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12-1 Aggregate Planning

William J. Stevenson

Operations Management

8th edition




CHAPTER

12

Aggregate Planning

McGraw-Hill/IrwinOperations Management, Eighth Edition, by William J. Stevenson

Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.




Planning HorizonPlanning Horizon

Aggregate planning : Intermediate-range

capacity planning, usually covering 2 to 12

months.

Short

range

Intermediate

range

Long range

Now 2 months 1 Year




y Short-range plans (Detailed plans)

y Machine loading

y Job assignments

y Intermediate plans (General levels)

y Employment

y Output

y Long-range plans

y Long term capacity

y Location / layout

Over view of Planning LevelsOver view of Planning Levels




Planning SequencePlanning Sequence

Business PlanEstablishes operations

and capacity strategies

Aggregate plan

Establishes

operations capacity

Master schedule Establishes schedules

for specific products

Corporate

strategies

and policies

Economic,

competitive,

and political

conditions

Aggregate

demand

forecasts

Figure 12.1




y R esources

y Workforce

y Facilities

y Demand forecast

y Policies

y Subcontracting

y Overtime

y Inventory levels

y Back orders

y Costs

y Inventory carrying

y Back orders

y Hiring/firing

y Overtime

y Inventory changes

y subcontracting

Aggregate Planning InputsAggregate Planning Inputs




y Total cost of a plan

y Projected levels of inventory

y Inventory

y Output

y Employment

y Subcontracting

y Backordering

Aggregate Planning OutputsAggregate Planning Outputs




Aggregate Planning StrategiesAggregate Planning Strategies

y Proactive

y Alter demand to match capacity

y R eactive

y Alter capacity to match demand

y Mixed

y Some of each




y Pricing

y Promotion

y Back orders

y New demand

DemandOptionsDemandOptions




y Hire and layoff workers

y Overtime/slack time

y Part-time workers

y Inventories

y Subcontracting

CapacityOptionsCapacityOptions




Aggregate Planning StrategiesAggregate Planning Strategies

y Maintain a level workforce

y Maintain a steady output rate

y Match demand period by period

y Use a combination of decision

variables




Basic StrategiesBasic Strategies

y Level capacity strategy:

y Maintaining a steady rate of regular-timeoutput while meeting variations in demand

by a combination of options.

y Chase demand strategy:

y Matching capacity to demand; the planned

output for a period is set at the expecteddemand for that period.




Chase ApproachChase Approach

y Advantages

y Investment in inventory is low

y

Labor utilization in highy Disadvantages

y The cost of adjusting output rates and/or

workforce levels




Level ApproachLevel Approach

y Advantages

y Stable output rates and workforce

y

Disadvantagesy Greater inventory costs

y Increased overtime and idle time

y R esource utilizations vary over time




1. Determine demand for each period

2. Determine capacities for each period

3. Identify policies that are pertinent

4. Determine units costs

5. Develop alternative plans and costs

6. Select the best plan that satisfies objectives.Otherwise return to step 5.

Techniques for Aggregate PlanningTechniques for Aggregate Planning




Cumulative GraphCumulative Graph

1 2 3 4 5 6 7 8 9 10

Cumulative

production

Cumulative

demand C

u m u l a t i v e o u t p

u t / d e m a n d

Figure 12.3




Average InventoryAverage Inventory

Average

inventoryB

eginning Inventory + Ending Inventory2=




Mathematical TechniquesMathematical Techniques

Linear programming : Methods for obtainingoptimal solutions to problems involvingallocation of scarce resources in terms of cost minimization.

Linear decision rule: Optimizing techniquethat seeks to minimize combined costs, usinga set of cost-approximating functions to

obtain a single quadratic equation.




Summary of Planning TechniquesSummary of Planning Techniques

Technique Solution Characteristics

Graphical/charting Trial and

error

Intuitively appealing, easy to

understand; solution not

necessarily optimal.

Linear programming

Optimizing Computerized; linear assumptions not always valid.

Linear

decision r ule

Optimizing Complex, requires considerable

effort to obtain pertinent cost

information and to constr uct

model; cost assumptions notalways valid.

Simulation Trial and

error

Computerized models can be

examined under a variety of

conditions.

Table 12.7




y Services occur when they are rendered

y Demand for service can be difficult to predict

y

Capacity availability can be difficult to predict

y Labor flexibility can be an advantage in

services

Aggregate Planning in Ser vicesAggregate Planning in Ser vices




Aggregate Plan to Master ScheduleAggregate Plan to Master Schedule

Aggregate

Planning

Disaggregation

Master

Schedule

Figure 12.4




y Master schedule: The result of disaggregatingan aggregate plan; shows quantity and timing

of specific end items for a scheduled horizon.

y Rough-cut capacity planning : Approximate balancing of capacity and demand to test the

feasibility of a master schedule.

Disaggregating the Aggregate PlanDisaggregating the Aggregate Plan




Master SchedulingMaster Scheduling

y Master schedule

y Determines quantities needed to meet demand

y Interfaces with

y Marketing

y Capacity planning

y Production planning

y

Distribution planning




Master Scheduler Master Scheduler

y Evaluates impact of new orders

y Provides delivery dates for orders

y Deals with problems

y Production delays

y R evising master schedule

y Insufficient capacity




Master Scheduling ProcessMaster Scheduling Process

Master Scheduling

Beginning inventory

Forecast

Customer orders

Inputs Outputs

Projected inventory

Master production schedule

Uncommitted inventory

Figure 12.6




ProjectedOnProjectedOn--hand Inventoryhand Inventory

Projected on-hand

inventory

Inventory from

previous week

Current week¶s

requirements-=




ProjectedOnProjectedOn--hand Inventoryhand Inventory

64 1 2 3 4 5 6 7 8

Forecast 30 30 30 30 40 40 40 40

Customer Orders

(committed) 33 20 10 4 2

Projected on-hand

inventory 31 1 -29

JUNE JULY

Beginning

Inventory

Customer orders are

larger than forecast in

week 1

Forecast is larger than

Customer orders in week 2

Forecast is larger than

Customer orders in week 3

Figure 12.8




Time Fences inMPSTime Fences inMPS

Period

³f rozen´

(f irm or

f ixed)

³slushy´

somewhat

firm

³liquid´

(open)

Figure 12.12

1 2 3 4 5 6 7 8 9




Solved Problems: Problem 1Solved Problems: Problem 1

ch 12 aggregate planning

Documents

orders new demand y

aggregate planning chapter

aggregate planning techniques

services y

servicesy y y services

y reactivey y mixedy

y matching capacity

aggregate planning1