aggreagate planning

8/6/2019 Aggreagate Planning

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Aggregate planningy Aggregate planning is an operational activity which does an

aggregate plan for the production process, in advance of 2to 18 months, to give an idea to management as to what

quantity of materials and other resources are to beprocured and when, so that the total cost of operations ofthe organization is kept to the minimum over that period.

y The quantity of outsourcing,

y subcontracting of items,

y overtime of labor, numbers to be hired and fired

y the amount of inventory to be held in stock and to bebacklogged for each period are decided.


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Strategicplanning

Aggregateplanning

Master productionscheduling

MRP

Detail scheduling

Long range


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Objectives of A.P

Objective of aggregateplanning frequently isto minimize total cost

over the planninghorizon.

maximize customerservice

minimize inventoryinvestment

minimize changes inworkforce levels

minimize changes inproduction rates

maximize utilization ofplant and equipment


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Aggregate Planning Strategies

Active

Passive or reactive


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Aggregate Planning Strategies

Active strategy

yAttempts to handle fluctuations in demand by

focusing on demand managementy Use pricing strategies and/or advertising and

promotion

y Develop counter-cyclical products

y Request customers to backorder or advance-ordery Do not meet demand


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ass ve s r a e y reac ve

strate y):

yAttempts to handle fluctuations in demand byfocusing on supply and capacity management

yVary size work force size by hiring or layoffsyVary utilization of labour and equipment through

overtime or idle time

y Build or draw from inventory

y Subcontract productiony Negotiate cooperative arrangements with other firms

yAllow backlogs, back orders, and/or stockouts


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y Combines elements of both an active strategy and a

passive (reactive) strategyy Firms will usually use some combination of the two


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What type of strategy is this?

Building and utilizing inventory thro constant work force

Varying the size of work force

Overtime utilization n

Sub-contracting

Making changes in dd pattern


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Approaches to A.P

Level approach

Chaseapproach

Co i atioapproach


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Level Approach

y Capacities (workforce levels, production schedules,output rates, etc.) are kept constant over the planning

horizon.yAdvantages:

y stable output rates and workforce levels

y Disadvantages:

y greater inventory investment is requiredy increased overtime and idle time

y resource utilizations vary over time


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Chase approach

y capacities (workforce levels, production schedules, outputrates, etc.) are adjusted to match demand requirementsover the planning horizon.

y Advantages:

y anticipation inventory is not required, and investment ininventory is low

y labour utilization is kept high

y Disadvantages:

y expense of adjusting output rates and/or workforce levels

y alienation of workforce


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Combination approach


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STEPS IN A.P

If satisfactory plans emerge, select the one that best satisfies objectives. Frequently, this is the plan withthe least cost. Otherwise, return to step 5.

Develop alternative plans and compute the cost for each.

Determine unit costs for units produced.

Identify company, departmental, or union policies that are pertinent. SAFETYSTOCK LEVEL, workforce,backorder policies, overtime policies, inventory level policies, and other less explicit rules such as the

nature of employment with the individual industry, the possibility of a bad image, and the loss ofgoodwill.

Determine capacity for each period. This capacity should match demand, which means itmay require the inclusion of overtime or subcontracting.

Determine demand for each period.


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WHAT'S NEW IN AGGREGATE

PLANNING?y Rudy Hung, "Annualized Hours and Aggregate Planning, Annualized Hours

(AH). Under AH, employees are contracted to work for a certain number ofhours (say 1,800 hours) per year, for a certain sum of money. Employees can be

asked to put in more hours during busy periods and fewer hours in slowperiods.y employees receive equal monthly or weekly payments so that hourly workers in

effect have gained salaried status. Overtime is paid only when employees haveworked beyond their annual hours.

y AH is also known as flexi year, as it can be seen as an extension of flextime, inwhich employees can vary their work hours within limits.

y

gives employers much flexibility. AH serves to cut labor costs by offeringemployees an annual sum less than their previous annual earnings withovertime.

y Employees have greater income security with no worries about layoffs. There isalso increased morale because blue-collar workers are now salaried.


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PostponementyAnother development affecting aggregate planning is

postponement. This refers to delaying the "finish" of a

product until the moment of sale.y Firms that rely on the postponement strategy, such as

PC-maker Dell Inc. or clothing franchise BenettonGroup Sp.A., depend upon the availability of aggregate

inventories of components that can be assembled toorder shortly after, or even immediately, as an order istaken

aggreagate planning

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