OPERATIONS

MANAGEMENT
“AGGREGATE
SCHEDULING”

KELOMPOK 3
Azminullah Al Ridha
Diah Paramitha
Hefrandy H
M Hadianto Mubarak
Renaldi Mukriyanto
Teni Krisnaningsih Page 1
AGENDA

Page 2
 Aggregate Planning
Aggregate planning determines the quantity
and timing of resources that are required to
match immediate periodic demand for all
products. Objective is to satisfy market demand for
products while minimizing cost over the
planning period by adjusting
Production rates
Labor levels
Inventory levels
Overtime work
Subcontracting
Other controllable variables

Page 3
 Aggregate Planning
Required for aggregate planning
 A logical overall unit for measuring sales
and output
 A forecast of demand for intermediate
planning period in these aggregate units
 A method for determining costs
 A model that combines forecasts and costs
so that scheduling decisions can be made
for the planning period

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The Planning Process

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Planning Horizons
Responsible
Short-range plans : Operations
Job assignments managers
Ordering
Job scheduling
Intermediate-range plans
Dispatching
Sales planning Responsible:
Production planning and Top
budgeting executives
Responsible Setting employment, inventory, Long-range plans
: Operations subcontracting levels R&D
managers, Analyzing operating plans New product plans
supervisors, Capital expenses
foremen Facility location, expansion

Today 3 Months 1 year 5 years

Planning Horizon

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 AGGREGATE PLANNING
STRATEGIES
The Question for Operations Manager
When generating an aggregate plan, the operations manager must answer several questions :

1. should inventories be used to absorb

changes in demand during the
planning period?
2. should changes be accomodated by
varying the size of workforce?
3. should part-timers be used, or should
overtime and idle time absorb
fluctuation?
4. should subcontractors be used on
fluctuating orders so a stable
workforce can be maintained?
5. should prices or other factors be
changed to influence demand?

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Relationships of the Aggregate Plan

Marketplace Product Research and

and Demand Decisions Technology

Demand Process
Forecasts, Planning & Capacity
orders Decisions Work Force
Raw Materials
Available
Aggregate Inventory On
Plan for Hand
Production
External
Capacity
Subcontractors
Master
Production
Schedule, and MRP systems

Detailed Work
Schedules
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 AGGREGATE PLANNING
STRATEGIES
Capacity Options
A firm can choose from the following basic capacity
(production) options :

1. Changing inventory levels

2. Varying workforce size by hiring or
layoffs
3. Varying production rates through
overtime or idle time
4. Subcontracting
5. Using part-time workers

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 AGGREGATE PLANNING
STRATEGIES
Demand Options
The basic demand options are :
1. Influencing demand
2. Back ordering during high demand periods
3. Counterseasonal product and service mixing

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 AGGREGATE PLANNING
STRATEGIES
Mixing Options to Develop a Plan

Level Chase
Strategy Strategy

Production
Production rate is
equals
constant
demand

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 Aggregate Planning Options
Option Advantages Disadvantages Some Comments
Changing Changes in Inventory holding Applies mainly to
inventory human resources cost may production, not
levels are gradual or increase. service,
none; no abrupt Shortages may operations
production result in lost
changes sales.

Varying Avoids the costs Hiring, layoff, and Used where size of
workforce of other training costs labor pool is large
size by hiring alternatives may be
or layoffs significant

Table 13.1
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 Aggregate Planning Options
Option Advantages Disadvantages Some Comments
Varying Matches seasonal Overtime Allows flexibility
production fluctuations premiums; tired within the
rates through without hiring/ workers; may not aggregate plan
overtime or training costs meet demand
idle time

Sub- Permits flexibility Loss of quality Applies mainly in

contracting and smoothing of control; reduced production
the firm’s output profits; loss of settings
future business

Table 13.1
Page 13
 Aggregate Planning Options
Option Advantages Disadvantages Some Comments
Using part- Is less costly and High turnover/ Good for unskilled
time workers more flexible training costs; jobs in areas with
than full-time quality suffers; large temporary
workers scheduling labor pools
difficult

Influencing Tries to use Uncertainty in Creates marketing

demand excess capacity. demand. Hard to ideas.
Discounts draw match demand to Overbooking
new customers. supply exactly. used in some
businesses.

Table 13.1
Page 14
 Aggregate Planning Options
Option Advantages Disadvantages Some Comments
Back ordering May avoid Customer must be Allows flexibility
during high- overtime. Keeps willing to wait, within the
demand capacity but goodwill is aggregate plan
periods constant. lost.

Counter- Fully utilizes May require skills Risky finding

seasonal resources; allows or equipment products or
product and stable workforce outside the firm’s services with
service areas of expertise opposite demand
mixing patterns

Table 13.1
Page 15
 METHODS FOR
AGGREGATE PLANNING

MATHEMATIC
GRAPHICAL
AL
METHODS
APPROACHES

Comparison of Aggregate Planning Methods

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 METHODS FOR
AGGREGATE PLANNING
Five steps in the graphical
method:

1.Determine the demand in each

period
2.Determine capacity for regular
time, overtime, and
subcontracting each period
3.Find labor costs, hiring and
MATHEMATICAL
layoff costs, and inventory holding
costs
APPROACHES
4.Consider company policy that
may apply to the workers or to
stock levels
5.Develop alternative plan and
Exam
examine their total cost ple

Comparison of Aggregate Planning Methods

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 METHODS FOR
AGGREGATE PLANNING

Some of the mathematical

approaches to aggregate
planning:

GRAPHICAL -The Transportation Method of

Linear Programming
METHODS - Management Coefficient Model

- other models (Linear Decision

Rule & Simulation)
Exam
ple

Comparison of Aggregate Planning Methods

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 METHODS FOR
AGGREGATE PLANNING

MATHEMATIC
GRAPHICAL
AL
METHODS
APPROACHES

Examp
Comparison of Aggregate Planning Methods le

Page 19
Example of Graphical Method

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 Level vs. Chase Strategy
Forecast demand
Production rate per working day

70 – Level production using average

monthly forecast demand
60 –

50 –

40 –

30 –

0 –
Jan Feb Mar Apr May June = Month
     
22 18 21 21 22 20 = Number of
working days
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 Planning Example 1
7,000 –

6,000 –
Reduction
of inventory
Cumulative demand units

5,000 –
Cumulative level
4,000 – production using
average monthly
3,000 – forecast
requirements
2,000 –

1,000 – Cumulative forecast

requirements
–
Excess inventory

Jan Feb Mar Apr May June

Figure 13.4
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Example of Graphical Method – 3 strategies plan

information

Plan 1

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Example of Graphical Method – 3 strategies plan

Plan 2

Plan 3

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Example of Graphical Method – 3 strategies plan

Plans Comparison

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Example of Transportation Method

Information

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 Farnsworth’s Transportation
Period 1 Period 2
Table
Period 3 Unused Total Capacity
(Mar) (Apr) (May) Capacity Available
(Dummy) (Supply)
Beginning 0 2 4 0
Inventory 100 100
Regular 40 42 44 0
700 700
Overtime 50 52 54 0
50 50
Subcontract 70 72 74 0
150 150

Regular X 40 42 0
700 700
Overtime 50 52 0
X 50 50
Subcontract 70 72 0
X 50 100150

Regular 40 0
X X 700 700
Overtime 50 0
X X 50 50
Subcontract 70 0
X x 130
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Total 800 1000 750 2302780
 Comparison of 4 Major
Aggregate Planning
Technique Methods
Solution Approaches Important Aspects
Graphical methods Trial and error Simple to understand and
easy to use. Many solutions;
one chosen may not be
optimal

Transportation method of Optimization LP software available;

linear programming permits sensitivity analysis
and new constraints; linear
functions may not be
realistic

Management coefficients Heuristic Simple, easy to implement;

model tries to mimic manager’s
decision process; uses
regression

Simulation Change parameters Complex; model may be

difficult to build Page 28
and for
 Aggregate Planning in
Services
Controlling the cost of labor in service firms is critical. Successful techniques
include:
1.Accurate scheduling of labor-hours to assure quick response to customer
demand
2.An On-call labor resource that can be added or deleted to meet unexpected
demand
3.Flexibility of individual worker skillsoptions
These that permits reallocation
may seem of available
demanding, but they are
labor not unusual in service industries, in which labor is
4.Flexibility in rate of output or hours of work toaggregate
the primary meet changing demand.
planning vehicle. For
instance
1.Excess capacity is used to provide study and
planning time by real estate and auto
salespersons.
2.Police and fire departments have provisions for
calling in off-duty personnel for major
emergencies. Where the emergency is extended,
police or fire personnel may work longer hours
and extra shifts.
3.When business is unexpectedly light,
restaurants and retail stores send personnel
home early,
4.Supermarket stock clerks work cash Page 29
registers
 Five service scenarios:

1. Restaurants
2. Hospitals
3. National Chains of Small Service Firms
4. Miscellaneous Service
5. Airline Industry

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 Restaurants
In a business with a highly variable demand, such as a
restaurant, aggregate scheduling is directed toward:
1.Smoothing the production rate, and
2.Finding the optimal size of the workforce.
The general approach usually requires building very modest
levels of inventory during slack periods and depleting inventory
during peak periods, but using labor to accommodate most of the
changes in demand.

Hospitals
Face aggregate planning problems in
Allocating money, staff, and supplies to
meet the demands of patients. The
necessary labor focus of its aggregate
plan has led to the creation of a new
floating staff pool serving each nursing
pod.
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National Chains of Small Service Firms
Both purchases and production capacity may be centrally planned when
demand can be influence through special promotions. This approach to
aggregate scheduling is often advantageous because it reduces costs and
helps manage cash flow at independent sites.
Miscellaneous Services
Most “miscellaneous services provide intangible output. Aggregate
planning for these services deals mainly with planning for human
resource requirements and managing demand. The twofold goal is to level
demand peaks and to design methods for fully utilizing labor resources
during low-demand periods.
This planning is considerably more complex than
Airline Industry aggregate planning for a single site or even for a
number of independent sites.
Aggregate planning consists of tables or
schedules for:
1.Number of flights in and out of each hub;
2.Number of flights on all routes;
3.Number of passengers to be serviced on all
flights;
4.Number of air personnel and ground personnel
required at each hub and airport; and
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5.Determining the seats to be allocated to various
 YIELD MANAGEMENT

Yield (or revenue) management is the aggregate

planning process of allocating the company’s scarce
resources to customers at price that will maximize yield or
revenue.
Organization that have perishable
inventory, such as airlines, hotels, car
rental agencies, cruise lines, and even
electrical utilities, have the following
shared characteristics that make yield
management of interest:
1.Service or product can be sold in
advance of consumption
2.Demand fluctuates
3.The resource (capacity) is relatively
fixed
4.Demand can be segmented
5.Variable costs are low and fixed
Pagecosts
33
 YIELD MANAGEMENT MATRIX

Price
Tend to be uncertainTend to be predictable
TendtobeFixed Tendtobevariable

Quadrant1: Quadrant2:

Movies Hotels
Stadiums/ arenas Airlines
Conventioncenters Rental cars
Hotel meetingspace Cruiselines
Use

Quadrant 3: Quadrant 4:

Restaurants Hospitals
Golf courses Continuingcare
Internetservice
providers

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To make Yield Management work, the company needs to manage
three issues:

1.Multiple pricing structures: these structures must be

feasible and appear logical (and preferably fair) to
the customer. Such justification may take various
forms, for example, first-class seats on an airline or
the preferred starting time at a golf course.

2.Forecasts of the use and duration of the use: How

many economy seats should available? How much
will customers pay for a room with an ocean view?

3.Changes in demand: this means managing the

increased use as more capacity is sold. It also
means dealing with issues that occur because the
pricing structure may not seem logical and fair to all
customers. Finally, it means managing new issues,
such as overbooking because the forecast was not
perfect.
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 A MANAGERIAL
PERSPECTIVE ON
AGGREGATE PLANNING
“Geoff Buxey”

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 Abstract

Aggregate Planning first appeared in the literature nearly 40 years ago and
has proven a popular topic for research ever since. However, industry
seems to have ignored repeated claims that there are algorithms available
which would yield significant cost savings. This paper explores the
divergence between theory and practice, via an empirical study covering 30
firms.

Most authors have blamed weaknesses in particular methods for the lack of
applications. The evidence presented here indicates that the Aggregate
Planning model itself is at fault, and that the broad characteristics of real
production plans follow from other business, tactical, or operational
considerations. Furthermore, a chase option is generally preferred at the
outset.

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 Aggregate Planning

The Aggregate Planning model was developed as a vehicle for minimizing the
total marginal costs of manufacturing a range of products with a strong
seasonal sales pattern

The principal discretionary costs are :

•overtime (and undertime)
•shift
•Subcontract
•Premiums
•payments related to hiring
•firing any additional staff.

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 Industrial Practice

A study was conducted, involving 30 manufacturers, to find out exactly how

production planning occurs in practice. The sample included both large and
small companies, capital and labour intensive processes, and a range of
different industries across three states, but all had a recognised seasonal
problem.

The main areas of discussion were the general

business environment and objectives, resources
and production planning, shopfloor processes and
constraints, and, flexibility.

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 Business Strategy

From a business perspective the ideal situation is "level" aggregate

production in conjunction with a "chase" plan by model.

The priority order to maximise sales revenue and to spread fixed costs thinly
via high utilisation of plant and equipment. The latter maximises cash flow and
minimises financial risk (unsold production).

The ways that they have gone about this are:

• develop complementary products

• redesign models according to the season
• export to the northern hemisphere
• market engineering skills and become
subcontractors

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 Schedulling Tactics
Aggregate Planning is aimed at this stage of the production planning
hierarchy where the most cost-effective schedule is defined in broad terms.
Simply convinced that these tactics bring superior results.

Nowaday industries are focuses on eliminating all forms of waste and non-
value adding work and has a much greater impact than trying to "optimise" a
static production model. The second major reason for choosing chase tactics
is to build in flexibility. Flexibility implies good customer service without
sacrificing high productivity

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 Operational Factors
Strategic and tactical decisions largely determine the nature of production
planning at 23(78%) of the 30 companies surveyed. The remainder are each
influenced by special characteristics generally related to either the product or
the processes, which can be categorised as follows:
•short product shelf life (crumpets, beer, meat pies);
•bulky or awkward products (beer, petrol, cement, hoses, pine landscaping
products);
•seasonal raw materials (convenience foods);
•long training times (marine distress flares, wood heaters, colour television
sets);
•ownership of retail outlets (gas barbecues).
The objective is to balance the costs of holding
inventory against the costs of batch changeovers
(mainly waste materials). No labour charges are
involved so the chase philosophy dominates. The
actual size of the flexible workforce is determined by
running the model in experimental mode every
quarter, adjusting its provisional numbers for the last
nine months of the one year horizon by trial and error.
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 Operations Management

The multiple objectives of production planning can be summarised:

• maximise sales revenue,
• spread fixed costs,
• provide a high level of customer service,
• good labour and materials productivity,
• minimise obsolescence,
• maximise liquidity,
• maintain scheduling flexibility,
• establish good employee relations.

There is no "hiring and firing" of temporary

staff. The most common arrangement is to
employ casual workers for several months
on mutually agreed terms.

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 Conclusions
The investigation reveals that Aggregate Planning is never undertaken in the
way promoted by the literature. There is no product
aggregation/disaggregation, although the initial forecasts and schedules may
be simplified by using family groups to which minor finish or packaging details
are added later.

The problem is tackled at three levels, strategic, tactical, and operational.

Two examples from the literature show that linear programming can also be
applied successfully to formulate an MPS.

The literature believes that greater sophistication, via

integration to avoid sub-optimisation, is the key to
advances in production planning, although it cannot as
yet come up with a comprehensive model.

This research shows that in real life good guidelines,

prudence, and flexibility are more important, although
there may be room for computerised decision support
systems in developing the former. Page 44
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