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Operations Planning Horizons

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Presentation on theme: "Operations Planning Horizons"— Presentation transcript:

1 Operations Planning Horizons
Long Range Planning - Annual planning, with a time horizon greater than one year Aggregate Planning - Intermediate planning with a time horizon of 6 to 18 months with monthly or quarterly increments Short Range Planning - Weekly planning with a time horizon of one day to six months Supply Chain Management - SCM, JIT, Strategic Capacity Planning 2 2

2 Aggregate Planning Product group or broad category (Aggregation)
Medium-Range: 6-18 months Goal: Specify the optimal combination of production rate workforce level inventory on hand Product category - 21 cubic ft refrigerators Production rate - amount of capacity need to set. Workforce level - # of workers; stable, overtime, hire and fire Inventory - carry over or backlogs Supply Chain Management - SCM, JIT, Strategic Capacity Planning

3 Long range Intermediate Manufacturing Services Short Master scheduling
Material requirements planning Order scheduling Weekly workforce and customer scheduling Daily workforce and customer scheduling Process planning Strategic capacity planning Sales and operations (aggregate) planning Long range Intermediate Short Manufacturing Services Exhibit 13.1 Sales plan Aggregate operations plan Forecasting & demand management

4 Balancing Aggregate Demand and Aggregate Production Capacity
10000 Suppose the figure to the right represents forecast demand in units 10000 8000 8000 7000 6000 5500 6000 4500 4000 Now suppose this lower figure represents the aggregate capacity of the company to meet demand 2000 Jan Feb Mar Apr May Jun 10000 9000 8000 8000 What we want to do is balance out the production rate, workforce levels, and inventory to make these figures match up 6000 6000 4500 4000 4000 4000 2000 Jan Feb Mar Apr May Jun Supply Chain Management - SCM, JIT, Strategic Capacity Planning 9 9

5 Key Strategies for Meeting Demand
Chase - Match production rate to order rate by hiring and laying off employees Level - Maintain a stable work force working at a constant output rate; shortages and surpluses are absorbed by fluctuating inventory levels, backlogs and lost sales Some combination of the two Chase - Overtime, Reduced Hours, Hire Temps, Hire/Fire Costs - overtime and hiring and firing Level - Hold Inventories, Allow Backlogs Costs - holding inventory and backlogs Choice is based on costs Supply Chain Management - SCM, JIT, Strategic Capacity Planning

6 Required Inputs to the Production Planning System
Competitors’behavior Raw material availability Market demand External to firm External capacity Economic conditions Planning for production Current physical capacity Activities required for production Current workforce Inventory levels Internal to firm Supply Chain Management - SCM, JIT, Strategic Capacity Planning 11 11

7 Strategic Capacity Planning
Capacity can be defined as the ability to hold, receive, store, or accommodate; a measure of an organization’s ability to provide customers with the demanded services or goods in the amount requested and in a timely manner Strategic capacity planning is an approach for determining the overall capacity level of capital intensive resources, including facilities, equipment, and overall labor force size Supply Chain Management - SCM, JIT, Strategic Capacity Planning 3

8 Estimating Capacity Must differentiate between theoretical capacity (what can be achieved under ideal conditions in a short period of time), and achievable capacity (considering equipment problems, maintenance requirements, material problems, worker errors) Must select a yardstick to measure it, such as tons per hour (tph) of steel or number of patient days in a hospital

9 Management Decisions That Affect Capacity in the Intermediate Term
Subcontracting or outsourcing production Changing the mix of products produced Adding people to the production process Increasing the motivation of employees Increasing the operating rate of a machine Improving quality of raw materials, processes, etc. Increasing product yield (quantity of output/quantity of input, or the % of useful output)

10 Capacity Utilization Where:
Capacity used = rate of output actually achieved, and Best operating level = capacity for which the process was designed Supply Chain Management - SCM, JIT, Strategic Capacity Planning 5

11 Example of Capacity Utilization
During one week of production, a plant produced 83 units of a product. Its historic highest or best utilization recorded was 120 units per week. What is this plant’s capacity utilization rate? Answer: Capacity utilization rate = Capacity used . Best operating level = 83/120 =0.69 or 69% Supply Chain Management - SCM, JIT, Strategic Capacity Planning 6

12 Economies & Diseconomies of Scale
100-unit plant 200-unit 300-unit 400-unit Volume Average unit cost of output Economies of Scale and the Experience Curve working Diseconomies of Scale start working

13 The Experience Curve Cost or price per unit
As plants produce more products, they gain experience in the best production methods and reduce their costs per unit The Experience Curve Total accumulated production of units Cost or price per unit Yesterday Today Tomorrow

14 Capacity Flexibility Flexible plants Flexible processes
Flexible workers Supply Chain Management - SCM, JIT, Strategic Capacity Planning 11

15 Capacity Planning: Balance
Unbalanced stages of production Units per month Stage 1 Stage 2 Stage 3 6,000 7,000 5,000 Maintaining System Balance: Output of one stage is the exact input requirements for the next stage Balanced stages of production Units per month Stage 1 Stage 2 Stage 3 6,000 6,000 6,000 Supply Chain Management - SCM, JIT, Strategic Capacity Planning 12

16 Determining Capacity Requirements
Forecast sales within each individual product line Calculate equipment and labor requirements to meet the forecasts Project equipment and labor availability over the planning horizon Identify bottlenecks Supply Chain Management - SCM, JIT, Strategic Capacity Planning

17 Capacity Utilization & Service Quality
The best operating point is between 70% and 90% of capacity; over 90% is undesirable Why do you think that this is so? Supply Chain Management - SCM, JIT, Strategic Capacity Planning 27

18 Utilization and Time in System
70 Supply Chain Management - SCM, JIT, Strategic Capacity Planning 70

19 Capacity - Summary Capacity decisions should be made carefully, as they can commit significant resources to assets that cannot be changed easily or economically. Capacity is affected by management decisions regarding the number of hours worked, product mix, staffing levels, machine capabilities, level of quality, and product yield. Watch out for the “Bermuda Triangle” of operational complexity, where management difficulty exceeds management ability (management bottleneck!). Supply Chain Management - SCM, JIT, Strategic Capacity Planning

20 Enterprise Resource Planning Systems

21 Enterprise Resource Planning (ERP) Systems
Enterprise Resource Planning Systems is a computer system that integrates application programs in accounting, sales, manufacturing, and other functions in the firm This integration is accomplished through a database shared by all the application programs Supply Chain Management - SCM, JIT, Strategic Capacity Planning

22 SAP AG’S R/3 SAP AG, A German firm, is a world leader in ERP software.
-Designed to operate in a three-tier client/server configuration -Applications are fully integrated so that data are shared between all applications

23 R/3 System Functional Components
Financial Accounting R/3 System Sales & Distribution Human Resources Functional Components Manufacturing & Logistics

24 Financial Accounting Financials Controlling Asset management
Supply Chain Management - SCM, JIT, Strategic Capacity Planning

25 Human Resources Payroll Benefits administration
Applicant data administration Personnel development planning Workforce planning Schedule & shift planning Time management Travel expense accounting Supply Chain Management - SCM, JIT, Strategic Capacity Planning

26 Manufacturing & Logistics
Materials management Plant maintenance Quality management Production planning & control Project management system Supply Chain Management - SCM, JIT, Strategic Capacity Planning

27 Sales and Distribution
Prospect & customer management Sales order management Configuration management Distribution Export controls Shipping and transportation management Billing, invoicing, and rebate processing Supply Chain Management - SCM, JIT, Strategic Capacity Planning

28 Reasons for Implementing SAP R/3
Desire to standardize and improve processes To improve the level of systems integration To improve information quality Supply Chain Management - SCM, JIT, Strategic Capacity Planning


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