Aggregate Planning and Scheduling

The Planning Process The Nature of AP AP Strategies

Mary Janette J. Malabanan

Aggregate Planning
Determine the resource capacity needed to meet demand over an intermediate time horizon (usually 3-18 months)
Aggregate refers to product lines or families Aggregate planning matches supply and demand

Objectives
Establish a company wide game plan for allocating resources Develop an economic strategy for meeting demand

The Planning Sequence

Corporate strategies and policies Economic, competitive and political conditions Aggregate demand forecasts

Business Plan Aggregate Plan

Establishes operations and capacity strategies

Establishes operations capacity

Master Schedule

Establishes schedules for specific products

Aggregate Planning Process

Meeting Demand Strategies

Adjusting capacity
Resources necessary to meet demand are acquired and maintained over the time horizon of the plan Minor variations in demand are handled with overtime or under-time, part-time

Managing demand
Proactive Reactive Mixed

Strategies for Adjusting Capacity/Demand

Level production
Producing at a constant rate and using inventory to absorb fluctuations in demand

Overtime and undertime

Increasing or decreasing working hours

Chase demand
Hiring and firing workers to match demand

Subcontracting
Let outside companies complete the work

Shift peak to off-peak

Pricing Promos New demand

Outsourcing
Alternative to subcon; on a regular basis

Part-time workers
Hiring part time workers to complete the work

Strategies for Managing Demand

Shifting demand into other time periods
Incentives Sales promotions Advertising campaigns

Offering products or services with countercyclical demand patterns Partnering with suppliers to reduce information distortion along the supply chain

Level Production
Demand Production

Units

Time

Chase Demand
Demand Production

Units

Time

Quantitative Techniques For APP

Pure Strategies Mixed Strategies Linear Programming Transportation Method Other Quantitative Techniques

Pure Strategies
QUARTER SALES FORECAST (LB) 80,000 50,000 120,000 150,000

Example:

Spring Summer Fall Winter

Hiring cost = $100 per worker Firing cost = $500 per worker Regular production cost per pound = $2.00 Inventory carrying cost = $0.50 pound per quarter Production per employee = 1,000 pounds per quarter Beginning work force = 100 workers

Level Production Strategy

Level production (50,000 + 120,000 + 150,000 + 80,000) = 100,000 pounds 4 QUARTER SALES FORECAST PRODUCTION PLAN INVENTORY

Spring Summer Fall Winter

80,000 50,000 120,000 150,000

100,000 100,000 100,000 100,000 400,000

20,000 70,000 50,000 0 140,000

Cost of Level Production Strategy (400,000 X $2.00) + (140,00 X $.50) = $870,000

Chase Demand Strategy

QUARTER SALES PRODUCTION FORECAST PLAN WORKERS NEEDED WORKERS WORKERS HIRED FIRED

Spring Summer Fall Winter

80,000 50,000 120,000 150,000

80,000 50,000 120,000 150,000

80 50 120 150

0 0 70 30 100

20 30 0 0 50

Cost of Chase Demand Strategy (400,000 X $2.00) + (100 x $100) + (50 x $500) = $835,000

Mixed/Hybrid Strategy
Combination of Level Production and Chase Demand strategies Examples of management policies
no more than x% of the workforce can be laid off in one quarter inventory levels cannot exceed x dollars

Many industries may simply shut down manufacturing during the low demand season and schedule employee vacations during that time

Hierarchical Nature of Planning

Items
Product lines or families

Production Planning
Aggregate production plan

Capacity Planning
Resource reqts plan

Resource Level
Plants

Individual products

Master production schedule

Rough-cut capacity plan

Critical work centers

Components

Material reqts plan

Capacity reqts plan

All work centers

Manufacturing operations

Shop floor schedule

Input/ output control

Individual machines

The Output of Aggregate Planning is a Production Schedule for family groupings of products. For example, It tells us how many cars to make, But it does not indicate how many of them Should be two-doors, and how many will be four-doors.

A manufacturer firm needs more information to operate.

We must know what quantities will be produced for each type of product AND what time. The process of breaking the Aggregate Plan down into greater detail is called

DisAggregation

DisAggregation
Results in Master Production Schedule (MPS).

This schedule specifies: The sizing and timing of specific item production quantities, The sizing and timing of manufactured or purchased components, The sequence of individual orders or jobs, and The short-term allocation of resources to individual operations.

Master Production Schedule

MPS specifies what is to be made AND when. Many organizations first establish an MPS, AND then Fix the near-term portion of the plan. (This portion is called Frozen) After freezing the plan, Only changes beyond the Fixed Schedule are permitted. MPS is a STATEMENT OF PRODUCTION, It is Not a Forecast.

Depending on the type of operation, MPS can be expressed in terms of: Either 1) An end item in a make-to-stock company, or 2) A customer order in a make-to-order (jobshop) company, or 3) Modules in an assemble-to-order company.

Master Production Schedule

Assume that, this weeks Demand for product A is 50 units.

Each unit of A requires two units of B and three units of C. Each unit of B requires two units of D and three units of E. Each unit of C requires one unit of E and two units of F. Each F requires one unit G and two units of D.

Therefore, demand for B,C,D,E,F,G is completely dependent on the demand for A. Once we develop product structure, we can get the number of units required to satisfy demand for Product A.

Management should also determine when the products are going to be needed. In order to be able to provide each component at the required timing; processing times, waiting times, setup times, moving times of a production must also be known. The total of all these times is called the LEAD TIME for that product.

Material Requirements Planning Structure

Once, management can make a forecast of the demand for the final product, the quantities required for all components can be computed exactly; such dependent computing techniques are then used in a Production Environment, and they are called Material Requirements Planning (MRP).

Although most MRP systems are computerized, the analysis is straightforward.

Ingredients of an MRP system are MPS, BOM, Inventory and Purchase Records, and Lead Times for each item.

Effective use of Dependent Inventory Models requires the Knowledge of the following items:
Master Production Schedule (What is to be made and when) Bills-of-Material (A list of Materials that are used in making the product)

Inventory in Stock (What do have already in the stock)

Purchase Orders (What is actually ordered, when they should be delivered) Lead times (How long it takes to get the specific components of the product).

UMBRELLA

Aggregate Planning. (n.d.). Retrieved January 2012, from eNotes: http://www.enotes.com/aggregate-planningreference/aggregate-planning American Psychological Association. (n.d.). APA Style for Electronic Resources. Publication Manual of the American Psychological Association , 174-179.

Cholette, D. S. (n.d.). Chapter 8 Aggregate Planning in a Supply

Chain; Chapter 9 Outline: Sales and Operations Planning.

Retrieved January 2012, from San Francisco State University: http://online.sfsu.edu/~cholette/SDCM/ppt/SCCchapters8-9.pdf

Freeman, P. D. (n.d.). Chapter 12 Class Notes on Objectives: Aggregate Planning. Retrieved January 2012, from California State University Sacramento: http://www.csus.edu/indiv/f/freemand/Class%20Notes/Ch%2 012%20objectives.htm Heizer, J. H., & Render, B. C. (2006). Operations Management (8th ed.). New Jersey: Pearson-Prentice Hall Inc. Reid, R. D., & Sanders, N. R. (2010). Operations Management: An Integrated Approach (4th ed.). Massachusetts: John Wiley & Sons.

SourceAid, LLC. (2004). APA writing style. Osterville, MA, U.S.A. Sparling, D. (2004, May). Dave Sparling's Homepage: Tutorial on Excel's Solver. Retrieved January 2012, from University of Guelph: http://www.uoguelph.ca/~dsparlin/aggregat.htm Stevenson, C. (2010). Operations Management: An Asian Perspective (9th International ed.). New York: The McGraw-Hill Companies. W. J., & Chuong, S.

Russell, R., & Taylor III, B.W. (2006). Chapter 16 Scheduling [PowerPoint Slides]. Retrieved from http://www.slideshare.net/ahmad1957/schedulingpresentation-769464 Kumar, P. (2011). Unit II Aggregate Planning [PowerPoint Slides]. Retrieved from http://www.slideshare.net/birubiru/aggregate-planning6908863

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