Planning Process

Aggregate Planning Scheduling Decisions

Operations Management
Short Medium
Chapter 13 range range
Long range

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Five questions of aggregate

Aggregate
Combining appropriate resources into
general or overall terms
Disaggregation
Breaking up components of aggregate
plan into detailed aspects
planning
Should inventories be used to absorb
changes in demand during the planning
period?
Should changes be accommodated by
varying the size of the workforce?
Should part-timers be used, or should
overtime and idle time absorb fluctuations?
Should subcontractors be used on
fluctuating orders so a stable workforce can
be maintained?
Should prices or other factors be changed
to influence demand?

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Capacity options Demand options

Changing inventory levels Influencing demand
Varying workforce size by Back ordering during high-demand
hiring/layoffs periods
Varying production rates Counter-seasonal product and
through overtime or idle service mixing
time
Subcontracting
Using part-time workers

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1
Mixing Options Aggregate Planning Methods
Chase strategy Graphical and Charting Method
Hire & fire Transportation Method of Linear
employees to meet Programming
demand levels
Look for OPTIMAL solution
Level strategy
Management Coefficients
Maintain constant
level of company Use of heuristics
employees Others
LDR- optimum production rate and workforce
size for specific period
Simulation----OPSIM

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Powers Ladder Manufacturing

Graphical and Charting Method Month Expected Production Demand per
Demand Days day

Easiest to Use January 500 22

February 600 18
Many solutions
March 600 21
May not choose optimal solution April 700 21
May 700 22
June 800 20
July 900 21
August 900 21
September 800 20
October 700 22
November 600 20
December 600 18

Chris Schrage OPS 13 9 Chris Schrage OPS 13 8400 246 10

Daily Demand
Month Expected
Demand
Production
Days
Demand per
day
Demand
January 500 22 23
50
February 600 18 34
45 January
March 600 21 29 40 February
April 700 21 34 March
35 April
May 700 22 32 30 May
June
June 800 20 40 25 July
July 900 21 43 20 August
September
August 900 21 43 15 October
10 November
September 800 20 40 December
5
October 700 22 32
0
November 600 20 30
December 600 18 34

Average requirement= 8400/246 = 34 per day Average requirement= 8400/246 = 34 per day
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2
 Constant workforce level
Cost Information Month Production
34 units/day
Demand
forecast
Inventory
Change
Ending
Inventory

January
Backorder (shortage) cost per ladder February
$10 per month March
Inventory carrying cost April

$3 per month May

June
Present work force- 700 ladders/ month July
Cost is $ 70 per ladder at 700/mo. August
Cost is $75 for each ladder OVER 700/mo. September
If less than 700 ladders/mo. Cost is $82 per October
ladder November
December

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Calculations
Month Production Demand Inventory Ending Lenova Computer, Ltd
34 units/day forecast Change Inventory
2152 units carried @ $3 per unit = $6456

Beginning inventory
444 units shortage @ $10/unit = $4,440

January 748 500 +248 248

100 units
February 612 600 +12 260
Month Demand Stockout cost
March 714 600 +114 374
$50 per unit
April 714 700 +14 388
January 1000 Inventory Holding Cost
May 748 700 +48 436
$10 per unit based on count
June 680 800 -120 316 February 1200 at months end
July 714 900 -186 130 Sub-contracting
August 714 900 -186 -56 March 1400 $40 extra per unit
September 680 800 -120 -176 Maximum of 1500 extra units
April 1200 per month
October 748 700 +48 -128
Overtime
November 680 600 +80 -48 May 1500 Maximum of 200 units per
December 612 600 +12 -36
month
Additional Costs $3832 $10,896 June 1300 $10 extra per unit
200 units over 700 per month @$5 = $1000 Plan 1- Produce at 1200/month and subcontract to meet demand
236 units under
Chris Schrage OPS 13 700 per month @$12 = $2832 15 PlanChris
2-Schrage
produce
OPS 13 at 1100 / month and use overtime to meet demand16

Plan 1 Beginning Inventory = 100 Plan 2a Beginning Inventory = 100

Month Demand production Ending Holding Subcon- Total cost

Inventory cost trator Month Demand Production Ending Holding Overtime Total cost
cost Inventory cost

January 1000 1200 +300 3000 3000 January 1000 1100 +200 2000 2000
February 1200 1200 +300 3000 6000 February 1200 1100 +100 1000 3000
March 1400 1200 +100 1000 7000 March 1400 1100 0 2000 5000
April 1200 1200 +100 1000 8000 April 1200 1100 0 2000 7000
May 1500 1200 0 8000 16000
May 1500 1100 -100 5000 2000 14000
June 1300 1200 0 4000 20000
June 1300 1100 -100 5000 2000 21000
$50 per unit stockout
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3
 Plan 2b Beginning Inventory = 100 Plan 3 Beginning Inventory = 100

Month Demand Production Ending Holding Overtime Total cost

Month Demand production Ending Holding Overti Total cost Inventory cost
Inventory cost me
January 1000 1300 +400 4000 4000
January 1000 1100 +200 2000 2000
February 1200 1300 +500 5000 9000
February 1200 1100 +100 1000 1000 4000
March 1400 1300 +400 4000 13000
March 1400 1100 0 2000 6000
April 1200 1300 +300 3000 16000
April 1200 1100 2000 8000
May 1500 1300 +100 1000 17000
May 1500 1100 2000 10000
June 1300 1300 +100 1000 18000
June 1300 1100 2000 12000

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Plan comparison Transportation Model

Method of linear
Plan Cost
programming
Plan 1 $20,000 Attempts to find the
optimal solution
Plan 2a $21,000 The Schedule-Sequencing Problem
Edward H. Bowman
Operations Research, Vol. 7, No. 5 (Sep. - Oct., 1959) , pp.
Plan 2b $12,000 621-624
Assembly-Line Balancing by Linear Programming
E. H. Bowman
Plan 3 $18,000 Operations Research, Vol. 8, No. 3 (May - Jun., 1960) , pp. 385-
389

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Transportation Table
Allocate production capacity to meet demand at a minimum cost. Assume
Transportation Table the initial inventory has no holding cost in the initial period

To Demand Demand Demand

From Month 1 Month 2 Month 3 Excess Supply Demand
Initial Period Regular Time Overtime Subcontract
Inventory Forecast
Regular Time
Month 1
Overtime 1 30 10 5 40
Month 1
Subcontract Time
Month 1 2 35 12 5 50
Regular Time
Month 2
Overtime
Month 2
3 30 10 5 40
Subcontract Time
Month 2
Regular Time
Month 3
Initial Inventory 20 units
Overtime
Month 3 Regular-time cost/unit $100
Subcontract Time
Month 3
Overtime cost/unit $150
Subcontract cost/unit $200
Chris Schrage OPS 13 23 Carrying cost/unit-month
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4
 Transportation Table
Results Allocate production capacity to meet demand at a minimum cost. No initial
or ending inventory.
To Dem and De mand Dem and
From Month 1 M onth 2 Month 3 Exces s Tim e Supply Regular Demand
Period Overtime Subcontract
Initial 0 4 8 0 Time Forecast
Inventory 20 20
Regular Tim e 100 104 108 0
Month 1 20 10 30 1 235 20 12 255
Overtim e 150 154 158 0
Month 1
Subcontract Tim e 200 204 208
10
0
10
2 255 24 15 294
Month 1 5 5
Regular Tim e
Month 2 35
100 104 0
35
3 290 26 15 321
Overtim e 150 154 0
Month 2
Subcontract Tim e
5
200 204
7
0
12
4 300 24 17 301
Month 2
Regular Tim e 100
5
0
5
Initial Inventory 0 units
Month 3 30 30
Overtim e 150 0 Regular-time cost/unit $985
Month 3 10 10
Subcontract Tim e
Month 3
200
5
0
5
Overtime cost/unit $1310
DEMAND 40 50 40 32
2000 5290 4500 Subcontract cost/unit $1500
Total Cost $11,790
Chris Schrage OPS 13 25 Carrying cost/unit-month
Chris Schrage OPS 13 $100 26

To Demand Demand Demand Demand

From Month 1 Month 2 Month 3 Month 4 Excess Time Supply
To Demand Demand Demand Demand Regular Time 985 1085 1185 1285
From Month 1 Month 2 Month 3 Month 4 Excess Time Supply
Month 1 235 235
Regular Time
Overtime 1310 1410 1510 1610
Month 1
Month 1 20 20
Overtime
Subcontract Time 1500 1600 1700 1800
Month 1
Month 1 12 12
Subcontract Time
Regular Time 985 1085 1185
Month 1
Month 2 255 255
Regular Time
Overtime 1310 1410 1510
Month 2
Month 2 24 24
Overtime
Subcontract Time 1500 1600 1700
Month 2
Month 2 15 15
Subcontract Time
Regular Time 985 1085
Month 2
Month 3 290 290
Regular Time
Overtime 1310 1410
Month 3
Month 3 26 26
Overtime
Subcontract Time 1500 1600
Month 3
Month 3 5 10 15
Subcontract Time
Regular Time 985
Month 3
Month 4 300 300
Regular Time
Overtime 1310
Month 4
Month 4 1 23 24
Overtime
Subcontract Time 1500
Month 4
Month 4 17 17
Subcontract Time
DEMAND 255 294 321 301 62
Month 4
257,675 305,115 327,210 296,810
DEMAND TOTAL 1,186,810

TOTAL

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Services Restaurants
Cost of labor is Critical Smoothing production rate
Assure response to customer needs Appropriate workforce size
Allow for on-call resources
Flexibility in skill base
Personal flexibility for work scheduling

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5
Small service industries Airline Industry
Copyworks Flights in and out
H&R Block Number of flights
Number of
passengers
serviced
Air and ground
personnel
Fare allocation

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Yield Management Yield management issues

Revenue management Multiple pricing structures
Attempt to maximize profit (or yield) Forecasts of use and duration of the
In response to perish-ability of service offerings use
Characteristics Changes in demand
Can be sold in advance of consumption
Demand fluctuates
Capacity if relatively fixed
Demand can be segmented
Variable costs low-fixed costs high

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Yield Management Matrix

Price
Tend to be fixed Tend to be variable
Predictable

Quadrant 1 Quadrant 2
Duration of Use

Movies Hotels
Convention centers Airlines
Unpredictable

Quadrant 3 Quadrant 4

Restaurants Nursing homes

Golf courses Rehabilitation centers

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