Dr. Venkateswara Rao.

Korasiga
IDENTIFY OR DEFINE:
Aggregate planning
Tactical scheduling
Graphic technique for aggregate planning
Mathematical techniques for planning
DESCRIBE OR EXPLAIN:
How to do aggregate planning
How service firms develop aggregate plans




Aggregate Planning Process
Strategies for Adjusting Capacity
Strategies for Managing Demand
Quantitative Techniques for
Aggregate Production Planning
Hierarchical Nature of Planning
Aggregate Planning for Services
Copyright 2006 John Wiley &
Sons, Inc. 13-3
Aggregate planning helps to meet better
customer service.
This is cross functional effort between Sales,
finance, product development and Operations
The process helps a company get demand
and supply balance and keep them in balance
over time.
This balance must occur at an aggregate level
Details are hard to gather for longer horizons
Demand for Christmas turkeys at Tom Thumbs vs
Thanksgiving turkeys
Details carry a lot of uncertainty: aggregation
reduces variability
Demand for meat during Christmas has less variability than
the total variability in the demand for chicken, turkey, beef,
etc.
If there is variability why bother making detailed
plans, inputs will change anyway
Instead make plans that carry a lot of flexibility
Flexibility and aggregation go hand in hand

Aggregate planning: General plan
Combined products = aggregate product
Short and long sleeve shirts = shirt
Single product
Pooled capacities = aggregated capacity
Dedicated machine and general machine = machine
Single capacity
Time periods = time buckets
Consider all the demand and production of a given
month together
Quite a few time buckets
When does the demand or production take place in a time
bucket?

Firm must take decisions pertaining to
Output rates,
employment levels changes, I
inventory level changes,
back orders,
Subcontracting.
Appropriate resource
input mix to be used
Output mix



Phases of Decisions
Strategy or design: Forecast
Planning: Forecast
Operation Actual demand
Since actual demands differs from forecasts
so does the execution from the plans.
A firms plan of manufacturing activities at a
variety of levels and Operates as a system
Aggregate planning is a medium-range
capacity planning typically covers time
horizon of 3 to 18 months.
The goal is to effectively utilize firms
resources to satisfy expected demand.


Qualitative
Delphi Method
Historical Analogy
Nominal Group Technique
Executive committee Consensus
Market Research
Time series
Simple Moving average
Weighted Moving Average
Exponential Smoothing
Causal Models
Regression Aanalysis


Forecasts are always wrong. Should include
expected value and measure of error.
Long-term forecasts are less accurate than short-
term forecasts. Too long term forecasts are
useless: Forecast horizon
Forecasting to determine
Raw material purchases for the next week
Annual electricity generation capacity in TX for the next 30
years
Aggregate forecasts are more accurate than
disaggregate forecasts
Variance of aggregate is smaller because extremes cancel
out
Two samples: {3,5} and {2,6}. Averages of samples: 4 and 4.
Variance of sample averages=0
Variance of {3,5,2,6}=5/2
Several ways to aggregate
Products into product groups
Demand by location
Demand by time







Time Fences divide a scheduling time horizon into
three sections or phases, referred as frozen,
slushy, and liquid.
Strict adherence to time fence policies and rules.

Period
frozen
(firm or
fixed)
slushy
somewhat
firm
liquid
(open)
1 2 3 4 5 6 7 8 9
Aggregate planning: Intermediate-range
capacity planning, usually covering 2 to 12
months. In other words, it is matching the
capacity and the demand.


Short
range
Intermediate
range
Long range
Now 2 months 1 Year
Short-range plans (Detailed plans)
Machine loading
Job assignments
Intermediate plans (General levels)
Employment
Output
Long-range plans
Long term capacity
Location / layout
Product/Process design

Resources
Workforce
Facilities
Demand forecast
Policy statements
Subcontracting
Overtime
Inventory levels
Back orders
Costs
Inventory
carrying
Back orders
Hiring/firing
Overtime
Inventory
changes
subcontracting

Total cost of a plan
Projected levels of inventory
Inventory
Output
Employment
Subcontracting
Backordering
Proactive
Alter demand to match capacity
Reactive
Alter capacity to match demand
Mixed
Some of each


Chase demand
Level production
Subcontracting
Overtime/Undertime
Employing temporary workers
Backordering

CHASE METHOD: The chase method helps
firms match production and demand by
hiring and firing workers as necessary to
control output
Cost of strategy hiring and firing workers
This strategy would not be feasible for industries
which require highly skilled labor or where
competition for labor is fierce.
This strategy would be cost effective during
periods of high unemployment or when low-skilled
labor is acceptable.
DISADVANTAGES Cost of fluctuating workforce
levels.
Potential damage to employee morale.


Demand for chocolate is high during the
winter months. Facilitated by the location of
Hersheys manufacturing facility, the
company hires farmers from the surrounding
areas to aid in meeting demand
When demand drops in the spring and
summer months the farmers are let go and
thus able to return the their fields.

A rapidly growing television manufacturer is looking at way to
reduce costs. They are currently using a level production
strategy and wish to know if switching to a chase strategy
would be more cost effective. Given the following data
compare the two methods to determine which one has the
lowest cost.
Quarter Demand Forecast
1 100,000
2 90,000
3 130,000
4 160,000
Hiring cost = $300
Firing cost = $500
Inventory carrying cost = $1.50 per unit per quarter
Production per employee = 400 units per quarter
Beginning workforce = 300 workers

The level method allows for a constant rate of
production and uses inventory levels to
absorb fluctuations in demand.
Cost of strategy holding items in inventory.
Tends to be the preferred strategy of many
organizations, including labor
ADVANTAGES:
Reduced inventory costs.
High levels of worker utilization
Worker levels and production output are
stable.
High inventory costs.
Increased labor costs




Pricing
Price reduction leads to higher demand
Promotion
Not necessarily via pricing
Free delivery, free after sale service
Some Puerto Rico hotels pay for your flight
Back orders
Short selling: Sell now, deliver later
New demand
Finding alternative uses for the product

Hire and layoff workers, unions are pivotal
Layoff: Emotional stress
Fired Moulinex (appliances producer in France) workers start fire
at the plant
Hire: Availability of qualified work force
Operators at semiconductor plants
Overtime/slack time
How to use slack time constructively? Training.
Overtime is expensive, low quality, prone to accidents
Part-time workers
35 hour work week of Europe
Inventories, To smooth demands
Subcontracting. Low quality. Reveals technological secrets

Capacity (regular time, over time, subcontract)
Inventory
Backlog / lost sales: Customer patience?
Basic Strategies
Chase (the demand) strategy; Matching capacity to demand; the
planned output for a period is the expected demand for that
period
fast food restaurants
Time flexibility from high levels of workforce or capacity;
machining shops, army
Level strategy; Maintaining a steady rate of regular-time output
while meeting variations in demand by a combination of
options.
swim wear

30
U
s
e

i
n
v
e
n
t
o
r
y

Use delivery time
Demand
Demand
Demand
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
Inputs:
Determine demand for each period
Determine capacities for each period
Identify policies that are pertinent
Determine units costs
Analysis
Develop alternative plans and costs
Select the best plan that satisfies objectives


Volume
Time
Firm Orders
Forecasts
Frozen Zone
Flexi ble Zone
Business Plan
operations
Output Planning Capacity Planning




Aggregate Output
Planning
MPS
MRP
Aggregate Capacity
Planning
Rough-cut-Capacity
Planning
Detailed Capacity
Planning




Shop floor
control
Loading
Sequencing
Detailed
Scheduling
Short term Capacity Control
Expediting
1. Information on required level of output to be
produced.
inventory levels, backlogs on the business
plans
2. Should utilize facilities capacities in an efficient
manner and the usage should be consistent with
organizational strategy
Utilizing full capacity or keeping cussion for sudden
demand
3. Employer policies
Hiring firing or permanent employment


Aggregate
Planning
Operation current
Machine Capacities
Plans for future
capacities
Work Force capacities
Current Staffing Level
Materials
Supplier capabilities
storage capacity
Materials availability
Engineering
New products
Product design -
changes
Machine
Human Resources
Labor-market
conditions
training
Accounting and
Finance Cost data
Financial condition
of firm
Distribution and
Marketing customer
needs
Demand forecasting
Competition
X- axis Cumulative productive days for the planning time
period; Y- axis(vertical) the cumulative demand forecast for
the entire planning time period is plotted.
Based on aggregating planning goals, a planning strategy is
selected. Proposed output for each period is the planning
horizon is computed and plotted on the same axis used to
plot the demand.
The planned output is compared with expected demand and
periods of excess inventory and shortages are identified.
The cost involved in the implementation of the plan are
calculated.
The plan is modified in a way to meet aggregate planning
goals by repeating the steps2 to 4 until a satisfactory plan is
essential.
Fig of graph is in the next slide
Cumulative
demand
Cumulative
output
Excess Demand




Inventory
accumulation


Production days in planning horizon

U
n
i
t
s

o
f

o
u
t
p
u
t

Linear programming: Methods for
obtaining optimal solutions to problems
involving allocation of scarce resources in
terms of cost minimization.

Minimize Costs
Subject to: Demand, capacity, initial inventory
requirements

Technique Solution Characteristics
Graphical/
charting
Trial and
error
Intuitively appealing, easy to
understand; solution not
necessarily optimal.
Linear
programming
Optimizing Computerized; linear assumptions
not always valid.
Simulation Trial and
error
Computerized models can be
examined under a variety of
conditions.

Linear decision rule?
For a short planning range 2-4
months:
Master schedule: The result of
disaggregating an aggregate plan;
shows quantity and timing of
specific end items for a scheduled
horizon.
Rough-cut capacity planning:
Approximate balancing of capacity
and demand to test the feasibility
of a master schedule.

Aggregate
Planning
Disaggregation
Master
Schedule
Decisions: Future impact on
Strategies for : after
consideration of different
variables which influence the
production plan.
Pure planning strategies depends
on
Fluctuation in demand
Uncertain production facilities
Size of work force
Inventory levels
Back orders
Subcontracting
Plant capacity
When one of the strategy
opted exclusively, it is a
pure strategy.
Graphical Method for Aggregate Output
Planning.
Optimal model for aggregate planning
Linear Programming
Linear decision rules (LDR)
Heuristic models
Computer search Models
Computer simulation in Capacity Evaluation


Aggregate production planning is a vital
tool to aid firms in balancing supply and
demand.
All possible strategies should be considered
initially and then eliminated based on cost
and organizational policy.
While pure strategies such as chase demand
and level production may work for some
firms, most tend to use a mixed strategy.

Two dimensional model relating cumulative
demand to cumulative output capacity
It is one of the techniques used in developing
and evaluating various alternatives plans or
combination of these alternatives
The method evaluates various alternative
plans and identifies the best plan through
trial and error.

PRELIMINARY MPS
MRP
CRP
FINAL MASTER PRODUCTION SCHEDULE
Does the
MPS need
any
adjustments
?

THANK YOU
THE END