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Operations Management Chapter 6 Aggregate Planning PowerPoint presentation to accompany Heizer/Render Principles of Operations Management, 7e Operations.

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Presentation on theme: "Operations Management Chapter 6 Aggregate Planning PowerPoint presentation to accompany Heizer/Render Principles of Operations Management, 7e Operations."— Presentation transcript:

1 Operations Management Chapter 6 Aggregate Planning PowerPoint presentation to accompany Heizer/Render Principles of Operations Management, 7e Operations Management, 9e

2 Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 13-2  AGGREGATE PLANNING STRATEGIES  Capacity Options  Demand Options  Mixing Options to Develop a Plan

3 Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 13-3  METHODS FOR AGGREGATE PLANNING  Graphical and Charting Methods  Mathematical Approaches to Planning  AGGREGATE PLANNING IN SERVICES  Restaurants  Hospital  Miscellaneous Services  National Chains of Small Service Firms  Airline Industry

4 Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 13-4 Anheuser-Busch  Anheuser-Busch produces nearly 40% of the beer consumed in the U.S.  Matches fluctuating demand by brand to specific plant, labor, and inventory capacity  High facility utilization requires  meticulous cleaning between batches  effective maintenance  efficient employees  efficient facility scheduling

5 Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 13-5 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

6 Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 13-6  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

7 Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 13-7 Planning Tasks and Responsibilities

8 Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 13-8 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

9 Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 13-9 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

10 Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 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

11 Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e  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

12 Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e  Meet demand  Use capacity efficiently  Meet inventory policy  Minimize cost  Labor  Inventory  Plant & equipment  Subcontract Aggregate Planning Goals

13 Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e The Extremes Level Strategy Chase Strategy Production equals demand Production rate is constant

14 Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 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

15 Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e Aggregate Planning Strategies Pure Strategies  Demand Options — change demand :  influencing demand  backordering during high demand periods  counterseasonal product mixing

16 Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e Aggregate Scheduling Options - Advantages and Disadvantages

17 Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e Advantages/Disadvantages - Continued

18 Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 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.

19 Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e Advantage/Disadvantage - Continued

20 Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e  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

21 Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e  Graphical & charting techniques  Popular & easy-to-understand  Trial & error approach  Mathematical approaches  Transportation method  Linear decision rule  Management coefficients model  Simulation Aggregate Planning Methods

22 Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 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

23 Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e Forecast and Average Forecast Demand

24 Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 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

25 Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 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

26 Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 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

27 Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e 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

28 Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e Hotel: Two Price Levels $15 variable cost of room Demand Sales $100 Price #1 $200 Price #2 Total sales = 1 st net price * nd net price *30 = $8100 Net prices are: Price #1 => $85 Price #2 => $175


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