AGGREGATE PLANNING

Planning Horizon

Aggregate planning: Intermediaterange capacity planning, usually covering 2 to 12 months.

Long range Intermediate range

Short range Now

2 months

1 Year

Overview of Planning Levels

Short-range plans (Detailed plans)
Machine loading Job assignments

Intermediate plans (General levels)

Employment Output

Long-range plans
Long term capacity Location / layout

Planning Sequence
Corporate strategies and policies Economic , competitive , and political conditions Aggregate demand forecasts

Business Plan

Aggregate plan

Establishes operations and capacity strategies Establishes operations capacity

Master schedule

Establishes schedules for specific products

Production Process Design

Long Term Capacity Planning

Aggregate Planning Forecast Master Production Schedule Demand Material Requirements Planning Individual Order Scheduling

Hierarchical Nature of Planning

Items
Product lines or families

Production Planning
Aggregate production plan

Capacity Planning

Resource Level
Plant s

Resource requirement s plan

Individual produ cts

Master production schedule

Rough - cut capacity plan

Critical work centers

Components

Material requirement s plan

Capacity requirements plan

All work center s

Manufacturing operations

Shop floor schedul e

Input / output control

Individual machines

Copyright 2006 John Wiley & Sons, Inc.

A g g re g a te P l n n i g a n Pro ce ss

 Proactive Reactive

Aggregate Planning Strategies

Managing demand to match capacity Adjusting capacity to match demand

Mixed
Some of each

Meeting Demand Strategies

Managing demand
Proactive demand management

Adjusting capacity
Resources necessary to meet demand are acquired and maintained over the time horizon of the plan

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Strategies for Managing Demand

Shifting demand into other time periods
Incentives Sales promotions Advertising campaigns

Partnering with suppliers to reduce information distortion along the supply chain
Copyright 2006 John Wiley & Sons, Inc. 10

Strategies for Adjusting Capacity

Level production
Producing at a constant rate and using inventory to absorb fluctuations in demand

Overtime and undertime

Increasing or decreasing working hours

Chase demand
Hiring and firing workers to match demand

Subcontracting
Let outside companies complete the work

Part-time workers
Hiring part time workers to complete the work

Peak demand
Maintaining resources for high-demand levels

Backordering

Providing the service or product at a later Copyright 2006 John Wiley & Sons, Inc. 11 time period

Level Production
Demand Productio n

Units

Time
Copyright 2006 John Wiley & Sons, Inc. 12

Chase Demand
Demand Productio n

Units

Time
Copyright 2006 John Wiley & Sons, Inc. 13

Aggregate Planning Inputs

Resources
Workforce Facilities

Costs
Inventory carrying Back orders Hiring/firing Overtime Inventory changes subcontracting

Demand forecast Policies

Subcontracting Overtime Inventory levels Back orders

Quantitative Techniques For APP

Pure Strategies Mixed Strategies Linear Programming Transportation Method Other Quantitative Techniques

Copyright 2006 John Wiley & Sons, Inc.

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Pure Strategies
Example:

QUARTER March June September December

SALES FORECAST ( Kg ) 80 , 000 50 , 000 1 , 20 , 000 1 , 50 , 000

Hiring cost = Rs100 per worker Firing cost = Rs 500 per worker Regular production cost per Kg = Rs 2 . 00 Inventory carrying cost = Rs 0 . 50 per kg per quarter Production per employee = 1 , 000 kg per quarter Beginning work force = 100 workers

Level Production Strategy

Le ve lp ro d u cti n o ( 80 , 000 + 50 , 000 + 1 , 20 , 000 + 1 , 50 , 000 ) = 1 , 00 , 000 kg 4 SALES FORECAST PRODUCTION PLAN 1 ,0 0 ,0 0 0 1 ,0 0 ,0 0 0 1 ,0 0 ,0 0 0 1 ,0 0 ,0 0 0 4 0 0 ,0 0 0 Strategy X 0 . 50 ) =

QUARTER M a rch J ne u S e p te m b e r D e ce m b e r

INVENTORY 2 0 ,0 0 0 7 0 ,0 0 0 5 0 ,0 0 0 0 1 4 0 ,0 0 0 Rs 870 , 000

8 0 ,0 0 0 5 0 ,0 0 0 1 ,2 0 ,0 0 0 1 ,5 0 ,0 0 0 T O TA L Cost of Level Production ( 400 , 000 X 2 . 00 ) + ( 140 , 00

Copyright 2006 John Wiley & Sons, Inc.

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Chase Demand Strategy

QUARTER SALES FORECAST PRODUCTION PLAN WORKERS NEEDED WORKERS HIRED WORKERS FIRED

March 80 , 000 June 50 , 000 September 1 , 20 , 000 December 1 , 50 , 000

80 , 000 50 , 000 1 , 20 , 000 1 , 50 , 000

80 50 120 150 TOTAL

0 0 70 30 100

20 30 0 0 50

Cost of Chase Demand Strategy 400,000 X 2.00) + (100 x 100) + (50 x 500) = Rs 835,000

Mixed Strategy
Combination of Level Production and Chase Demand strategies Examples of management policies
no more than x% of the workforce can be laid off in one quarter inventory levels cannot exceed x dollars

Many industries may simply shut down manufacturing during the low demand season and schedule employee vacations during that time
Copyright 2006 John Wiley & Sons, Inc. 19

 LP gives an optimal solution, but demand and costs must be linear Let

General Linear Programming (LP) Model

Wt = workforce size for period t Pt =units produced in period t It =units in inventory at the end of period t Ft =number of workers fired for period t Ht = number of workers hired for period t
Copyright 2006 John Wiley & Sons, Inc. 20

Subject to

LP MODEL Minimize Z =Rs 100 (H1 + H2 + H3 + H4) + Rs 500 (F1 + F2 + F3 + F4) + Rs 0.50 (I1 + I2 + I3 + I4)

P1 - I1 = Demand I1 + P2 - I2 = constraints I2 + P3 - I3 = I3 + P4 - I4 = Production 1000 W1 = constraints 1000 W2 = 1000 W3 = 1000 W4 = 100 + H1 - F1 = Work force W1 + H2 - F2 = constraints W2 + H3 - F3 = W3 + H4 - F4 =

80,000 50,000 1,20,000 1,50,000 P1 P2 P3 P4 W1 W2 W3 W4

(1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12)

Transportation Method
EXPECTED DEMAND REGULAR CAPACITY OVERTIME CAPACITY SUBCONTRACT CAPACITY

QUARTER

1 2 3 4

900 1500 1600 3000

1000 1200 1300 1300

100 150 200 200

500 500 500 500

Regular production cost per unit Rs 20 Overtime production cost per unit Rs 25 Subcontracting cost per unit Rs 28 Inventory holding cost per unit per period Rs 3 Beginning inventory 300 units

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Transportation Tableau
PERIOD OF USE PERIOD OF PRODUCTION Beginning Inventory Regular Overtime Subcontract Regular Overtime Subcontract Regular Overtime Subcontract Regular Overtime Subcontract 300 600 20 25 28 1200 1 2 3 4

1
0 300

2
3 23 28 31 20 25 28 1300 200 100

3
6 26 31 34 23 28 31 20 25 28 150 250 500 1300 200 500 100

4
9

Unused Capacity

Capacity
300

29 34 37 26 31 34 23 28 31 20 25 28 250 250

1000 100 500 1200 150 500 1300 200 500 1300 200 500

Demand

900

1500

1600

3000

23