Aggregate Planning Chapter 13

Just-in-Time & Lean Systems MGMT 326 Facilities & Work Design Foundations of Operations Products & Processes Quality Assurance Planning & Control Aggregate Planning Managing Inventory Managing Projects Managing Quality Introduction Linear Program- ming Strategy Product Design Statistical Process Control Capacity and Location Process Design Facility Layout Just-in-Time & Lean Systems Work System Design

Presentation Outline Planning for Operations What is Aggregate Planning, and why is it important 3 Levels of planning for manufacturing Master Production Schedule and Rough Cut Capacity Plan Aggregate Planning options Work force and capacity management Demand management

Aggregate Operations Planning for Services Input: demand forecast by product line by month by facility Output: Labor requirements by month by facility

Aggregate Plan in Manufacturing Objective: Match supply and demand so that the sales plan can be met. Input: sales forecast by product line by month for 6-18 months Information in the plan, by product line by month Supply: production and outsourcing (buying from another firm) by product line by month Labor force by product line by month Ending inventory level by month

Why is Aggregate Planning Important? Operations and supply chain management To ensure that Operations is prepared to meet customer needs Should make-buy decisions be changed? Contracts for raw materials and parts Labor requirements Inventory levels

Why is Aggregate Planning Important? (2) Marketing To ensure that the company's capacity will be used in the most profitable way, considering market constraints If there is not enough capacity, which products or customers will have priority? If there is more capacity than needed, how can the firm sell more? The Aggregate Operations Plan and the Sales Plan must be consistent.

Why is Aggregate Planning Important?(3) Accounting and Finance To have an accurate budget for operations To ensure adequate cash flow for operations Year-end inventory levels affect earnings forecasts Human resources management If more workers will be needed, plan for hiring and training If fewer workers are needed, plan for layoffs

3 Levels of Planning for Manufacturing

Master Production Schedule (MPS) and Rough Cut Capacity Plan Master Production Schedule (MPS): shows planned production by item, by day or week, for 2 – 6 months Is revised as sales forecast changes Rough Cut Capacity Plan: a calculation to ensure that there is enough capacity to make the items in the Master Production Schedule

Aggregate Production Plan and Master Production Schedule (MPS)

Master Production Schedule

Aggregate Planning Options Work Force and Capacity Management Hiring Layoffs Increase or decrease working hours (overtime or undertime) Increase or decrease use of part-time or temporary workers Contract production to another firm Use contract service workers (service or administrative departments)

Aggregate Planning Options Demand-Driven Options To increase demand, reduce prices and offer promotions to increase demand when you need it Profit per unit is lower, but you get additional business A good strategy when fixed costs are high and variable costs are low Service firms often use appointment systems to match supply and demand

Aggregate Planning Options Demand-Driven Options (2) Build finished goods inventory when demand is low and sell it when demand is high High inventory costs Risk of having obsolete inventory Companies with highly seasonal demand may have to use this strategy. Back orders result when a company cannot supply demand immediately Unless you have a unique product or a lower price than competitors, there is a high risk of lost sales Additional administrative and transportation costs