Aggregate Production Planning: Introduction

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.

Objectives of Aggregate Planning

i. The overall objective is to balance conflicting objectives involving customer service, work force stability, cost and profit. ii. To establish company-wide strategic plan for allocating resources. iii.To develop an economic strategy to meet customer demand.

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.

Planning Supply and Demand with Predictable Variety

Managing predictable variability Predictable variability: change in demand that can be forecasted Goal: respond to max. profitability Broad options:
Manage supply using capacity, inventory, sub-contracting, and backlogs Manage demand using short-term price discounts and trade promotions

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.

Typical Approach to Managing Supply and Demand

Marketing manages demand Operations manages supply Best when marketing and operations coordinate

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.

Managing Supply
Control variables;
Production capacity Inventory

Managing capacity. Approaches:

Time flexibility from workforce (OT and otherwise) Use of seasonal workforce Use of subcontracting Use of dual facilities dedicated (steady state) and flexible (for fluctuations) Designing product flexibility into the production process (more expensive
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.

Managing Supply
Managing inventory. Approaches:
Using common components across multiple products Build inventory of high demand or predictable demand products

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.

Planning Relationships
Business or annual plan Production or staffing plan MPS or workforce schedule
Figure 1
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.

Managerial Inputs(importance of aggregate plan)

Operations Current machine capacities Plans for future capacities Workforce capacities Current staffing level Distribution and marketing Customer needs Demand forecasts Competition behavior

Materials Supplier capabilities Storage capacity Materials availability

Aggregate plan

Accounting and finance Cost data Financial condition of firm

Engineering New products Product design changes Machine standards

Human resources Labor-market conditions Training capacity

Figure 2
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.

Aggregate Planning Objectives

Minimize Costs/Maximize Profits Maximize Customer Service Minimize Inventory Investment Minimize Changes in Production Rates Minimize Changes in Workforce
Levels Maximize Utilization of Plant and Equipment
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.

Aggregate Planning Strategies

Strategy
1. Chase #1: vary workforce level to match demand 2. Chase #2: vary output rate to match demand 3. Level #1: constant workforce level

Possible Alternatives during Slack Season

Layoffs Layoffs, undertime, vacations No layoffs, building anticipation inventory, undertime, vacations Layoffs, building anticipation inventory, undertime, vacations

Possible Alternatives during Peak Season

Hiring Hiring, overtime, subcontracting No hiring, depleting anticipation inventory, overtime, subcontracting, backorders, stockouts Hiring, depleting anticipation inventory, overtime, subcontracting, backorders, stockouts

4. Level #2: constant output rate

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.

Aggregate Planning Process

Determine requirements for planning horizon Identify alternatives, constraints, and costs Prepare prospective plan for planning horizon

No

Is the plan acceptable?

Move ahead to next planning session

Yes Implement and update the plan

Figure 3
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.

Aggregate Planning Costs

Regular-time Costs Overtime Costs Subcontracting Costs Hiring and Layoff Costs Inventory Carrying Costs Backorder and Stockout Costs
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition 2002 Prentice Hall, Inc. All rights reserved.