1. AGGREGATE PLANNING Rachmat A. Anggara 9th of April 2010

2. PRASETIYA MULYA BUSINES SCHOOL OPERATION MANAGEMENT FLOW Master production schedule and MRP systems Master production schedule and MRP systems Detailed work schedules Process planning and capacity decisions Aggregate plan for production Aggregate plan for production Figure 13.2 Product decisions Demand forecasts, orders Marketplac e and demand Research and technology Raw materials available External capacity (subcontractors) Workforce Inventory on hand

3. PRASETIYA MULYA BUSINES SCHOOL Aggregate Planning Aggregate planning is an operational activity which does an aggregate plan for the production process, in advance of 2 to 18 months, to give an idea to management as to what quantity of materials and other resources are to be procured and when, so that the total cost of operations of the organization is kept to the minimum over that period.operationalproductionmanagementresourcescost of operations Workforce Facilities Inventory carrying Back orders Hiring/firing Overtime Inventory changes subcontracting

4. PRASETIYA MULYA BUSINES SCHOOL Aggregate Planning Inputs Resources - Workforce - Facilities Demand forecast Policy statements - Subcontracting - Overtime - Inventory levels - Back orders Costs – Inventory carrying – Back orders – Hiring/firing – Overtime – Inventory changes – subcontracting

5. PRASETIYA MULYA BUSINES SCHOOL Aggregate Planning Outputs Total cost of a plan Projected levels of inventory Inventory Output Employment Subcontracting Backordering

6. PRASETIYA MULYA BUSINES SCHOOL Aggregate Planning Strategies Capacity Options (intervening the resources) vsDemand Options (intervening the input) Changing inventory levelsInfluencing demand Hiring or layoffsBackordering Varying production rateCounterseasonal product mixing Subcontracting Using part-time workers

7. PRASETIYA MULYA BUSINES SCHOOL Aggregate Planning Strategies Input Process Output Demand options Capacity options

8. PRASETIYA MULYA BUSINES SCHOOL Aggregate Planning Strategies Advantages-disadvantages Aggregate Planning Strategies Advantages-disadvantages

9. PRASETIYA MULYA BUSINES SCHOOL Aggregate Planning Strategies Advantages-disadvantages Aggregate Planning Strategies Advantages-disadvantages

10. PRASETIYA MULYA BUSINES SCHOOL Aggregate Planning Strategies Advantages-disadvantages Aggregate Planning Strategies Advantages-disadvantages

11. PRASETIYA MULYA BUSINES SCHOOL Aggregate Planning Strategies Advantages-disadvantages Aggregate Planning Strategies Advantages-disadvantages

12. PRASETIYA MULYA BUSINES SCHOOL Methods for Aggregate Planning  Chase strategy Match output rates to demand forecast for each period Match output rates to demand forecast for each period Vary workforce levels or vary production rate Vary workforce levels or vary production rate Favored by many service organizations Favored by many service organizations  Level strategy Daily production is uniform Daily production is uniform Use inventory or idle time as buffer Use inventory or idle time as buffer Stable production leads to better quality and productivity Stable production leads to better quality and productivity

13. PRASETIYA MULYA BUSINES SCHOOL Methods for Aggregate Planning 70 70 – 60 60 – 50 50 – 40 40 – 30 30 – 0 0 – JanFebMarAprMayJune Production rate per working day Level production using average monthly forecast demand Forecast demand Level strategy

14. PRASETIYA MULYA BUSINES SCHOOL Methods for Aggregate Planning 70 70 – 60 60 – 50 50 – 40 40 – 30 30 – 0 0 – JanFebMarAprMayJune Production rate per working day Forecast demand and monthly production Chase strategy

15. PRASETIYA MULYA BUSINES SCHOOL Graphical & Charting Methods 1.Determine the demand for each period 2.Determine the capacity for regular time, overtime, and subcontracting each period 3.Find labor costs, hiring and layoff costs, and inventory holding costs 4.Consider company policy on workers and stock levels 5.Develop alternative plans and examine their total costs

16. PRASETIYA MULYA BUSINES SCHOOL Aggregate planning example! Month Expected Demand Production Days Demand Per Day (computed) Jan9002241 Feb7001839 Mar8002138 Apr1,2002157 May1,5002268 June1,100 20 2055 6,200124 Average requirement = Total expected demand Number of production days = = 50 units per day 6,200124 LEVEL STRATEGY

17. PRASETIYA MULYA BUSINES SCHOOL Aggregate planning example! 70 70 – 60 60 – 50 50 – 40 40 – 30 30 – 0 0 – JanFebMarAprMayJune=Month  221821212220=Number of working days Production rate per working day Level production using average monthly forecast demand Forecast demand

18. PRASETIYA MULYA BUSINES SCHOOL Aggregate planning example! Cost Information Inventory carrying cost $ 5 per unit per month Subcontracting cost per unit $10 per unit Average pay rate $ 5 per hour ($40 per day) Overtime pay rate $ 7 per hour (above 8 hours per day) Labor-hours to produce a unit 1.6 hours per unit Cost of increasing daily production rate (hiring and training) $300 per unit Cost of decreasing daily production rate (layoffs) $600 per unit

19. PRASETIYA MULYA BUSINES SCHOOL Aggregate planning example! Month Production at 50 Units per Day Demand Forecast Monthly Inventory Change Ending Inventory Jan1,100900+200200 Feb900700+200400 Mar1,050800+250650 Apr1,0501,200-150500 May1,1001,500-400100 June1,0001,100-1000 1,850 Total units of inventory carried over from one month to the next= 1,850 units Workforce required to produce 50 units per day= 10 workers Total units of inventory carried over from one month to the next= 1,850 units Workforce required to produce 50 units per day= 10 workers

20. PRASETIYA MULYA BUSINES SCHOOL Aggregate planning example! CostsCalculations Inventory carrying$9,250(= 1,850 units carried x $5 per unit) Regular-time labor49,600(= 10 workers x $40 per day x 124 days) Other costs (overtime, hiring, layoffs, subcontracting)0 Total cost$58,850

21. PRASETIYA MULYA BUSINES SCHOOL Aggregate planning example! Month Expected Demand Production Days Demand Per Day (computed) Jan9002241 Feb7001839 Mar8002138 Apr1,2002157 May1,5002268 June1,100 20 2055 6,200124 Production = Expected Demand CHASE STRATEGY

22. PRASETIYA MULYA BUSINES SCHOOL Aggregate planning example! 70 70 – 60 60 – 50 50 – 40 40 – 30 30 – 0 0 – JanFebMarAprMayJune=Month  221821212220=Number of working days Production rate per working day Forecast demand = monthly production

23. PRASETIYA MULYA BUSINES SCHOOL Aggregate planning example! Month Forecast (units) Daily Prod Rate Basic Production Cost (demand x 1.6 hrs/unit x $5/hr) Extra Cost of Increasing Production (hiring cost) Extra Cost of Decreasing Production (layoff cost)Total Cost Jan90041$ 7,200—— Feb700395,600— $1,200 (= 2 x $600) 6,800 Mar800386,400— $600 (= 1 x $600) 7,000 Apr1,200579,600 $5,700 (= 19 x $300) —15,300 May1,5006812,000 $3,300 (= 11 x $300) —15,300 June1,100558,800— $7,800 (= 13 x $600) 16,600 $49,600$9,000$9,600$68,200

24. PRASETIYA MULYA BUSINES SCHOOL Aggregate planning example! CostLEVELCHASE Inventory carrying $ 9,250 $ 0 Regular labor 49,60049,600 Overtime labor 00 Hiring09,000 Layoffs09,600 Subcontracting00 Total cost $58,850$68,200

25. PRASETIYA MULYA BUSINES SCHOOL Mathematical Approach  Useful for generating strategies  Transportation Method of Linear Programming  Produces an optimal plan  Management Coefficients Model  Model built around manager’s experience and performance  Other Models  Linear Decision Rule  Simulation