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Aggregate Aggregate ProductionProduction Planning: Planning:IntroductionIntroduction

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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.

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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

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Typical Approach to Managing Supply and

Demand• Marketing manages demand• Operations manages supply• Best when marketing and

operations coordinate

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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 production capacity, labor)

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Managing Supply

• Managing inventory. Approaches:– Using common components across

multiple products– Build inventory of high demand or

predictable demand products

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Planning RelationshipsPlanning Relationships

Figure 1

MPS or workforce schedule

Business or annual plan

Production or staffing plan

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Managerial Managerial Inputs(importance of aggregate planInputs(importance of aggregate plan))

Figure 2

Supplier capabilities Storage capacity Materials availability

Materials

Current machine capacities Plans for future capacities Workforce capacities Current staffing level

Operations

New products Product design changes Machine standards

EngineeringLabor-market conditions Training capacity

Human resources

Cost data Financial condition of firm

Accounting and financeAggregate

plan

Customer needs Demand forecasts Competition behavior

Distribution and marketing

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Aggregate Planning Aggregate Planning ObjectivesObjectives

Minimize Costs/Maximize ProfitsMinimize Costs/Maximize Profits Maximize Customer ServiceMaximize Customer Service Minimize Inventory InvestmentMinimize Inventory Investment Minimize Changes in Production RatesMinimize Changes in Production Rates Minimize Changes in Workforce Minimize Changes in Workforce

LevelsLevels Maximize Utilization of Plant and Maximize Utilization of Plant and

EquipmentEquipment

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Aggregate Planning StrategiesAggregate Planning Strategies

Possible Alternatives Possible AlternativesStrategyduring Slack Season during Peak Season

1. Chase #1: vary workforce Layoffs Hiringlevel to match demand

2. Chase #2: vary output Layoffs, undertime, Hiring, overtime, rate to match demand vacations subcontracting

3. Level #1: constant No layoffs, building No hiring, depleting workforce level anticipation inventory, anticipation inventory,

undertime, vacations overtime, subcontracting, backorders, stockouts

4. Level #2: constant Layoffs, building antici- Hiring, depleting antici-output rate pation inventory, pation inventory, over-

undertime, vacations time, subcontracting, backorders, stockouts

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Aggregate Planning ProcessAggregate Planning Process

Figure 3

Determine requirements for planning horizon

Identify alternatives, constraints, and costs

Prepare prospective plan for

planning horizon

Move aheadto next

planning session

Implement and update the plan

Is the plan acceptable?

No

Yes

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Aggregate Planning CostsAggregate Planning Costs

Regular-time CostsRegular-time Costs Overtime CostsOvertime Costs Subcontracting CostsSubcontracting Costs Hiring and Layoff CostsHiring and Layoff Costs Inventory Carrying CostsInventory Carrying Costs Backorder and Stockout CostsBackorder and Stockout Costs