Professional Documents
Culture Documents
Planning
Operations Management
by
R. Dan Reid & Nada R. Sanders
4th Edition © Wiley 2010
© Wiley 2010 1
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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The Role of Aggregate
Planning
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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The Role of the Aggregate Plan
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Types of Aggregate Plans
Level Aggregate Plans
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
Chase Aggregate Plans
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 Plan Example
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 Plan Example
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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Types of Aggregate Plans con’t
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Aggregate Planning Options
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
Capacity-based options
Changes output capacity to meet demand
Uses overtime, under time, subcontracting, hiring, firing,
and part-timers – cost and operational implications
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Evaluating the Current Situation
Important to evaluate current situation in
terms of:
Point of Departure
Current % of normal capacity
Options are different depending on present situation
Magnitude of change
Larger changes need more dramatic measures
Duration of change
Is the length of time a brief seasonal change?
Is a permanent change in capacity needed?
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Developing the Aggregate Plan
Step 1- Choose strategy: level, chase, or Hybrid
Step 2- Determine the aggregate production rate
Step 3- Calculate the size of the workforce
Step 4- Test the plan as follows:
Calculate Inventory, expected hiring/firing, overtime needs
Calculate total cost of plan
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Aggregate Plans for Companies
with Tangible Products
Plan A: Level aggregate plan using
inventories and back orders
Plan B: Chase aggregate plan using hiring
and firing
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Problem Data for Plans A & B
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Plan A - Level Using Inventory &
Backorders
First
calculate
the level
production
rate
(14400/8=
1800)
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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 – Chase Aggregate
Plan Using Hiring and Firing
Using the same
problem data
as previous
example,
develop a
chase
aggregate plan
using hires and
fires but no
overtime
production.
© Wiley 2010 16
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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Aggregate Plans for Service Companies
with Non-Tangible Products
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Problem Data for Plans C, D, and E
A B
4 Cost Data
5 Regular time labor cost per hour $8.00
6 Overtime labor cost per hour $12.00
7 Subcontracting cost per unit (labor only) $60.00
8 Hiring cost per employee $250.00
9 Firing cost per employee $150.00
10
11 Capacity Data
12 Beginning workforce (employees) 60
13 Service standard per call (hours) 4
14 Regular time available per period (hours) 160
15 Overtime available per period (hours) 24
16
17 Demand Data (calls)
18 Period 1 2400
19 Period 2 1560
20 Period 3 1200
21 Period 4 2040
22 Period 5 2760
23 Period 6 1680
24 Period 7 1320
25 Period 8 2400
26
27 Total Number of Periods 8
28
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Plan C – Level Aggregate Plan with
No Back Orders or Tangible Product
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Aggregate Planning Across the
Organization
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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Chapter 13 Highlights con’t
Demand patterns can be smoothed through
pricing incentives, reduced prices for out-of-
season 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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Chapter 13 Homework Hints
All problems are based on The BackPack Company.
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.