours $18 per hour
5 football games per year
25 part-timers 9 hours $9 per hour
5 football games per year
=
$728,000
= $43,200
= $32,400
= $10,125
$813,72
1st shift
2nd shift
3rd shift
Weekday
Weekend
7-day Average
5
5
6
4
6
8
4.7
5.3
6.6
16.
6
Numberof24hourpositionseachweek=16.6/3=5.5
Numberofpersonsrequired=5.5positions
5persons/position
=27.6persons
Normalworkloadduringthesummer:
1st shift
2nd shift
3rd shift
Weekday
Weekend
7-day Average
2.5
2.5
3
2
3
4
2.4
2.7
3.3
8.
4
Numberof24hourpositionseachweek=8.4/3=2.8
Number of persons required = 2.8 positions 5
persons/position
=14persons
Twentysix officers is more than enough to handle the
normal workload during the three summer months.
However,
during
the
remainingninemonthsoftheyear,thepolicedepartmentis
al
most two persons short. Obviously, some overtime is
currently
beingusedtomeetthedemandsofthenormalworkweek.
3.Whatwouldbetheadditionalcostofthechiefsproposal?
Howwouldyousuggestthatthechiefjustifyhisrequest?
Salary:4officers$28,000peryear=$112,000
Overtime: no additional cost, as subcontracting and
overtimecostsarethesame.
Tojustifyhisproposal,thechiefshouldpointoutthat
two
positions(representing$56,000)areneededtopursuethe
universitys request for more crime prevention, safety,
andhealthprograms.Theothertwopositionscouldsaveup
to
$18,720
in
overtime premiums (total OT of 2,400 hours minus
footballgameOTof1,360hourstime$18perhour)and
areneededtomaintainthedesiredlevelofpoliceservices.
Onaperhourbasis,thesalariedservicesaremorecost
effective than using overtime or subcontracting (@
$18/hour).
CHAPTER 12A G G R E G AT E P L A N N I N G
4.Howmuchdoesitcurrentlycosttheuniversitytoprovide
police services for football games? What would be the
prosandconsofsubcontractingthisworkcompletelyto
outsidelawenforcementagencies?
Costofpoliceofficersforfootballgames:
18officerswork8hoursovertime@$18/hr
8officerswork16hoursovertime@$18/hr
40outsideofficerswork9hours@$18/hr
25parttimerswork9hours@$9/hr
5footballgamesperyear
Cost [(18 8 18) (8 16 18) (40 9 18)
(25 9 9)] 5
[2,592 2,304 6,480 2,025] 5
[13,401] 5 $67,005
Subcontractingsecurityforfootballgameswouldrelieve
thewearycampuspoliceandallowthemtoperformtheir
normaldutiesmoreeffectively.However,footballsecurity
ishighlyvisible,andtheabsenceofcampuspolicemay
hurttheirimageintheuniversitycommunityandrobthem
oftheopportunitytoworkcloselywithlawenforcement
personnelfromagenciesinanoncrisissituation.Itmay
alsobedifficultfortheuniversitytomaintainthesame
level of control over subcontracted work, especially in
termsofdiscretionarytreatmentofstudentsandalumni.
Intermsofcost,itisdoubtfulthattheworkcouldbe
subcontracted as cheaply as it is currently performed
becausethecostofsupervisoryandmanagerialpersonnel
wouldhavetobeincludedinthepackage(andcurrently
no supervisors or managers are paid overtime for their
work).
5.Canyouproposeanyotheralternatives?
Many of the innovative suggestions for handling the
variabilityindemandforservicesinvolveusingparttime
workers.Policeofficersrequireextensivetraining,sothis
alternative usually means hiring offduty police officers
fromotheragencies.Underthesecircumstances,thehours
that offduty officers can moonlight are limited, and,
except for football Saturdays, may be hard to schedule
(i.e., all parttime agencies are busy at the same time).
Anotherwaytohandleparttimeorseasonalrequirements
forworkistofindcomplementaryworkforthefulltime
employeesthatfollowsadifferentdemandpattern.Inthis
case,thenonpeakperiodforpoliceservicesfallsduring
the summer months. What other university services
increaseduringthosemonths?Perhapstheidledofficers
could be used as campus guides during summer
orientation, as aides for the summer camps and other
summer programs held on campus, or as part of the
groundscrew.Atleastonesmallprivatecollegeutilizesits
police officers in this expanded fashion. It certainly
increases the officers involvement with the university
community.
2
ANDREWCARTER,INC.
21
Total
Variable
Cost
Total
Fixed
Cost
Total
Cost
$179,730
188,930
$41,000 $220,730
33,500 222,430
183,430
34,000
217,430
Thelowestweeklytotalcost,operatingplants1and3with
2closed,is$217,430.Thisis$3,300perweek($171,600per
year) or 1.5% less than the next most economical solution,
operating all 3 plants. Closing a plant without expanding
capacity of the remaining plants means unemployment. The
optimum solution, using plants 1 and 3, indicates overtime
productionof4,000unitsat3and0overtimeat1.Theall
plantoptimahavenouseofovertimeandincludesubstantial
idleregulartimecapacity:11,000units(55%)inplant2and
either5,000unitsin1(19%ofcapacity)or5,000in3(20%of
capacity).Theidledcapacityversusunemploymentquestionis
an interesting, nonquantitative aspect of the case and could
leadtodiscussionoftheforecastsforthehousingmarketand
thustheplantsproduct.
Theoptimumproducingandshippingpatternis:
From
To (Amount)
Plant 1 (R.T.)
Plant 3 (R.T.)
W2 (13,000); W4 (14,000)
W1 (5,000); W3 (11,000); W4 (1,000); W5
(8,000)
Plant 3 (O.T.) W1 (4,000)
Therearethreealternativeoptimalproducingandshipping
patterns.
Gettingthesolutionmanuallyshouldnotbeattemptedby
hand.
ItwilltakeeighttableauxtodotheAllPlantsconfiguration,
withdegeneracyappearingintheseventhtableau;the1&2
configurationtakesfivetableaux,etc.Itisstronglysuggested
thatPOMforWindows,Excel,orothersoftwarebeused.
22
CHAPTER 12A G G R E G AT E P L A N N I N G
Aggregate Planning
Time periods 52
Shortages: Back ordersCarry shortages from period to
period
All pds
1,900
0
0
$0
$8.00
Pd
Init
April 15
22
29
May 6
13
20
27
June 3
10
17
24
July 1
8
15
22
29
Aug. 5
12
19
26
Sept. 2
9
16
23
30
Oct. 7
14
21
28
Nov. 4
11
18
25
Dec. 2
9
16
23
30
Jan. 6
13
20
27
Feb. 3
10
17
24
Mar. 3
10
17
24
31
Apr. 7
Tot
Demnd
Regtm
73
1,829
1,820
1,887
1,958
2,011
2,063
2,104
2,161
2,258
2,307
2,389
2,434
2,402
2,385
2,330
2,323
2,317
2,222
2,134
2,065
1,973
1,912
1,854
1,763
1,699
1,620
1,689
1,754
1,800
1,864
1,989
2,098
2,244
2,357
2,368
2,387
2,402
2,418
2,417
2,324
2,204
2,188
2,168
2,086
1,954
1,877
1,822
1,803
1,777
1,799
1,803
1,805
107,544
1,900
1,900
1,900
1,900
1,900
1,900
1,900
1,900
1,900
1,900
1,900
1,900
1,900
1,900
1,900
1,900
1,900
1,900
1,900
1,900
1,900
1,900
1,900
1,900
1,900
1,900
1,900
1,900
1,900
1,900
1,900
1,900
1,900
1,900
1,900
1,900
1,900
1,900
1,900
1,900
1,900
1,900
1,900
1,900
1,900
1,900
1,900
1,900
1,900
1,900
1,900
1,900
1,900
98,800
Schedule
Ovrtm Subcon Regtm
0
0
250
0
250
0
250
0
250
0
250
0
250
0
250
0
250
0
250
0
250
0
250
0
250
0
250
0
250
0
250
15
250
173
250
167
250
72
234
0
165
0
73
0
12
0
0
0
0
0
0
0
0
0
0
0
0
0
207
0
250
0
250
0
250
0
250
0
250
0
250
0
250
0
250
0
250
0
250
0
250
0
250
0
250
0
250
0
186
0
54
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
8,931
427
Subtotal Costs
$10
$0.12
$20.0
$5.63 $15.7
3
Units
Ovrtm Subcon Holdng Shortg Incres Decre
s
1,900 250
1,900 250
1,900 250
1,900 250
1,900 250
1,900 250
1,900 250
1,900 250
1,900 250
1,900 250
1,900 250
1,900 250
1,900 250
1,900 250
1,900 250
1,900 250
1,900 250
1,900 250
1,900 234
1,900 165
1,900
73
1,900
12
1,900
0
1,900
0
1,900
0
1,900
0
1,900
0
1,900
0
1,900
207
1,900
250
1,900
250
1,900
250
1,900
250
1,900
250
1,900
250
1,900
250
1,900
250
1,900
250
1,900
250
1,900
250
1,900
250
1,900 250
1,900 250
1,900 186
1,900
54
1,900
0
1,900
0
1,900
0
1,900
0
1,900
0
1,900
0
1,900
0
98,800 8,931
0 71,448
0
0
0
0
0
0
0
0
0
0
0
0
0
0
15
173
167
72
0
0
0
0
0
0
0
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0
0
0
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0
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0
0
0
0
0
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0
0
0
0
0
0
0
427
4,27
394
724
987
1,179
1,318
1,405
1,451
1,440
1,332
1,175
936
652
400
165
0
0
0
0
0
0
0
0
46
183
384
664
875
1,021
1,328
1,614
1,775
1,827
1,733
1,526
1,308
1,071
819
551
284
110
56
18
0
0
0
23
101
198
321
422
519
614
32,949
3,953.9
0
0
0
0
0
0
0
0
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0
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