1. Copyright 2006 John Wiley & Sons, Inc. Beni Asllani University of Tennessee at Chattanooga Sales and Operational Planning Operations Management Chapter 14 Roberta Russell & Bernard W. Taylor, III

2. Copyright 2006 John Wiley & Sons, Inc.14-2 Lecture Outline  Aggregate Planning Process  Strategies for Adjusting Capacity  Strategies for Managing Demand  Quantitative Techniques for Aggregate Production Planning  Hierarchical Nature of Planning  Aggregate Planning for Services

3. Copyright 2006 John Wiley & Sons, Inc.14-3 Aggregate Planning   Determine the resource capacity needed to meet demand over an intermediate time horizon Aggregate refers to product lines or families Aggregate planning matches supply and demand   Objectives Establish a company wide game plan for allocating resources Develop an economic strategy for meeting demand

4. Master production schedule and MRP systems Detailed work schedules Process planning and capacity decisions Aggregate plan for production Aggregate Planning Figure 14.2 Product decisions Demand forecasts, orders Marketplace and demand Research and technology Raw materials available External capacity (subcontractors) Workforce Inventory on hand

5. Copyright 2006 John Wiley & Sons, Inc.14-5 Meeting Demand Strategies  Adjusting capacity Resources necessary to meet demand are acquired and maintained over the time horizon of the plan Resources necessary to meet demand are acquired and maintained over the time horizon of the plan Minor variations in demand are handled with overtime or under-time Minor variations in demand are handled with overtime or under-time  Managing demand Proactive demand management Proactive demand management

6. Copyright 2006 John Wiley & Sons, Inc.14-6 Strategies for Adjusting Capacity  Level production Producing at a constant rate and using inventory to absorb fluctuations in demand Producing at a constant rate and using inventory to absorb fluctuations in demand  Chase demand Hiring and firing workers to match demand Hiring and firing workers to match demand  Peak demand Maintaining resources for high-demand levels Maintaining resources for high-demand levels  Overtime and under-time Increasing or decreasing working hours Increasing or decreasing working hours  Subcontracting Let outside companies complete the work Let outside companies complete the work  Part-time workers Hiring part time workers to complete the work Hiring part time workers to complete the work  Backordering Providing the service or product at a later time period Providing the service or product at a later time period

7. Copyright 2006 John Wiley & Sons, Inc.14-7 Strategies for Managing Demand   Shifting demand into other time periods Incentives Sales promotions Advertising campaigns   Offering products or services with counter- cyclical demand patterns   Partnering with suppliers to reduce information distortion along the supply chain

8. Copyright 2006 John Wiley & Sons, Inc.14-8 Quantitative Techniques For APP   Pure Strategies   Mixed Strategies   Linear Programming   Transportation Method   Other Quantitative Techniques

9. Copyright 2006 John Wiley & Sons, Inc.14-9 Transportation Method 19001000100500 215001200150500 316001300200500 430001300200500 Regular production cost per unit$20 Overtime production cost per unit$25 Subcontracting cost per unit$28 Inventory holding cost per unit per period$3 Beginning inventory300 units EXPECTEDREGULAROVERTIMESUBCONTRACT QUARTERDEMANDCAPACITYCAPACITYCAPACITY

10. 10 Transportation Tableau Unused PERIOD OF PRODUCTION1234CapacityCapacity Beginning0369 Inventory300———300 Regular600300100—1000 Overtime100100 Subcontract500 Regular1200——1200 Overtime150150 Subcontract250250500 Regular1300—1300 Overtime200—200 Subcontract500500 Regular13001300 Overtime200200 Subcontract500500 Demand900150016003000250 12341234 PERIOD OF USE 20232629 25283134 28313437 202326 252831 283134 2023 2528 2831 20 25 28

11. Copyright 2006 John Wiley & Sons, Inc.14-11 Other Quantitative Techniques  Linear decision rule (LDR)  Search decision rule (SDR)  Management coefficients model

12. Copyright 2006 John Wiley & Sons, Inc.14-12 Hierarchical Nature of Planning Items Product lines or families Individual products Components Manufacturing operations Resource Level Plants Individual machines Critical work centers Production Planning Capacity Planning Resource requirements plan Rough-cut capacity plan Capacity requirements plan Input/ output control Aggregate production plan Master production schedule Material requirements plan Shop floor schedule All work centers

13. Copyright 2006 John Wiley & Sons, Inc.14-13 Aggregate Planning for Services 1.Most services can’t be inventoried 2.Demand for services is difficult to predict 3.Capacity is also difficult to predict 4.Service capacity must be provided at the appropriate place and time 5.Labor is usually the most constraining resource for services