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BUAD306 Aggregate Planning. Determines the resource capacity needed to meet demand over an intermediate time horizon Typically 2 - 12 months in duration.

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Presentation on theme: "BUAD306 Aggregate Planning. Determines the resource capacity needed to meet demand over an intermediate time horizon Typically 2 - 12 months in duration."— Presentation transcript:

1 BUAD306 Aggregate Planning

2 Determines the resource capacity needed to meet demand over an intermediate time horizon Typically months in duration

3 Objectives To establish a company-wide game plan for allocating resources Example: Avoid battles between Marketing and Production To develop an economic strategy for meeting demand Demand can be met by adjusting capacity or by managing the demand

4 Managing Demand Pricing – raise prices during high- demand times Promotion – to increase demand during low-demand seasons Backorders – taking orders before production and shipping at a later date New Demand – developing new products

5 Managing Capacity Hire and lay off workers Use overtime and slack time Use part-time workers Use inventory to absorb fluctuations in demand Subcontract work to other firms

6 Aggregate Production Planning Capacity Constraints Strategic Objectives Company Policies Financial Constraints Demand Forecasts Size of workforce Production per month (in units or $) Inventory levels Units or dollars subcontracted, backordered, or lost Inputs Outputs

7 Planning Sequence Business Plan Production Plan Master Schedule Aggregate Planning

8 Service Considerations Services occur when they are rendered Demand for service can be difficult to predict Capacity availability can be difficult to predict Labor flexibility can be an advantage in services

9 Level Production Time Production Demand Units Strategy for meeting uneven demand

10 Chase Demand Time Units Production Demand Strategy for meeting uneven demand

11 Aggregate Planning Schedule

12 Mathematical Calculations Number of Number of workers Number of new Number of workers in = at the end of + workers at the start - laid-off workers a period the previous periodof the period at the start of period Inventory Inventory Production Amount used to at the end of = at the end of + in the current - satisfy demand in a period the previous periodperiod the current period Average inventory Beginning Inventory + Ending Inventory 2 = Cost for =Output cost +Hire/lay-off +Inventory + Back-order a period (Reg.+OT+Subcontract)costcostcost Read on your own

13 Calculating Costs Read on your own

14 Zero inventory on hand to start 15 employees, each person produces 20 units per period max Example - Develop a plan for this scenario: LEVEL Hawk Skateboards are preparing an aggregate plan that will cover 6 months. They have assembled the following and want a plan for steady output.

15 Example - LEVEL Reg Time = $2/Board OT = $3/Board Sub-C = $6/board Backorders = $5/board/pd Inventory = $1/board avg inv

16 Zero inventory on hand to start 15 employees, each person produces 20 units per period max Example - Develop a plan for this scenario: CHASE Hawk Skateboards now wants to compare this to a CHASE strategy assuming maximum of 40 units of overtime per period.

17 Example - CHASE Reg Time = $2/Board OT = $3/Board Sub-C = $6/board Backorders = $5/board/pd Inventory = $1/board avg inv

18 Example - Develop a plan for this scenario: COMBO Hawk Skateboards learns that one of their production workers was badly injured during a skateboard competition and will be out of commission for 6 months. Rather than replace the person, the company would like to work with a smaller workforce and use overtime to make up for the lost output. The reduced regular time output is now 280 units per period. The maximum amount of overtime output per period is 40 units. They want to develop an aggregate plan for this scenario and compare it to the other one to confirm that costs will be reduced. NO SUBCONTRACTING IS ALLOWED!!!

19 Example – COMBO Reg Time = $2/Board OT = $3/Board Sub-C = $6/board Backorders = $5/board/pd Inventory = $1/board avg inv

20 Example – Compare costs from both scenarios Cost of Steady Production with 15 workers - Cost of Overtime Production with 14 workers - Their decision would be to continue without their injured employee and assume overtime/backorder costs. Why wouldn’t this be a good permanent plan?

21 HW #8: Nowjuice produces bottled juice. A planner had developed an aggregate forecast for demand (in cases) for the next six months. Develop an aggregate plan using each of the following guidelines and compute total cost. Which is lowest? a)Level plan (use OT if needed) b)Combo OT (500 max/pd), inventory, subcontracting (500 max/pd) to handle variations Costs: Reg Prod = $10/case, Max Reg = 5000 OT Prod = $16/case, SubC = $20, Hold = $1, BKo = $10 MonthMayJuneJulyAugSepOct Fore


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