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Aggregate Planning
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Top-Down Example
Pennington Cabinets
12 month
sales forecast

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Top-Down Example
Pennington Cabinets
Table 10.3
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Top-Down Example
Pennington Cabinets
Forecast
exceeds capacity
in peak months

Figure 10.3
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Top-Down Example
Pennington Cabinets
Translate the Sales Forecast into Resource Requirements

For example:

April
800 * 20 = 16,000 hrs
16,000/160 = 100 wkrs
Table 10.4
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Alternative Production Plans
Level production plan A S&OP plan in which
production is held constant and inventory is used
to absorb the differences between production and
the sales forecast.
Chase production plan A S&OP plan in which
production is changed in each time period to
match the sales forecast.
Mixed production plan - A S&OP plan that varies
both production and inventory levels in an effort
to develop the most effective plan.



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Level Production Plan
Table 10.5
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Level Production Plan
Actual Workers
Hold workforce constant at 105 (average workforce
over 12-month planning horizon)

Regular Production
105 x (160 hours per month/20 hours per set) = 840
sets per month or 10,080 sets per year
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Level Production Plan
Hiring and Layoffs
Hire 5 workers in January to bring the workforce up to
105 from the initial level of 100.
Layoff 5 workers at the end to bring the workforce
back to its starting level.
Ensures equal comparison of alternative plans under the same
beginning and ending conditions.

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Level Production Plan
Inventory Levels

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Level Production Plan
Cost of the Plan
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Chase Production Plan
Actual workforce production and overtime
production vary so that total production
essentially matches sales for each month.
Inventory never builds up because total
production chases sales.
There are more hires and layoffs and overtime
production costs.
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Chase Production Plan
Table 10.6
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Chase Production Plan
Cost of the plan
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Mixed Production Plan
By varying the production and inventory levels,
the best plan can be developed.
The number of potential mixed plans is essentially
limitless.
For example, overtime may be limited to 12
cabinet sets per month in October and November.
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Mixed Production Plan
Table 10.7
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Mixed Production Plan
Cost of the Plan
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Bottom-Up Planning
Steps are similar to top-down planning.
Main difference is that the resource requirements
for each product or service must be evaluated
individually and then added up across all products
or services to get a picture of overall
requirements.
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Bottom-Up Example




Although machine hour requirements are similar,
labor requirements differ greatly.



Table 10.8

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Bottom-Up Example
Table 10.9

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Bottom-Up Example
The difference in labor requirements becomes
important when the product mix changes.
Even though the aggregate forecast across both
product lines is 700 units each month, the product
mix changes, as can be seen in the labor hours
needed each month.
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Bottom-Up Example
Load Profile A
display of future
capacity requirements
based on released
and/or planned orders
over a given span of
time.

Figure 10.4

2010 APICS Dictionary
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Cash Flow Analysis
Net cash flow The net flow of dollars into or out
of a business over some time period.

Net cash flow = cash inflows cash outflows
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Cash Flow Analysis
Different sales scenarios can have a significant effect on cash flow as shown above.

Figure 10.5
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Choosing between Plans
What impact will the plan have on key suppliers
and transportation providers?
What are the cash flows like?
Do the supply chain partners and the firm itself
have the space needed to hold any planned
inventories?
Does the plan contain significant changes in the
workforce?
How flexible is the plan?
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Example - Relationships
Basic Relationships
Workforce

Number of
workers in a
period =
Number of
workers at end of
previous period +
Number of
new workers
at start of the
period -
Number of
laid off
workers at
start of the period
Inventory

Inventory at
the end of
a period =
Inventory at end
of the
previous
period +
Production in
current
period -
Amount used to
satisfy
demand in
current
period
Cost

Cost for a
period =
Output Cost
(Reg+OT+Sub) +
Hire/Lay Off
Cost + Inventory Cost +
Back-order
Cost

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Technique 3: Simulation Example
Level Output
Period 1 2 3 4 5 6 Total
Forecast 200 200 300 400 500 200 1800

Policy: Level Output Rate of 300 per period
Output Cost
Regular 300 300 300 300 300 300 1800 $2
Overtime $3
Subcontract $6
Output-Forecast 100 100 0 -100 -200 100 0
Inventory
Beginning 0 100 200 200 100 0
Ending 100 200 200 100 0 0
Average 50 150 200 150 50 0 600 $1
Backlog 0 0 0 0 100 0 100 $5
Costs
Regular $600 $600 $600 $600 $600 $600 $3,600
Inventory $50 $150 $200 $150 $50 $0 $600
Back Orders $0 $0 $0 $0 $500 $0 $500
Total Cost of Plan $650 $750 $800 $750 $1,150 $600 $4,700
Average Inventory= (Beginning Inventory + Ending Inventory)/2
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Technique 3: Simulation Example
Level Output + Overtime
Period 1 2 3 4 5 6 Total
Forecast 200 200 300 400 500 200 1800

Policy: Level Output Rate+Overtime
Output Cost
Regular 280 280 280 280 280 280 1680 $2
Overtime 40 40 40 0 120 $3
Subcontract $6
Output-Forecast 80 80 20 -80 -200 -180 0
Inventory
Beginning 0 80 160 180 100 0
Ending 80 160 180 100 0 0
Average 40 120 170 140 50 0 520 $1
Backlog 0 0 0 0 80 0 80 $5
Costs
Regular $560 $560 $560 $560 $560 $560 $3,360
Overtime $0 $0 $120 $120 $120 $0 $360
Inventory $40 $120 $170 $50 $0 $0 $520
Back Orders $0 $0 $0 $0 $400 $0 $400
Total Cost of Plan $600 $680 $850 $730 $1,080 $560 $4,640
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Aggregate Plans for Services
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