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Aggregate Planning. Production and Operations Planning Production Process Design Long Term Capacity Planning Aggregate Planning Master Production Schedule.

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Presentation on theme: "Aggregate Planning. Production and Operations Planning Production Process Design Long Term Capacity Planning Aggregate Planning Master Production Schedule."— Presentation transcript:

1 Aggregate Planning

2 Production and Operations Planning Production Process Design Long Term Capacity Planning Aggregate Planning Master Production Schedule Material Requirements Planning Individual Order Scheduling Demand Forecast

3 The main idea behind aggregate planning Aggregate planning Translates business plans into rough labor schedules and production plans

4 Issues to Consider for Aggregate Planning Production rate: “aggregate units” per worker per unit time Workforce level: available workforce in terms of hours Actual Production: Production rate x Workforce level Inventory: Units carried over from previous periods Costs: production, changing workforce, inventory

5 What does aggregate planning do? Given an aggregate demand forecast, determine production levels, inventory levels, and workforce levels, in order to minimize total relevant costs over the planning horizon Given the number of variables, there is not a single optimal solution!

6 Aggregate Planning Strategies 1.Chase strategy: match production rate to production requirements by varying the workforce (no inventory buildup or shortage allowed) 2.Level strategy: keep a constant workforce who work at maximum capacity (inventory will vary from period to period); workforce level chosen such that the total requirement over the planning horizon can be exactly met 3.Stable workforce: keep a constant workforce who work at maximum capacity; outsource in order to match production and requirements (no inventory buildup or shortage allowed); workforce level chosen such that they can exactly satisfy the requirements in the period with the minimum requirement level

7 Example: CA&J Company… JANFEBMARAPRMAYJUNTotal Demand Forecast 1,8001,5001, ,1001,6008,000 Working Days Inventory holding$1.50/unit/month Backorders$5.00/unit/month Hiring and training$200.00/worker Layoff$250.00/worker Labor time required0.20 units/hour Straight time cost (8 hours)$4.00/hour Outsourcing$20.00/unit Costs Beginning Inventory400 units Inventory Labor Beginning Labor40 workers

8 First step: Analyze the requirements… JANFEBMARAPRMAYJUN Beginning Inventory 400 Demand Forecast 1,8001,5001, ,1001,600 Production requirement Ending Inventory Production requirement = Forecast – Beginning Inventory Ending Inventory = Beginning Inventory + Production Requirement – Forecast

9 JANFEBMARAPRMAYJUN Beginning Inventory Demand Forecast 1,8001,5001, ,1001,600 Production requirement 1,4001,5001, ,1001,600 Ending Inventory First step: Analyze the requirements…

10 JANFEBMARAPRMAYJUN Production requirement 1,4001,5001, ,1001,600 Production hours required Days per month Worker hours per month Workers required Workers hired Hiring cost Workers laid off Layoff cost Labor cost Plan 1: Chase strategy (variable workforce)

11 JANFEBMARAPRMAYJUN Production requirement 1,4001,5001, ,1001,600 Production hours required 7,0007,5005,5004,5005,5008,000 Days per month Worker hours per month Workers required Workers hired Hiring cost ,800 Workers laid off Layoff cost 004,0001,50000 Labor cost 28,00030,00022,00018,00022,00032,000 Plan 1: Chase strategy

12 Hiring cost 6,400 Layoff cost 5,500 Labor cost152,000 Total Cost163,900 Plan 1: Chase strategy

13 Plan 2: Level strategy JANFEBMARAPRMAYJUN Beginning inventory 400 Working days per month Production hours available Monthly production level Demand Forecast 1,8001,5001, ,1001,600 Ending Inventory Shortage Cost Inventory cost Labor cost

14 Plan 2: Level strategy JANFEBMARAPRMAYJUN Beginning inventory Working days per month Production hours available ,3846,6886,080 Monthly production level 1,3381,1551,277 1,3381,216 Demand Forecast 1,8001,5001, ,1001,600 Ending Inventory Shortage Cost Inventory cost Labor cost Number of workers required = Total hours required over planning horizon/(8*total days) = 38,000/(8*125) = 38. This is the no. of workers for each month

15 Layoff cost 500 Shortage cost 3,495 Inventory cost 798 Labor cost152,000 Total Cost156,793 Plan 2: Level strategy

16 Plan 3: Stable strategy with outsourcing JANFEBMARAPRMAYJUN Production requirement 1,4001,5001, ,1001,600 Working days per month Monthly production hours Monthly production level Monthly outsourcing level Monthly outsourcing cost Monthly labor cost

17 Plan 3: Stable strategy with outsourcing JANFEBMARAPRMAYJUN Production requirement 1,4001,5001, ,1001,600 Working days per month Monthly production hours 4,7524,1044,536 4,7524,320 Monthly production level Monthly outsourcing level Monthly outsourcing cost 9,00013,5803,86003,00014,720 Monthly labor cost 19, ,144 19,00817,280 Number of workers = enough workers to cover requirements in April = 900*5/(21*8) = 27 workers (this is the no. of workers for each month)

18 Layoff Cost 3,250 Outsourcing Cost 44,160 Labor Cost108,000 Total Cost155,410 Plan 3: Stable strategy with outsourcing

19 Comparison Hiring cost 6,400 Layoff cost 5,500 Labor cost152,000 Total Cost163,900 ChaseLevelStable Layoff cost 500 Shortage cost 3,495 Inventory cost 798 Labor cost152,000 Total Cost156,793 Layoff Cost 3,250 Outsourcing Cost 44,160 Labor cost108,000 Total Cost155,410

20 “Sensitivity Analysis” WHAT IF… … outsourcing costs increase or decrease? … the holding costs are higher? … the hiring costs are lower? … the firing costs are higher? We can always plug the data in and re-calculate the costs


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