1. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 13-1 Operations Management Aggregate Planning

2. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 13-2 Aggregate Planning Requires  Logical overall unit for measuring sales and outputs  Forecast of demand for intermediate planning period in these aggregate units  Method for determining costs  Model that combines forecasts and costs so that planning decisions can be made

3. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 13-3  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 Planning

4. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 13-4 Planning Tasks and Responsibilities

5. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 13-5 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

6. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 13-6 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

7. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 13-7 A mathematically based aggregate planning model requires considerable:  time  problem definition  model development  model verification  model application  expertise  people who understand the problem  people who understand both the modeling process, and the specific model  money  money to pay for all of the above  often requires funding for several people for several months! What’s Needed for Aggregate Planning

8. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 13-8  Provides the quantity and timing of production for intermediate future  Usually 3 to 18 months into future  Combines (‘aggregates’) production  Often expressed in common units  Example: Hours, dollars, equivalents (e.g., FTE students)  Involves capacity and demand variables Aggregate Planning

9. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 13-9  Meet demand  Use capacity efficiently  Meet inventory policy  Minimize cost  Labor  Inventory  Plant & equipment  Subcontract Aggregate Planning Goals

10. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 13-10 Aggregate Planning Strategies Pure Strategies  Capacity Options — change capacity:  changing inventory levels  varying work force size by hiring or layoffs  varying production capacity through overtime or idle time  subcontracting  using part-time workers

11. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 13-11 Aggregate Planning Strategies Pure Strategies  Demand Options — change demand :  influencing demand  backordering during high demand periods  counterseasonal product mixing

12. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 13-12 Aggregate Scheduling Options - Advantages and Disadvantages

13. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 13-13 Advantages/Disadvantages - Continued

14. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 13-14 Advantages/Disadvantages - Continued OptionAdvantageDisadvantageSome Comments Using part-time workers Less costly and more flexible than full-time workers High turnover/training costs; quality suffers; scheduling difficult Good for unskilled jobs in areas with large temporary labor pools Influencing demand Tries to use excess capacity. Discounts draw new customers. Uncertainty in demand. Hard to match demand to supply exactly. Creates marketing ideas. Overbooking used in some businesses.

15. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 13-15 Advantage/Disadvantage - Continued

16. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 13-16 The Extremes Level Strategy Chase Strategy Production equals demand Production rate is constant

17. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 13-17  Mixed strategy  Combines 2 or more aggregate scheduling options  Level scheduling strategy  Produce same amount every day  Keep work force level constant  Vary non-work force capacity or demand options  Often results in lowest production costs Aggregate Planning Strategies

18. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 13-18  Graphical & charting techniques  Popular & easy-to-understand  Trial & error approach  Mathematical approaches  Transportation method  Linear decision rule  Management coefficients model  Simulation Aggregate Planning Methods

19. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 13-19 The Graphical Approach to Aggregate Planning  Forecast the demand for each period  Determine the capacity for regular time, overtime, and subcontracting, for each period  Determine the labor costs, hiring and firing costs, and inventory holding costs  Consider company policies which may apply to the workers or to stock levels  Develop alternative plans, and examine their total costs

20. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 13-20 Forecast and Average Forecast Demand 22 18 21 21 22 20

21. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 13-21 Cumulative Demand Graph for Plan 1 Jan Feb Mar Apr May Jun Cumulative forecast requirements Cumulative level production using average monthly forecast requirements Reduction of inventory Excess inventory Cumulative Demand (Units) 7,000 6,000 5,000 4,000 3,000 2,000 1,000

22. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 13-22 Farnsworth’s Transportation Table Period 1 (Mar) Period 2 (Apr) Period 3 (May) Unused Capacity (Dummy) Total Capacity Available (Supply) Beginning Inventory 0 100 240 Regular 40 700 42440 700 Overtime 50 52 50 540 50 Subcontract 70 72 150 740 150 RegularX 40 700 420 700 Overtime X 50 520 50 Subcontract X 70 50 72 0 100 150 Regular XX 40 700 0 Overtime XX 50 0 Subcontract Xx 700 130 Total Demand80010007502302780 Period 3 Period 2 Period 1

23. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 13-23 Comparison of Three Major Aggregate Planning Methods Charting/graphical methods Transportation method Management coefficient model Trial and error Optimization Heuristic Simple to understand, easy to use. Many solutions; one chosen may not be optimal LP software available;permits sensitivity analysis and constraints. Linear function may not be realistic Simple, easy to implement; tries to mimic manager’s decision process; uses regression Techniques Approaches Aspects

24. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 13-24 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

25. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 13-25 Making Yield Management Work  Multiple pricing structures must be feasible and appear logical  Forecast the use and duration of use.  Manage the changes in demand.

26. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 13-26 Hotel: Single Price Level $15 variable cost of room $150 Price charged for room Price Sales $sales = Net price * 50 rooms =150*50 =$7500 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

27. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 13-27 Hotel: Two Price Levels $15 variable cost of room Demand Sales $100 Price #1 $200 Price #2 Total sales = 1 st net price *30 + 2 nd net price *30 = $8100 Net prices are: Price #1 => $85 Price #2 => $175

28. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 13-28 Yield Management Matrix FixedVariable DuratIonofuseDuratIonofuse Predictable use Quadrant 1 Movies, stadiums, arenas, convention centers, hotel meeting space Quadrant 2 Hotels, Airlines, Rental cars,Cruise lines Unpredictable use Quadrant 3 Restaurants,Golf courses, Internet service providers Quadrant 4 Continuing care hospitals