1. Chapter 13
Aggregate Planning

2. Planning Horizon
Aggregate planning: Intermediate-range capacity planning, usually covering 2 to 12 months.
Short
range
Intermediate range
Long range
Now
2 months
1 Year
In Manufacturing, reference to capacity generally refers to capacity in terms of the total number of manufactured units that can be built in a plant or factory. In Aggregate planning, units can refer to, for example, cars in general, regardless of the model. Hence, a plant’s capacity could be 5,000 cars per month, consisting of a mix of basic model cars and luxury model cars. Sometimes the average number of labor hours per car (regardless of the model) is calculated and multiplied by 5,000, giving capacity in terms of “labor hours” rather than “units.” This makes it easier for management to allocate labor based on a given capacity expressed as “labor hours.”

3. Overview of Planning Levels
Short-range plans (Detailed plans)
Machine loading
Job assignments
Intermediate plans (General levels)
Employment
Output
Long-range plans
Long term capacity
Location / layout
When we categorize planning levels as shown in the above slide, note that general levels of employment fall in the category of “intermediate plans.” This relates to the use of labor hours rather than manufactured units for measuring capacity, although some plants (such as a highly automated plant using little or no labor) might prefer using manufactured units for measuring capacity.

4. Establishes schedules
Planning Sequence
Figure 13.1
Business Plan
Establishes operations
and capacity strategies
Aggregate plan
Establishes
operations capacity
Master schedule
Establishes schedules
for specific products
Corporate
strategies
and policies
Economic,
competitive,
and political
conditions
Aggregate
demand
forecasts
This is the “big picture” of the planning process, where the business plan can be viewed as a strategic plan, and the aggregate plan/master schedule the operational plan. As mentioned in the previous slides, the aggregate plan can be a mix of manufactured units (e.g., such as different models of cars). The master plan later breaks down the aggregate plan into specific units (e.g., such as how many of the cars are luxury models, and how many are basic models). This is referred to as the “disaggregating the aggregate plan.

5. Aggregate Planning Begin with forecast of aggregate demand
Forecast intermediate range
General plan to meet demand by setting
Output levels
Employment
Finished goods inventory level
Production plan is the output of aggregate planning
Update plan periodically – rolling planning horizon always covers the next 12 – 18 months
Note the time series forecasting models (such as the models we studied in Chapter 3) would have been employed to develop the forecast of aggregate demand. Also, many organizations would refer the aggregate plan as a “production plan.”

6. Aggregate Planning Strategies
We will focus on aggregate planning as matching varying demand to fixed capacity.

7. Note how normal capacity is fixed in the above plot over time, while demand is changing. (Ignore the blue area.)

8. Aggregate Planning Outputs
Total cost of a plan
Projected levels of the following:
Inventory
Output
Employment
Subcontracting
Backordering
The total cost of the plan can serve as the criteria for comparing alternative aggregate plans. Knowing the projected levels of employment, for example, allows management to schedule the workers. Knowing the projected levels of output allows marketing to know its finished goods inventory, and whether customer demand can be met.

9. Aggregate Planning Inputs
Resources
Workforce
Facilities
Demand forecast
Policies
Subcontracting
Overtime
Inventory levels
Back orders
Costs
Inventory carrying
Back orders
Hiring/firing
Overtime
Inventory changes
Subcontracting
Note that these inputs will be considered by management when developing aggregate plans. These can be varied to help meet a period of high demand (e.g., such as adding overtime during a period when demand exceeds the normal capacity). Hence, adding overtime, using past inventories, and subcontracting are examples of how management can add capacity beyond normal capacity, and meet a period of high demand. Likewise, adding to inventory (for later use) or reducing the number of workers (laying off or firing employees) are examples of responding to low demand.

10. Demand Options Pricing Promotion Back orders New demand
It is also possible to influence demand when trying to match capacity with forecasted demand. For example, raising prices could help lower demand when forecasted demand exceeds capacity. Likewise, lowering prices would help increase demand when capacity appears to exceed forecasted demand.

11. Capacity Options Hire and layoff workers Overtime/slack time
Part-time workers
Inventories
Subcontracting
Variations in the levels of the above categories can be determined by management to increase or decrease capacity.

12. Aggregate Planning Strategies
Maintain a level workforce
Maintain a steady output rate
Match demand period by period
Use a combination of decision variables
These reflect operational policies of the company. For example, if the company had a no layoff clause in its contract with the union, it would have to maintain a level workforce. Hence, it might try to influence demand (as shown in slide 13-10) rather than capacity.

13. Basic Strategy Level capacity strategy:
Maintaining a steady rate of regular-time output while meeting variations in demand by a combination of options.
We will consider only the above basic strategy in our discussion of aggregate planning.

14. Techniques for Aggregate Planning
Determine demand for each period
Determine capacities for each period
Identify policies that are pertinent
Determine units costs
Develop alternative plans and costs
Select the best plan that satisfies objectives. Otherwise return to step 5.

15. Average Inventory Average Beginning Inventory + Ending Inventory2 =
The above slide is the assumption we employ in Solved Problem 1 on pages

16. Summary of Planning Techniques
Table 13.7
The graphical/spreadsheet technique is illustrated in Solved Problem 1 on pages The linear programming technique is illustrated in Example 3 on pp As time permits, the instructor will discuss simulation during class.

17. Mathematical Techniques
Linear programming: Methods for obtaining optimal solutions to problems involving allocation of scarce resources in terms of cost minimization.
Simulation models: Computerized models that can be tested under different scenarios to problems.

18. Try problem 10, plan B only, on page 642.
The solution is given on one of the last
slides of this presentation.

19. Aggregate Plan to Master Schedule
Aggregate Planning
Disaggregation
Master Schedule

20. Disaggregating the Aggregate Plan
Master schedule: The result of disaggregating an aggregate plan; shows quantity and timing of specific end items for a scheduled horizon.
Rough-cut capacity planning: Approximate balancing of capacity and demand to test the feasibility of a master schedule.
The end items refer to the car model examples we gave in previous slides. Rough cut capacity planning refers to whether the capacity is sufficient to build the end items. If not, the master schedule must be modified until it falls within capacity.
The master schedule is sometimes referred to the master plan and/or the master production plan.

21. Aggregate Plan to Master Schedule
(from lawnmowers in general to specific types of lawnmowers)
(Types of
Lawnmowers)
Note that the sum of units in the columns of the Master Schedule (i.e., 200, 300, and 400) are equal to the number of units shown in the Aggregate Plan.

22. Master Scheduling Process
Beginning inventory
Forecast
Customer orders
Inputs
Outputs
Projected inventory
Master production schedule
Uncommitted inventory
PROCESS
Note the system structure (input, process, output, feedback loop) in the above.
Feedback Loop
Adjust plan if it is less than capacity

23. Master Scheduling Master schedule
Determines quantities needed to meet demand
Interfaces with
Marketing
Capacity planning
Production planning
Distribution planning
Clearly , the master schedule is of great interest to the departments mentioned under the heading for interfaces.

24. Master Scheduler Evaluates impact of new orders
Provides delivery dates for orders
Deals with problems
Production delays
Revising master schedule
Insufficient capacity
The master schedule is also a key input for Materials Requirement Planning, otherwise referred to MRP. However, you do not have to worry about that topic until next week.

25. Solved Problems: Problem 1
(pages 626 and 627 in the text)
At your option, you could try to try Solved Problem 1 (on pages ) using your DVD which came with the textbook. (This is NOT required as part of your homework.)
The above gives the solution that you should obtain using the DVD. Note that the spreadsheet on page 638 in your textbook is incorrect.

26. Solution to Problem 10, plan B, on page 642 of the text
Plan B: Hire one worker and subcontract. Workforce = = 21 workers.
You may need to increase the size of the slide to read the numbers.

27. Solution to Problem 10 (continued)
The total cost of Plan B is $14,140 + $200 = $14,340
On the top of page 638, the total cost of Plan A is $14,790.
Therefore, Plan B is less costly, and it would be the preferred plan.
Remember, the assignment indicated that you compare Plan A and Plan B only. You were not required to do Plan C.

28. See you in our next class meeting