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Aggregate/Production Planning Y.-H. Chen, Ph.D. International College Ming-Chuan University.

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Presentation on theme: "Aggregate/Production Planning Y.-H. Chen, Ph.D. International College Ming-Chuan University."— Presentation transcript:

1 Aggregate/Production Planning Y.-H. Chen, Ph.D. International College Ming-Chuan University

2 Aggregate/Production Planning Overview Introduction Demand and Supply/Capacity Options Aggregate/Production Planning Techniques Master Production Schedule

3 Aggregate/Production Planning Planning Organizations make supply and capacity decisions on three levels.

4 Aggregate/Production Planning Why do we need it? –Time –Level of accuracy What decisions are involved? –output rates –employment –inventory –back orders –subcontracting

5 Aggregate/Production Planning A “big picture” approach to planning. Balance supply and demand by minimizing the production cost, adjustment cost, and opportunity cost of a system. Concerned with the quantity and the timing of both the supply and demand.

6 Aggregate/Production Planning A rolling planning horizon covers a time horizon of 2 to 18 months. Special challenge comes from uneven demand within the planning horizon. Example: Department store space allocation. Short range Intermediate range Long range Now2 months1 Year

7 Aggregate/Production Planning Resources –Workforce –Facilities Demand forecast Policy statements –Subcontracting –Overtime –Inventory levels –Back orders Costs –Inventory carrying –Back orders –Hiring/firing –Overtime –Inventory changes –subcontracting Aggregate Planning Inputs

8 Aggregate/Production Planning Total cost of a plan Production/operation plan –Projected levels of Inventory Output Employment Subcontracting Backordering Aggregate Planning Outputs

9 Aggregate/Production Planning Pricing: Influence demand pattern. –Problems: insufficient capacity and missing demand. –Examples: discount rates on hotels, airlines, movies, etc. Promotion: Influence demand quantity. –Problems: worse than initial intention. Back orders: Take orders in a period but deliver them later. –Problems: lost sales, disappointed customers, and paperwork. New demand: Develop demand for a complementary product. –Examples: trips of schools, clubs, and seniors; fast food breakfast; landscaping during snow season. Demand Options

10 Aggregate/Production Planning Hire and layoff workers: union contracts, worker availability, worker morale, quality, and cost. –Recruitment, screening, training, severance pay, workforce realignment. Overtime/slack time –Overtime: Seasonal demand, crew overtime, productivity, quality, accident, payroll. –Slack time: training, process improvement, problem solving. Inventories: carrying, holding, insurance, obsolescence, deterioration, spoilage, breakage. Part-time workers: skill set, union, benefit. Subcontracting / outsourcing: skill set, availability, quality, cost, demand stability, confidentiality. Capacity Options

11 Aggregate/Production Planning Aggregate Planning Strategies Level capacity strategy with inventories, overtime, part-time workers, subcontracting, and back orders. Chase demand strategy with overtime, part-time workers, and subcontracting. Use a combination of both strategies.

12 Aggregate/Production Planning Aggregate Planning Strategies

13 Aggregate/Production Planning 1.Determine demand for each period 2.Determine capacities for each period 3.Identify policies that are pertinent 4.Determine units costs –regular time, overtime, subcontracting, holding inventories, back orders, layoffs, and other relevant costs. 5.Develop alternative plans and compute costs 6.Select the best plan that satisfies objectives Aggregate Planning Procedures

14 Aggregate/Production Planning Aggregate Planning Example

15 Aggregate/Production Planning Aggregate Planning Example: Case 1 Case 1: Use a steady rate of output and use inventory to absorb the uneven demand but allowing some backlog. Assume there are 15 workers. Each worker has an output rate of 20 units per period. Start with zero inventory and determine an aggregate plan and its cost.

16 Aggregate/Production Planning Aggregate Planning Example: Case 1

17 Aggregate/Production Planning Aggregate Planning Example: Case 2 Case 2: After Case 1, planners learned that one worker is about to retire from the company. Rather than replacing that person, they would like to stay with the smaller workforce and use overtime to make up for the lost output. With the maximum amount of overtime output per period to be 40 units, develop a plan and compare it to Case 1

18 Aggregate/Production Planning Aggregate Planning Example: Case 2

19 Aggregate/Production Planning Aggregate Planning Example: Case 3 Case 3: Another option for Case 2 is to use temporary workers to fill in during months of high demand. Suppose that it costs an additional $100 to hire and train a temporary worker, and that a temporary worker can produce at the rate of 15 units per period (compared to 20 units per period for regular workers). Develop a plan and compare it to Case 1 and Case 2.

20 Aggregate/Production Planning Aggregate Planning Example: Case 3

21 Aggregate/Production Planning Aggregate Planning Techniques Graphical / Charting Linear Programming Linear Decision Rule Simulation

22 Aggregate/Production Planning Graphical / Charting Cumulative production Cumulative demand Cumulative output/demand

23 Aggregate/Production Planning Linear Programming Goal: minimize the sum of costs related to regular labor time, overtime, subcontracting, inventory holding costs, and costs associated with changing the size of the workforce. Constraints: capacities of the workforce, inventories, and subcontracting. Limitations –linear relationships among variables –inability to continuously adjust output rates –single objective

24 Aggregate/Production Planning Linear Programming

25 Aggregate/Production Planning Linear Programming Example Given the following information, set up the problem in a transportation table:

26 Aggregate/Production Planning Linear Programming Formulation

27 Aggregate/Production Planning Linear Decision Rule and Simulation Linear Decision Rule –Minimized combined costs using a set of cost- approximating functions to obtain a single quadratic equation. –Limitations: A specific type of cost function is assumed. Considerable effort needed to obtain relevant cost data and develop cost functions for each organization. Solutions may be unfeasible. Simulation Models –Develop and test computer models under different scenarios to identify acceptable solutions to problems. Examples: grocery checkouts, banking.

28 Aggregate/Production Planning Summary of Planning Techniques

29 Aggregate/Production Planning Services occur when they are rendered. –Inventory may not apply to services. Demand for service can be difficult to predict. –Some customers request prompt service or go elsewhere, if there is a waiting line. Capacity availability can be difficult to predict. –Depend on skills details required. Labor flexibility can be an advantage in services. –Can handle wide variety of service requirements. Aggregate Planning in Services

30 Aggregate/Production Planning Breaking the aggregate plan into specific product requirements in order to determine –labor requirements (skills, size of work force), –materials, and –inventory requirements. Disaggregation

31 Aggregate/Production Planning Disaggregation Example

32 Aggregate/Production Planning Master schedule –Result of disaggregating an aggregate plan –Show quantity, timing, and orders of specific end items for a scheduled horizon. –Shorter time horizon. –Planned unit may be different. Rough-cut capacity planning: Approximate balancing of capacity and demand to test the feasibility of a master schedule. –Production, warehouse facilities, labor, vendors, and raw materials. Disaggregation

33 Aggregate/Production Planning Master Production Schedule (MPS) Indicate the quantity and timing of planned production, taking into account desired delivery quantity and timing as well as on- hand inventory. (what, when, how much) Master Scheduling Beginning inventory Forecast Customer orders Inputs Outputs Projected inventory Master production schedule Uncommitted inventory

34 Aggregate/Production Planning MPS Example A company that makes industrial pumps wants to prepare a master production schedule for June and July. Marketing has forecasted demand of 120 pumps for June and 160 pumps for July. –By evenly distributing over the four weeks in each month, we have 30 per week in June and 40 per week in July. Now, suppose that there are currently 64 pumps in inventory and there are customer orders that have been committed and must be filled. These inputs result in the following table. Production batch size is 70 units.

35 Aggregate/Production Planning MPS Example: Step 1 If no production is planed, projected inventory becomes negative from week 3. This is a signal that production is needed to replenish inventory.

36 Aggregate/Production Planning MPS Example: Step 2

37 Aggregate/Production Planning MPS Example: Step 2

38 Aggregate/Production Planning MPS Example: Step 3

39 Aggregate/Production Planning Time Fences in MPS Period frozenfirmfullopen

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