aggregate planning.ppt
DESCRIPTION
appTRANSCRIPT
Aggregate Planning• Aggregate planning is an intermediate
planning method used to determine the necessary resource capacity a firm will need in order to meet its expected demand.
Master scheduling
Material requirements planning
Order schedulingWeekly workforce andcustomer scheduling
Daily workforce and customer scheduling
Process planning
Strategic capacity planning
Sales and operations (aggregate) planning
Longrange
Intermediaterange
Shortrange
ManufacturingServices
Sales plan Aggregate operations plan
Forecasting & demand management
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
Goal of Aggregate Planning
• To develop a realistic production plan on an aggregate level that will satisfy organizational goals and customer demand needs at the lowest total cost.
The Aggregate Operations Plan
• Main purpose: Specify the optimal combination of– production rate (units completed per unit of
time)– workforce level (number of workers)– inventory on hand (inventory carried from
previous period)• Product group or broad category (Aggregation)• This planning is done over an intermediate-
range planning period of 6 to18 months
Capacity and Demand• If capacity and demand are nearly equal
emphasis should be placed on meeting demand as efficiently as possible.
• If capacity is greater than demand the firm might chose promotion and advertising in order to increase demand.
• If capacity is less than demand the firm might consider subcontracting a portion of the work load.
Balancing Aggregate Demandand Aggregate Production Capacity
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Suppose the figure to the right represents forecast demand in units
Suppose the figure to the right represents forecast demand in units
Now suppose this lower figure represents the aggregate capacity of the company to meet demand
Now suppose this lower figure represents the aggregate capacity of the company to meet demand
What we want to do is balance out the production rate, workforce levels, and inventory to make these figures match up
What we want to do is balance out the production rate, workforce levels, and inventory to make these figures match up
Required Inputs to the Production Planning System
Planning for
production
External capacity
Competitors’behavior
Raw material availability
Market demand
Economic conditions
Currentphysical capacity
Current workforce
Inventory levels
Activities required for production
External to firm
Internal to firm
Inputs to Aggregate Planning
• Determine demand for each period.• Determine capacities for each period.• Determine unit cost based on all relevant sources.• Develop alternative plans and calculate the cost for
each.• Chose the best overall plan based on company
objectives and cost.
Available Strategies for Meeting Demand
• Chase demand
• Level production
• Subcontracting
• Overtime/Undertime
• Employing temporary workers
• Backordering
Principles of the Chase Method
• The chase method helps firms match production and demand by hiring and firing workers as necessary to control output
Principles of a Level Production Method
• The level method allows for a constant rate of production and uses inventory levels to absorb fluctuations in demand.
Graph of Level vs. Chase Strategy
Chase Demand Strategy• Cost of strategy – hiring and firing workers• This strategy would not be feasible for industries
which require highly skilled labor or where competition for labor is fierce.
• This strategy would be cost effective during periods of high unemployment or when low-skilled labor is acceptable.
Level Production Strategy
• Cost of strategy – holding items in inventory.
• Tends to be the preferred strategy of many organizations, including labor unions.
Advantages of Chase Strategy
• Reduced inventory costs.
• High levels of worker utilization.
Disadvantages of Chase Method
• Cost of fluctuating workforce levels.
• Potential damage to employee morale.
Advantage of Level Strategy
• Worker levels and production output are stable.
Disadvantages of Level Strategy
• High inventory costs.
• Increased labor costs.
Summary• Aggregate production planning is a vital tool to
aid firms in balancing supply and demand.• All possible strategies should be considered
initially and then eliminated based on cost and organizational policy.
• While pure strategies such as chase demand and level production may work for some firms, most tend to use a mixed strategy.