Aggregate Planning and Master Scheduling Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

11-2 You should be able to: LO 11.1Explain what aggregate planning is and how it is useful LO 11.2Identify the variables decision makers have to work with in aggregate planning LO 11.3Describe some of the strategies that can be used for meeting uneven demand LO 11.4Describe some of the graphical and quantitative techniques planners use LO 11.5Prepare aggregate plans and compute their costs LO 11.6Describe the master scheduling process and explain its importance LO 11.7Disaggregate an aggregate plan

11-3 Aggregate planning Intermediate-range capacity planning that typically covers a time horizon of 2 to 18 months Useful for organizations that experience seasonal, or other variations in demand Goal: Achieve a production plan that will effectively utilize the organization’s resources to satisfy demand Also called sales and operations planning LO 11.1

11-4 Long Range Plans Long term capacity Location Layout Product Design Work System Design Intermediate Plans General Levels Employment Output Inventories Subcontracting Backorders Short-range Plans Detailed Plans Production lot size Order quantities Machine loading Job assignments Job sequencing Work schedules

11-5 Why do organizations need to do aggregate planning? Planning It takes time to implement plans Strategic Aggregation is important because it is not possible to predict with accuracy the timing and volume of demand for individual items It is connected to the budgeting process It can help synchronize flow throughout the supply chain; it affects costs, equipment utilization; employment levels; and customer satisfaction LO 11.1

11-6 Resources Workforce/production rates Facilities and equipment Demand forecast Policies Workforce changes Subcontracting Overtime Inventory levels/changes Back orders Costs Inventory carrying Back orders Hiring/firing Overtime Inventory changes subcontracting LO 11.2

11-7 Total cost of a plan Projected levels of Inventory Output Employment Subcontracting Backordering LO 11.2

11-8 Demand Options: Pricing Promotion Backorders New demand Supply Options Hire and lay off workers Overtime/slack time Part-time workers Inventories Sub-contracting Aggregate Planning Strategies Proactive: Alter demand to match capacity Reactive: Alter Capacity to match demand Mixed: Involve both

Maintain a level workforce 2. Maintain a steady output rate 3. Match demand period by period 4. Use a combination of decision variables LO 11.3

11-10 Level capacity strategy: Maintaining a steady rate of regular-time output while meeting variations in demand by a combination of options: inventories, overtime, part-time workers, subcontracting, and back orders Chase demand strategy: Matching capacity to demand; the planned output for a period is set at the expected demand for that period. LO 11.3

11-11 General procedure: 1. Determine demand for each period 2. Determine capacities for each period 3. Identify company or departmental policies that are pertinent 4. Determine unit costs 5. Develop alternative plans and costs 6. Select the plan that best satisfies objectives. Otherwise return to step 5. LO 11.4

11-12 Planners for a company that make several models of skateboards are about to prepare the aggregate plan that will cover six periods. Forecast for demand is as follows Costs: Output Regular: $2 per skateboard Overtime:$3 per skateboard Subcontract:$6 per skateboard Inventory: $1 per skateboard Backorders:$5 per skateboard They intend to start and end with 0 inventory. Overtime and subcontracting is not used. Output rate 300 units per period There are 15 workers and can produce 20 skateboards per period. Period Total Forecast Prepare an aggregate plan and determine its cost.

11-13 Refer to the related Excel sheet!

11-14 Hospitals: Aggregate planning used to allocate funds, staff, and supplies to meet the demands of patients for their medical services Airlines: Aggregate planning in this environment is complex due to the number of factors involved Capacity decisions must take into account the percentage of seats to be allocated to various fare classes in order to maximize profit or yield Restaurants: Aggregate planning in high-volume businesses is directed toward smoothing the service rate, determining workforce size, and managing demand to match a fixed capacity Can use inventory; however, it is perishable LO 11.6

11-15 The resulting plan in services is a time-phased projection of service staff requirements Aggregate planning in manufacturing and services is similar, but there are some key differences related to: 1. Demand for service can be difficult to predict 2. Capacity availability can be difficult to predict 3. Labor flexibility can be an advantage in services 4. Services occur when they are rendered LO 11.6

11-16 Master Production Schedule(MPS): The result of disaggregating an aggregate plan Shows quantity and timing of specific end items for a scheduled horizon Rough-cut capacity planning(RCCP) Approximate balancing of capacity and demand to test the feasibility of a master schedule. LO 11.7

11-17 The heart of production planning and control It determines the quantity needed to meet demand from all sources It interfaces with Marketing Capacity planning Production planning Distribution planning Provides senior management with the ability to determine whether the business plan and its strategic objectives will be achieved LO 11.7

11-18 Period “frozen” (firm or fixed) “slushy” somewhat firm “liquid” (open) LO 11.7

11-19 Week Forecast Customer Orders (committed) Projected on-hand inventory MPS ATP

11-20 Beginning inventory Forecast Customer orders Inputs Outputs Projected inventory Master production schedule Uncommitted inventory Master Scheduling Master Scheduling LO 11.7