Aggregate Planning

Overview Aggregate planning in the planning process Aggregate planning in the planning process Aggregate planning strategies Aggregate planning strategies Capacity optionsCapacity options Chase strategy Chase strategy Level strategy Level strategy Demand optionsDemand options Mixing optionsMixing options Graphical/charting methods Graphical/charting methods Linear programming Linear programming Simulation Simulation

Planning Relationships

Business or annual plan

Planning Relationships Business or annual plan Aggregate plan – production and staffing plan

Planning Relationships MPS or workforce schedule Business or annual plan Aggregate plan – production and staffing plan

Planning Relationships MPS or workforce schedule Business or annual plan Aggregate plan – production and staffing plan

Planning Relationships MPS or workforce schedule Business or annual plan Aggregate plan – production and staffing plan

Planning Horizons Today3 Months 1 year5 years Planning Horizon Intermediate-range plans Sales planning Production planning and budgeting Setting employment, inventory, subcontracting levels Analyzing operating plans Responsible: Operations managers

Planning Horizons Today3 Months 1 year5 years Planning Horizon Long-range plans R&D New product plans Capital expenses Facility location, expansion Responsible: Top executives

Planning Horizons Today3 Months 1 year5 years Planning Horizon Short-range plans Job assignments Ordering Job scheduling Dispatching Responsible: Operations managers, supervisors, foremen

Planning Horizons Today3 Months 1 year5 years Planning Horizon Short-range plans Job assignments Ordering Job scheduling Dispatching Intermediate-range plans Sales planning Production planning and budgeting Setting employment, inventory, subcontracting levels Analyzing operating plans Long-range plans R&D New product plans Capital expenses Facility location, expansion Responsible: Operations managers, supervisors, foremen Responsible: Operations managers Responsible: Top executives

Planning hierarchy

Planning horizon Long range: Years Itermediate range: 6 – 18 months Short range: Weeks Planning hierarchy

Planning horizon Long range: Years Itermediate range: 6 – 18 months Short range: Weeks Scope Entire production line i.e. Ford trucks Product Family i.e. Ford F series Specific model i.e. Ford F-150 Planning hierarchy

What is an aggregate plan?

Managerial Inputs

Aggregate plan

Managerial Inputs Aggregate plan Customer needs Demand forecasts Competition behavior Distribution and marketing

Managerial Inputs Cost data Financial condition of firm Accounting and finance Aggregate plan Customer needs Demand forecasts Competition behavior Distribution and marketing

Managerial Inputs Labor-market conditions Training capacity Human resources Cost data Financial condition of firm Accounting and finance Aggregate plan Customer needs Demand forecasts Competition behavior Distribution and marketing

Managerial Inputs New products Product design changes Machine standards Engineering Labor-market conditions Training capacity Human resources Cost data Financial condition of firm Accounting and finance Aggregate plan Customer needs Demand forecasts Competition behavior Distribution and marketing

Managerial Inputs Supplier capabilities Storage capacity Materials availability Materials New products Product design changes Machine standards Engineering Labor-market conditions Training capacity Human resources Cost data Financial condition of firm Accounting and finance Aggregate plan Customer needs Demand forecasts Competition behavior Distribution and marketing

Managerial Inputs Supplier capabilities Storage capacity Materials availability Materials Current machine capacities Plans for future capacities Workforce capacities Current staffing level Operations New products Product design changes Machine standards Engineering Labor-market conditions Training capacity Human resources Cost data Financial condition of firm Accounting and finance Aggregate plan Customer needs Demand forecasts Competition behavior Distribution and marketing

Aggregate Planning Objectives  Minimize Costs/Maximize Profits  Maximize Customer Service  Minimize Inventory Investment  Minimize Changes in Production Rates  Minimize Changes in Workforce Levels  Maximize Utilization of Plant and Equipment

Aggregate Planning Strategies Pure Strategies Capacity Options — change capacity: Capacity Options — change capacity: changing inventory levelschanging inventory levels varying work force size by hiring or layoffsvarying work force size by hiring or layoffs varying production capacity through overtime or idle timevarying production capacity through overtime or idle time subcontractingsubcontracting using part-time workersusing part-time workers

Aggregate Planning Strategies Pure Strategies Demand Options — change demand : Demand Options — change demand : influencing demandinfluencing demand backordering during high demand periodsbackordering during high demand periods counterseasonal product mixingcounterseasonal product mixing

Advantage/Disadvantages of Aggregate Planning Options See Table 13.1

Mixing the options: The Extremes Level Strategy Chase Strategy Production equals demand Production rate is constant

Level planning strategy Level planning strategy Produce same amount every monthProduce same amount every month Keep work force level constantKeep work force level constant Find alternative work for employees when there is less demand Find alternative work for employees when there is less demand Vary non-work force capacity or demand optionsVary non-work force capacity or demand options Inventory levels allowed to fluctuate Inventory levels allowed to fluctuate Often results in lowest production costsOften results in lowest production costs Toyota, Nissan employ this strategyToyota, Nissan employ this strategy Aggregate Planning Strategies

Chase planning strategy Chase planning strategy Output rates match demandOutput rates match demand Vary work force levelVary work force level Hiring/laying off Hiring/laying off Vary non-work force capacity or demand optionsVary non-work force capacity or demand options Overtime and outsource Overtime and outsource Part time employees Part time employees Service industries often utilize this strategyService industries often utilize this strategy Hospitality, construction, education Hospitality, construction, education Aggregate Planning Strategies