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© 2004 by Prentice Hall, Inc. Upper Saddle River, N.J Operations Management Aggregate Planning Chapter 13
© 2004 by Prentice Hall, Inc. Upper Saddle River, N.J Aggregation Clustering goods or services that have similar demand requirements and common processing, labor, and materials requirements: Individual 1040’s Trust returns Small business returns Tax planning Estate planning # returns – or – # forms – or – # hours # clients – or – # consultations – or – # hours $
© 2004 by Prentice Hall, Inc. Upper Saddle River, N.J Aggregate Planning Responsibility Planning tasks and horizon Determining the quantity and timing of production for the intermediate future (3 – 18 months)
© 2004 by Prentice Hall, Inc. Upper Saddle River, N.J Planning Horizons Today3 Months 1 year5 years Planning Horizon Short-range plans Job assignments Ordering Job scheduling Dispatching Intermediate-range plans Sales planning Production planning and budgeting Setting employment, inventory, subcontracting levels Analyzing operating plans Long-range plans R&D New product plans Capital expenses Facility location, expansion Responsible: Operations managers, supervisors, foremen Responsible: Operations managers Responsible: Top executives
© 2004 by Prentice Hall, Inc. Upper Saddle River, N.J Inputs to Aggregate Plan Supplier capabilities Storage capacity Materials availability Materials Current machine capacities Plans for future capacities Workforce capacities Current staffing level Operations New products Product design changes Machine standards Engineering Labor-market conditions Training capacity Human resources Cost data Financial condition of firm Accounting and finance Aggregate plan Customer needs Demand forecasts Competition behavior Distribution and marketing
© 2004 by Prentice Hall, Inc. Upper Saddle River, N.J Inputs to Aggregate Plan Physical limitations / constraints Managerial policy constraints
© 2004 by Prentice Hall, Inc. Upper Saddle River, N.J Relationships of the Aggregate Plan Aggregate Plan for Production Demand Forecasts, orders Master Production Schedule, and MRP systems Detailed Work Schedules External Capacity Subcontractors Inventory On Hand Raw Materials Available Work Force Marketplace and Demand Research and Technology Product Decisions Process Planning & Capacity Decisions
© 2004 by Prentice Hall, Inc. Upper Saddle River, N.J Meet demand (maximize customer service) Use capacity efficiently (minimize changes in workforce) Meet inventory policy (minimize inventory) Minimize cost (maximize profit) Labor Inventory Plant & equipment Subcontract Backorder / stockout costs Aggregate Planning Goals
© 2004 by Prentice Hall, Inc. Upper Saddle River, N.J Vary staffing (hire/fire, overtime, idle time, temporary workers) Subcontracting Change inventory levels Capacity Options Vary prices Vary promotion Change lead times (e.g., backorders) Offer complementary products Demand Options Aggregate Planning Options REACTIVE AGGRESIVE
© 2004 by Prentice Hall, Inc. Upper Saddle River, N.J Aggregate Planning Strategies Level Strategy Chase Strategy Production equals demand Production rate is constant Mixed Strategy Aggregate Plan Worksheet
© 2004 by Prentice Hall, Inc. Upper Saddle River, N.J Graphical Approach Production rate per working day Jan Feb Mar Apr May Jun Forecast Demand Level production using average monthly forecast demand
© 2004 by Prentice Hall, Inc. Upper Saddle River, N.J Controlling the Cost of Labor in Service Firms Seek: Close control of labor hours to ensure quick response to customer demand On-call labor resource that can be added or deleted to meet unexpected demand Flexibility of individual worker skills to permit reallocation of available labor Flexibility of individual worker in rate of output or hours of work to meet demand
© 2004 by Prentice Hall, Inc. Upper Saddle River, N.J Yield Management The aggregate planning process of allocating resources to customers at prices that will maximize yield (revenue) Used where businesses have: perishable inventory service or product can be sold in advance demand fluctuates capacity is relatively fixed demand can be segmented variable costs are low and fixed costs are high Examples – airlines, hotels, cruise lines, etc.
© 2004 by Prentice Hall, Inc. Upper Saddle River, N.J Hotel: Single Price Level $15 variable cost of room $150 price charged for room Price Sales $ Net Sales = net price * 50 rm. = ($150 - $15) * 50 = $6,750 Demand Curve Passed up profit contributions Money left on the table Potential customers exist who are willing to pay more than the $15 variable cost Some customers who paid $150 for the room were actually willing to pay more
© 2004 by Prentice Hall, Inc. Upper Saddle River, N.J Hotel: Two Price Levels $15 variable cost of room Demand Sales $100 Price #1 $200 Price #2 $ Net Sales = $85 * 30 people + $185 * 30 people = $8100 Net prices: Price #1 = $85 Price #2 = $185 Price
© 2004 by Prentice Hall, Inc. Upper Saddle River, N.J Making Yield Management Work Multiple pricing structures must be feasible and appear logical Manage forecasts of use and duration of use Manage the changes in demand.
© 2004 by Prentice Hall, Inc. Upper Saddle River, N.J Yield Management Matrix Variable PriceFixed Price Quadrant 4 Continuing care hospitals Quadrant 3 Restaurants, Golf courses, ISP’s Unpredictable use Quadrant 2 Hotels, Airlines, Rental cars, Cruise lines Quadrant 1 Movies, Stadiums / arenas, Convention centers, Hotel meeting space Predictable use DurationofuseDurationofuse
© 2004 by Prentice Hall, Inc. Upper Saddle River, N.J Summary Aggregate planning reconciles conflicting needs and objectives Aggregate plan specifies time-phased production rates, workforce levels and inventory holdings Aggregation: products / services are grouped into families labor may be grouped along family lines or by skills time may be aggregated (quarters, etc.) Two basic planning options: changing capacity and changing demand Aggregate planning strategies: Level – constant workforce or production level Chase – vary production to equal demand Air NZ video
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