Download - Aggregate Planning
Aggregate Planning
P. RAJENDRAN MBA [Ph.D]
Associate Professor – Finance
OPERATIONS MANAGEMENT(Anna University Chennai: MBA Curriculum)
Aggregate Planning
Chapter HighlightsAggregate Planning or Aggregate Capacity
Planning.Costs Associated with Aggregate PlanningApproaches to Aggregate PlanningRough-cut PlanningCapacity Requirement PlanningCRP Process
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Aggregate Planning
Aggregate Planning involves
planning the best quantity to produce
during the time periods in the intermediate-term (range) horizon (often 3 months to 1 year) and
planning the lowest cost method of
providing the adjustable capacity
to accommodate the production requirements.
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Decided as Forecasted : 500 Units 10 Units per weekProduct Line: A (280), B (120), C (100)Weekly Capacity: A (6), B (3), C (2)
Operations Planning (and Scheduling Systems) Vs Aggregate Planning
Aggregate Planning is based on Operation Planning and Scheduling Sysrems.
Operation planning and Scheduling Systems are concerned the volume and time of outputsUtilisation of Capacity and Balancing outputs with Capacity at designed
levels of Competitive Effectiveness
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Operations Planning and Scheduling Systems
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Business Plan
Aggregate Output Planning
Master Production Scheduling (MPS)
Materials Requirement Planning (MRP)
Loading
Sequencing
Scheduling
Expediting
Aggregate Capacity Planning
Rough-cut Capacity Planning
Detailed Capacity Planning
Short-Term Capacity Control
Output Planning Capacity Planning
Aggregate Production Planning Process of determining output levels of product
group over the next 3 months to 1 year. On a weekly or Monthly basis. Overall level of outputs supporting business
plan. Aggregate plan also known as Production Plan
is a statement of a firm’s: Production rates Workforce levels and Inventory holding based on customer requirements
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Concept, and Objectives of Aggregate Planning Concept:
Plans are developed product lines or Product Families rather than individual Product.
Objectives:1. To balance the complexities among customer service,
workforce stability, cost and profit.
2. To establish company-wide strategic plan for allocating resources.
3. To develop an economic strategy to meet customer demand.
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Purpose and Scope of Aggregate Planning
Forecasting demand in the intermediate-term.
Preparing general plan to meet demand by Setting Output Workforce and Finished goods inventory levels.
No expansion of capacity (of the facilities) possible (feasible) in the intermediate-term.
It is feasible to increase or decrease facilities.
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Facilities Increase Decrease
Workforce Size
Hire Lay-offs
Working hours
Extra shift, overtime
Sub-contract
Inventory levels
Build-up deplete
Inputs and Outputs of Aggregate Planning
Inputs
Facilities and / Resources Demand forecast Policy on workforce
(changes) Back orders Inventory levels and costs
Inventory carrying cost Back-order cost WF hiring / lay-off cost Inventory changing cost
Outputs
Total cost of the plan Projected levels of
Inventory Output Employment Sub-contracting and Back-ordering
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Importance of Aggregate Planning
S.No Parameters of Ag. Plans Description
Engineering New Product, Design, Changes M/c Stds.
Materials Suppr. Capabilities, Storage Capacity & Material availability
Operations Current WF, M/c Capacities (CMC), FWF/MC,
Marketing & Distribution Customer Needs, DF, Competitors Behaviour
Accounting & Finance Cost and Financial Position
Human Resources Labour Market condition and Training Capacity
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Objectives of selecting specific Parameters of Agg. Plans
Specific Parameters of Agg. Plans
1. Optimisation
2. Maximising Customer Service
3. Min. Inventory Inv.
4. Min. Changes in Pdn. Rate
5. Min. Changes in Workforce Levels
6. Max. Utilisation of Plant & Equipment
Aggregate Capacity Planning
Process of devising a plan for providing a production capacity scheme to support the intermediate range sales forecast.
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Need for Aggregate Capacity Planning
Keeping fully loaded, minimising over loading and under loading, keeping production cost low.
Meeting expected aggregate demand. Systematic plan of customer demand Getting maximum o/p in times of scarce resources. Managing changes of Customer Demand.
Process or Steps in Aggregate Capacity Planning
Determining Demand (sales) Forecast Determining Aggregate Demand Transform Aggregate Demand periodical Facility
needs. Identifying relevant policy to meet the Demand Determining unit cost under various circumstances wrt
increasing and decreasing facilities. Developing alternative plan Selecting best plan for aggregate demand and meeting
objective of the firm.
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Relationship between AGP and MPS
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Market Environment
Forecast Customer Demand / order
Resource Base and Technology
Capacity of Facility
Aggregate Production Plan
Master Production Schedule
Materials Requirements Capacity Requirements
Costs Associated with Aggregate Planning
Payroll Cost Overtime, Additional Shift Subcontracting Hiring WF Lay-offs Excess inventory Back-log Changes in Production Rate Idle and over utilizing / Underutilizing Facilities
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Approaches to AGP An AGP is the plan takes into consideration of the overall
level output and the capacity that is required to produce goods.
Basic Approaches to AGP:1. Top-Down (Downward) Approach (Total Individual)
Development of the entire plan by working only at the highest level of consideration of products.
Consolidating products into average product and develops overall plan.
This plan is disaggregated to allocate capacity to product facilities and individual products.
This approch is performed in terms of a pseudo product which is fictitious product that represents the average characteristics of the entire product line to be planned.
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Approaches to AGP
2. Bottom-up (Upward) Approach (Total Individual) Development of plans for major products or product
families the lower level. These sub-plans are then consolidated to arrive
aggregate plan. This is also called Resource Requirement Planning and sometimes also known as Rough-cut Capacity
Planning. Associated with MRP-1.
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Rough-cut Capacity Planning (RcCP) Before finalizing MPS, a tentative MPS is
prepared by testing the feasibility of capacity referred to be RcCP.
It ensures that
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