aggregate planning + mps +capacity planning

7/31/2019 Aggregate Planning + MPS +Capacity Planning

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Sales and Operations Planning Activities

Long-range planning Greater than one year planning horizon

Usually performed in annual increments

Medium-range planning

Six to eighteen months

Usually with monthly or quarterly increments

Short-range planning

One day to less than six months

Usually with weekly increments


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Master scheduling

Material requirements planning

Order scheduling

Weekly workforce and

customer scheduling

Daily workforce and customer scheduling

Process planning

Strategic capacity planning

Sales and operations (aggregate) planning

Long

range

Intermediate

range

Short

range

Manufacturing

Services

Aggregate

Planning

Sales plan Aggregate operations plan

Forecasting

& demand

management


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The Aggregate Operations Plan

Main purpose: Specify the optimal combinationof

production rate (units completed per unit oftime)

workforce level (number of workers)

inventory on hand (inventory carried fromprevious period)

Product group or broad category (Aggregation) This planning is done over an intermediate-

range planning period of 6 to18 months


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Balancing Aggregate Demandand Aggregate Production Capacity

0

2000

4000

6000

8000

10000

Jan Feb Mar Apr May Jun

45005500

7000

10000

8000

6000

0

2000

4000

6000

8000

10000


4500 4000

90008000

4000

6000

Suppose the figure tothe right representsforecast demand inunits

Now suppose thislower figure representsthe aggregate capacityof the company to

meet demand

What we want to do isbalance out theproduction rate,workforce levels, andinventory to makethese figures match up


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Required Inputs to the Production Planning System

Planningfor

production

External

capacity

Competitorsbehavior

Raw materialavailability

Marketdemand

Economic

conditions

Current

physical

capacity

Current

workforce

Inventory

levels

Activities

required

for

production

External

to firm

Internal

to firm


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Aggregate Planning Examples: Unit Demandand Cost Data

Materials $5/unitHolding costs $1/unit per mo.

Marginal cost of stockout $1.25/unit per mo.

Hiring and training cost $200/worker

Layoff costs $250/worker

Labor hours required .15 hrs/unitStraight time labor cost $8/hour

Beginning inventory 250 units

Productive hours/worker/day 7.25

Paid straight hrs/day 8

Suppose we have the following unit

demand and cost information:

Demand/mo Jan Feb Mar Apr May Jun

4500 5500 7000 10000 8000 6000


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Days/mo 22 19 21 21 22 20

Hrs/worker/mo 159.5 137.75 152.25 152.25 159.5 145

Units/worker 1063.33 918.33 1015 1015 1063.33 966.67

$/worker $1,408 1 ,216 1 ,344 1 ,344 1 ,408 1 ,280

Productive hours/worker/day 7.25

Paid straight hrs/day 8

Demand/mo Jan Feb Mar Apr May Jun

4500 5500 7000 10000 8000 6000

Given the demand and cost information below, whatare the aggregate hours/worker/month, units/worker, anddollars/worker?

7.25x22

7.25x0.15=48.33 &

48.33x22=1063.3322x8hrsx$8=$1408

Cut-and-Try Example: DeterminingStraight Labor Costs and Output


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Chase Strategy(Hiring & Firing to meet demand)

Jan

Days/mo 22

Hrs/worker/mo 159 .5

Units/wo rke r 1 ,0 63 .3 3

$ /worker $1 ,408

Jan

Demand 4 ,500

Beg. inv. 250

Net req. 4 ,250Req. workers 3 .997

Hired

Fired 3

W orkforce 4

Ending inventory 0

Lets assume our current workforce is 7workers.

First, calculate net requirements forproduction, or 4500-250=4250 units

Then, calculate number of workersneeded to produce the netrequirements, or4250/1063.33=3.997 or 4 workers

Finally, determine the number ofworkers to hire/fire. In this case weonly need 4 workers, we have 7, so3 can be fired.


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Jan Feb Mar Apr May JunDays/mo 22 19 21 21 22 20

Hrs/worker/mo 159.5 137.75 152.25 152.25 159.5 145

Units/worker 1,063 918 1,015 1,015 1,063 967

$/worker $1,408 1,216 1,344 1,344 1,408 1,280


Demand 4,500 5,500 7,000 10,000 8,000 6,000

Beg. inv. 250

Net req. 4,250 5,500 7,000 10,000 8,000 6,000

Req. workers 3.997 5.989 6.897 9.852 7.524 6.207

Hired 2 1 3

Fired 3 2 1

Workforce 4 6 7 10 8 7

Ending inventory 0 0 0 0 0 0

Below are the complete calculations for the remainingmonths in the six month planning horizon


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Demand 4,500 5,500 7,000 10,000 8,000 6,000Beg. inv. 250

Net req. 4,250 5,500 7,000 10,000 8,000 6,000

Req. workers 3.997 5.989 6.897 9.852 7.524 6.207

Hired 2 1 3

Fired 3 2 1

Workforce 4 6 7 10 8 7

Ending inventory 0 0 0 0 0 0

Jan Feb Mar Apr May Jun Costs

Mate rial $ 21 ,2 50 .0 0 $ 2 7,5 00 .0 0 $ 3 5,0 00 .0 0 $ 50 ,0 00 .0 0 $ 40 ,0 0 0.0 0 $ 30 ,0 00 .0 0 2 03 ,7 50 .0 0

Labor 5,627.59 7,282.76 9,268.97 13,241.38 10,593.10 7,944.83 53,958.62

Hiring cost 400.00 200.00 600.00 1,200.00

Firing cost 750.00 500.00 250.00 1,500.00

$260,408.62

Below are the complete calculations for the remaining months inthe six month planning horizon with the other costs included


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Level Workforce Strategy(Surplus and Shortage Allowed)

Jan

Demand 4,500

Beg. inv. 250

Net req. 4,250

Workers 6

Production 6,380Ending inventory 2,130

Surplus 2,130

Shortage

Lets take the same problem asbefore but this time use theLevel Workforce strategy

This time we will seek to usea workforce level of 6 workers


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Demand 4,500 5,500 7,000 10,000 8,000 6,000

Beg. inv. 250 2,130 2,140 1,230 -2,680 -1,300

Net req. 4,250 3,370 4,860 8,770 10,680 7,300

Workers 6 6 6 6 6 6

Production 6,380 5,510 6,090 6,090 6,380 5,800

Ending inventor 2,130 2,140 1,230 -2,680 -1,300 -1,500

Surplus 2,130 2,140 1,230

Shortage 2,680 1,300 1,500

Note, if we recalculate this sheet with 7 workers

we would have a surplus

Below are the complete calculations for the remainingmonths in the six month planning horizon


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Master Production Schedule (MPS):

The result of disaggregating an aggregate

plan; shows quantity and timing of specific end

items for a scheduled horizon.


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Master Scheduling Process

MasterScheduling

Beginning inventory

Forecast

Customer orders

Inputs Outputs

Projected inventory

Master production schedule

Uncommitted inventory


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Need for Capacity Planning

Whenever the existing demand changes or addition of newproducts has to be made, then Capacity planning becomes a

need

Capacity Planning Design includes:

Re-assessment of existing capacity Effect of change in demand ie, effect of addition, deletion of

products and their impact on existing capacity

Identifying ways of meeting desired capacity through

Better Utilisation

Higher Efficiency

Overtime

Adding a shift or two

Adding new machinery, adding another production unit


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Capacity Reduction

Sell-off existing facilities Sell-off surplus inventories

Lay off or transfer employees to other units

Shut down equipment & place them as standby

Reasons for Capacity Change

A capacity shortage situation where present capacity is notenough to meet the forecast demand for the product

An excess or surplus capacity situation where the present

capacity exceeds the expected future demand


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MarketConsiderations

CapacityDecisions

ResourcesAvailable

Capacity PlanningClassification

Based on time

horizon

Based on amount ofresources employed

Short term

Long term

Finite

Infinite

Capacity Planning


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Capacity Planning Strategies

The term Strategy is derived from the Greek wordstrateg means the art of the general

Alfred .D.Chandler defines Strategy as the determinationof the basic long term goals and objectives of an enterpriseand the adoption of the courses of action & the allocation ofresources necessary for carrying out these goals

Strategy levels

Corporate level

Business unit level

Functional level


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Strategies Involved: Active strategies:

Objective- To smooth out the peaks and values of demand during planning horizon toobtain a smoother load on production facilities; during periods of low demand, sales canbe encouraged through price cuts

Passive strategies:

1. Pure strategy-vary anyone of the factors such as work force, production rate,inventory, sub contracting, capacity utilisation.

2. Mixed strategy- Involves two or more pure strategies

Strategy 1 : Vary the size of the work force in accordance with the fluctuations in demandStrategy 2 : Vary output rate keeping the same size of the work force and using overtime

or idle time or short work week with reduced pay to workers.

Strategy 3 : Maintaining the same level of production, keep inventory during periods of lowdemand and using the accumulated inventory to meet high demand in other time periods

Strategy 4 : Sub-contracting work during high demand periodsStrategy 5 : By varying the utilisation of capacity according to the demand to met


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3. Mixed strategies to meet non- uniform demand

Strategy 1 :Absorbing demand fluctuations by varying inventory level,back ordering or shifting demand

Strategy 2 : Changing only the production to match with the non-uniformdemand pattern

Strategy 3 : Changing the size of the work force to vary the productionlevel in accordance with demand

aggregate planning + mps +capacity planning

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