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Operations Management by R. Dan Reid & Nada R. Sanders 4th Edition Wiley 2010
Wiley 2010
Learning Objectives
Explain business planning Explain sales and operations planning Identify different aggregate planning strategies & options for changing demand and/or capacity in aggregate plans Develop aggregate plans, calculate associated costs, and evaluate the plan in terms of operations, marketing, finance, and human resources
Describe differences between aggregate plans for service and manufacturing companies
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Integral to part of the business planning process Supports the strategic plan Also known as the production plan Identifies resources required for operations for the next 6-18 months Details the aggregate production rate and size of work force required
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Maintains a constant workforce Sets capacity to accommodate average demand Often used for make-to-stock products like appliances Disadvantage- builds inventory and/or uses back orders Produces exactly what is needed each period Sets labor/equipment capacity to satisfy period demands Disadvantage- constantly changing short term capacity
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Level production rate= 28,000 units/7 periods= 4000 units Level workforce= (4000 units x .64 std.)/160 = 16 people
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Chase hires and fires staff to exactly meet each periods demand Period 1 = (500 units x .64 std.)/160 = 2 people, need to fire 16 people
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Demand-based options
Reactive: uses finished goods inventories and backorders for fluctuations Proactive: shifts the demand patterns to minimize fluctuations e.g. early bird dinner prices at a restaurant Changes output capacity to meet demand Uses overtime, under time, subcontracting, hiring, firing, and part-timers cost and operational implications
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Capacity-based options
Point of Departure
Magnitude of change
Duration of change
Is the length of time a brief seasonal change? Is a permanent change in capacity needed?
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inventories and back orders Plan B: Chase aggregate plan using hiring and firing
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Plan A Evaluation
Fill rate is 83.9% Fill rate is likely to low Inventory levels seem to be okay Human resources fires two employees
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Plan B Evaluation
Plan B costs slightly less than the level plan. Hiring demands ranges from two in November to thirty-four in February Utilization is highest, 70.6%, in December and even lower in the other months Space and equipment are underutilized in every other month of the plan
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Overtime and under time can be used Staff can be hired and fired
Inventory cannot be used to level the service plan All demand must be satisfied or lose business to a competing service provider
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60 4 160 24
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Staff of 69 people creates excessive UT (averages 30% UT) Cost per service call is $46.15 ($708,000 Divided by 15360 calls)
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Costs reduced by $77K and under time to an average of 20% Cost per service call reduced to $41.13 (-$5.02)
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Plan E Chase Aggregate Plan for Nontangible Products Using Hiring and Firing
Total cost reduced by $114K over Plan F, utilization improved to 100%, and cost per service call now $33.72 (-$7.41) Workforce fluctuates from 30-69 people- morale problems Solution?? Compare smaller permanent workforce, more OT??
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The Aggregate plan must balance several perspectives Costs are important but so are:
Customer service
Operational effectiveness Workforce morale
Aggregate planning determines the resources available to operations to support the overall business plan. It is critical that accurate demand forecasts be available (Ch 8) so that a reasonable production plan can be developed. A company needs to determine the aggregate production rate output required to determine the appropriate size of the workforce. After these determinations have been made, the company can calculate its inventory levels, back-order levels, capacity requirements, and customer service levels. If the plan requires seven-day-a-week operations, appropriate staff schedules need to be developed (Ch 15). The aggregate plan specifies the number of employees needed. This allows company to determine how much equipment and workspace is needed, as well as to provide the input needed for developing a workplace layout (Ch 9) within the operations area. Aggregate planning provides the resources needed by operations to achieve the companys strategic objective.
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Aggregate planning, MPS, and rough-cut capacity affection functional areas throughout the organization
Accounting is affected because aggregate plan details the resources needed by operations Marketing as the aggregate plan supports the marketing plan Information systems maintains the databases that support demand forecasts and other such information
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Chapter 13 Highlights
Planning begins with the development of the strategic business plan that provides company direction & objectives for the next two to ten years. Sales and operations planning integrates plans from the other functional areas and regularly evaluates company performance. The level aggregate plan maintains the same size workforce and produces the same output each period. Inventories and backorders absorb fluctuations in demand. Chase aggregate plans change the capacity each period to match demand.
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Demand patterns can be smoothed through pricing incentives, reduced prices for out-ofseason purchases, or nonprime service times. The difference in aggregate planning for companies that do not provide a tangible product is that the option to use inventories is not available
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Problem 13.1: level strategy allowing backorders. Calculate the production rate and workforce level. Develop the plan, calculate the costs, and evaluate the strategy. Problem 13.3-4: chase strategy. 3) Calculate the production rate and workforce levels. 4) Develop the plan, calculate the costs, and evaluate the strategy. Problem 13.5: chase strategy with overtime. Calculate the production rate and workforce levels. Develop the plan, calculate the costs, and evaluate the strategy.