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Aggregate Planning Operations Management Dr. Ron Tibben-Lembke.

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Presentation on theme: "Aggregate Planning Operations Management Dr. Ron Tibben-Lembke."— Presentation transcript:

1 Aggregate Planning Operations Management Dr. Ron Tibben-Lembke

2 Learning Objectives Describe planning Distinguish the types of plans Define aggregate scheduling Relate aggregate scheduling to the overall planning process Explain aggregate scheduling options Develop aggregate schedules

3 Example You’ve started a new company. You’ve developed 2 production plans: MonthForecastPlan 1Plan 2 Jan Feb Mar You estimate 1 worker can make 100 units per month. Which plan do you use? How many workers do you hire? How do you meet demand?

4 Planning Setting goals & objectives Example: Meet demand within the limits of available resources at the least cost Determining steps to achieve goals Example: Hire more workers Setting start & completion dates Example: Begin hiring in Jan.; finish, Mar. Assigning responsibility

5 Types of Plans Today3 months1 year5 years Long-Range Facility location Long-Range Facility location Short-Range Dispatching Short-Range Dispatching Management Level High Low Top Executives Supervisors Operations Managers 18 months Intermediate-Range Aggregate plans Intermediate-Range Aggregate plans

6 Aggregate Scheduling Production quantity & timing of production for intermediate future Usually 3 to 18 months into future Combines (‘aggregates’) production Expressed in common units Example: Hours, dollars, equivalents (e.g., FTE students) Time to make ‘average’ product

7 Relationships of Aggregate Schedule Forecast & Firm Orders Material Requirements Planning Aggregate Production Planning Resource Availability Master Production Scheduling Shop Floor Schedules Capacity Requirements Planning Realistic? Yes No, modify CRP, MRP, or MPS Work force Inventory Subcontractors

8 Aggregate Level Scheduling Aggregate Schedule: MonthJanFebMarAprMay No. of Chips © 1995 Corel Corp.

9 Aggregate Schedule Example Aggregate Schedule: MonthJanFebMarAprMay No. of Chips Master Production Schedule: MonthJanFebMarAprMay P4 1.5 ghz P4 1.7 ghz

10 Aggregate Scheduling Goals Meet demand Use capacity efficiently Meet inventory policy Minimize cost Labor Inventory Plant & equipment Subcontract

11 Promotion & price Back ordering Counterseasonal product mixing Aggregate Scheduling Options CapacityDemand n Inventory n Hire or layoff n Overtime or idle n Subcontract n Part-time workers n Outsource

12 Costs “Smoothing” costs: Hiring: advertise, interview, train Firing: severance, bad morale, future hiring Holding costs - charged on inv At end Shortage costs Labor costs / overtime, materials Subcontracting / outsourcing

13 Aggregate Scheduling Strategies Level scheduling strategy Produce same amount every day Keep work force level constant Vary non-work force capacity or demand Often results in lowest production costs Chase strategy Hire / Fire workers to make production capacity meet necessary production

14 Aggregate Scheduling Strategies Mixed strategy Combines 2 or more aggregate scheduling options Overtime Sub- contract Inventory Price Mixed Strategy

15 Aggregate Scheduling Methods Graphical & charting techniques Popular & easy-to-understand Trial & error approach Mathematical approaches Linear Programming Simulation More involved, but usually better answers

16 JC Company p. 292 Materials Cost: $100/unit Labor: 5 hours per unit, $4/hr RT, $6/hr OT Subcontract $20/unit ($120 - $100 matl savings) Holding cost $1.5/unit/mo Stockout cost $5/unit/mo Hiring cost $200 Firing cost $250 Starting inventory 400 units, safety stock 25%

17 Exhibit 11.3 Goal of 25% of sales as “safety stock” For planning, assume safety stock never used

18 Hire and Fire, no OT: Plan 1 Start with workers needed for month 1 May have too many at end

19 Constant Workforce: Plan 2 Total D = 8,000 units 5*8,000 = 40,000 hours 125 days total = 1,000 hrs 40,000/1,000 = 40 workers No penalty missing safety stock

20 Subcontract: Plan 3 April has lowest demand 21 days * 8 hrs = *5/168 = 25.3 workers Subcontract rest

21 Constant Workers with OT: 4 Find # workers to do all except biggest mos in RT Trial and error Not enough safety stock

22 Linear Programming Parameters C H = hiring costC F = firing cost C I = Inv. CostC R = reg production C O = Ovt. CostC I = idle cost C S = subcontractn t = days in period t K = daily prod.I 0 = Inventory to start W 0 = workers to start D t = Demand for t

23 Variables I t = Inventory for tO t = Overtime W t = workers for tU t = idle time H t = hired in tS t = subcontracted F t = fired in t P t = production for t All must be >= 0

24 Constraints Workforce conservation W t = W t-1 + H t - F t Units Conervation I t = I t-1 + P t + S t - D t Production and workforce level P t = K*n t *W t + O t - U t Each of these must be satisfied for all t

25 LP Formulation

26 LP Considerations LP can be modified to include minimum inv. level each period Negative inventory can be allowed Care needed when rounding

27 Conclusion Described role of aggregate planning Described types of plans Explained aggregate scheduling options Developed aggregate schedules Chase, Level, and Hybrid Linear Programming


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