AGGREGATE PLANNING BY GRAPHICAL APPROACH Particularly for high volume, standardized product system & closed job shop systems, the concepts & methods of aggregate planning & scheduling are of great importance They are important at least if we are to obtain the best possible use of facility within the constraint of policy regarding hiring & firing, inventories & the use of outside capacity & within the constraints of our own capacity 15/4/20131Lec # 24 & 25

AGGREGATE PLANNING BY GRAPHICAL APPROACH The broad line of questions that are vital & can be addressed through aggregate planning are: 1.To what extent should inventory be used to absorb the fluctuations in demand over the next 6-12 months? 2.Why not absorb this fluctuation by simply varying the size of work force? 3.Why not maintain a fairly stable workforce size & absorb fluctuation by changing production rate by resorting to the overtime & shortened time? 4.Why not maintain a fairly stable workforce size & product rate & let our sub contractor help with the problem of fluctuating the order rates from us? 15/4/2013Lec # 24 & 252

AGGREGATE PLANNING BY GRAPHICAL APPROACH If inventory has to absorb all the fluctuations in demand, it is necessary to prepare the inventory balance so that no stock out occurs 15/4/2013Lec # 24 & 253

PREPARATION OF INVENTORY BALANCE To understand how inventory balance is prepared, look at table 3.1 (in excel sheet) which shows how a company has developed forecast to an item which has a demand influenced by seasonal factors The table illustrate how the inventory balance is prepared The monthly inventory balance required is determined following a plan of letting the inventory to absorb all fluctuations in demand. 15/4/2013Lec # 24 & 254

PREPARATION OF INVENTORY BALANCE In this case we have constant workforce, no idle time or overtime, no backorder, no use of subcontract, & no capacity adjustments Once the inventory requirements are known the carrying cost can be weighted against the cost of alternative plan 15/4/2013Lec # 24 & 255

PREPARATION OF INVENTORY BALANCE Problem 1: with reference to the data in table 3.1, the company has determined that to follow a plan of meeting demand by varying the size of workforce would result in hiring & layoff cost estimated at Rs.22,000. If the cost of producing each unit is Rs.100, the carrying cost/per annum are 20% of average inventory value & storage cost are Rs. 9/unit, which plan results in lower cost: VARYING INVENTORY or VARYING EMPLOYMENT (hiring/layoff) 15/4/2013Lec # 24 & 256

PREPARATION OF INVENTORY BALANCE Problem 2: A Company has a monthly demand as shown in table 3.2 (shown on excel sheet). The organization policy is to have 10% of month forecast as safety stock. The number of days available in each month is also shown. There is no inventory available at the beginning of the first month, i.e. January The cost of the organization are as follows: Inventory holding cost: Rs.2/unit/month Duration of shift:8 hours Hourly wage rate:Rs. 8 Stock out cost /unit:Rs.5 Hourly overtime wage rate:Rs. 10 Subcontracting cost/unit:Rs. 105 with Rs. 5 premium Labor Hour /unit:4 hours Layoff cost/worker:Rs.500 Hiring cost/worker:Rs /4/2013Lec # 24 & 257

PREPARATION OF INVENTORY BALANCE Problem 2: (Cont..) Three potential plans are suggested: 1.Produce to exact production requirement by varying the size of workforce on regular hours. Assume there are 250 workers available in January 2.Make a constant workforce of 518 workers. Assume no subcontracts are available & inventory will fluctuate with stock out filled from the following month’s production 3.Produce by fixed workforce of 500 regular times & subcontract all excess demands over the period production. Inventory will increase when production exceeds demand, no stock out is permitted Determine the plan which gives the least cost 15/4/2013Lec # 24 & 258