McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved. 10 Aggregate Planning and Master Scheduling

10-2 Learning Objectives  Explain what aggregate planning is and how it is useful.  Identify the variables decision makers have to work with in aggregate planning and some of the possible strategies they can use.  Describe some of the graphical and quantitative techniques planners use.  Prepare aggregate plans and compute their costs.  Describe the master scheduling process and explain its importance.

10-3 What is aggregate planning? Aggregate planning: Intermediate-range capacity planning, usually covering 2 to 12 months. Short range Intermediate range Long range Now2 months1 Year

10-4  Short-range plans (Detailed plans)  Machine loading  Job assignments  Intermediate plans (General levels)  Employment  Output  Long-range plans  Long term capacity  Location / layout Overview of Planning Levels

The concept of aggregation  Aggregate planning is essentially a “big- picture” approach to planning.  Planners usually try to avoid focusing on individual products or services. Instead, they focused on a group of similar products or services. 13-5

Why it is needed?  It takes time to implement plans.  It affect costs, equipment utilization, employment levels and customer satisfaction. 13-6

10-7 Planning Sequence 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 Figure 10.1

10-8 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

10-9  Resources  Workforce  Facilities  Demand forecast  Policies  Subcontracting  Overtime  Inventory levels  Back orders  Costs  Inventory carrying  Back orders  Hiring/firing  Overtime  Inventory changes  Subcontracting Aggregate Planning Inputs

10-10  Total cost of a plan  Projected levels of inventory  Inventory  Output  Employment  Subcontracting  Backordering Aggregate Planning Outputs

10-11  Pricing  Promotion  Back orders  New demand Demand Options

10-12  Hire and layoff workers  Over/slack time  Part-time workers  Inventories  Subcontracting Capacity Options

10-13 Basic Strategies  Level capacity strategy:  Maintaining a steady rate of regular-time output while meeting variations in demand by a combination of options.  Chase demand strategy:  Matching capacity to demand; the planned output for a period is set at the expected demand for that period.

10-14 Level Approach  Advantages  Stable output rates and workforce  Disadvantages  Greater inventory costs  Increased overtime and idle time  Resource utilizations vary over time

10-15 Chase Approach  Advantages  Investment in inventory is low  Labor utilization is high  Disadvantages  The cost of adjusting output rates and/or workforce levels

Determine demand for each period 2.Determine capacities for each period 3.Identify policies that are pertinent 4.Determine units costs 5.Develop alternative plans and costs 6.Select the best plan that satisfies objectives. Otherwise return to step 5. Techniques for Aggregate Planning

10-17 Cumulative Graph Cumulative production Cumulative demand Cumulative output/demand Figure 10.3

10-18 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.

Mathematical Techniques  Linear programming  E company produces four kinds of products (A, B, C, D), these products respectively with five workshop order processing, product B and D to use import metal plate, demand is 1 square meters and 0.6 square meters respectively. This metal plate annual supply is 1000 square meters

Mathematical Techniques  Table Dispatching Method:  Decision variables: the arrangement of output of regular 、 overtime and subcontract  Objective function: lowest cost  Constraints: Demand Capacity 13-20

Table Dispatching Method  Example 13-21

13-22 Period capacity Period Beginning inventory available All Regular Overtime Subcontract Regular Overtime Subcontract Regular Overtime Subcontract Overtime Regular PERIOdPERIOd Demand

13-23 Period capacity Period Beginning inventory available All Regular Overtime Subcontract Regular Overtime Subcontract Regular Overtime Subcontract Overtime Regular PERIOdPERIOd Demand

13-24 Regular Overtime Subcontract Regular Overtime Subcontract Regular Overtime Subcontract Overtime Regular PERIOdPERIOd Demand Period capacity Period Beginning inventory available All

Period1234 Regular Overtime Subcontract Ending inventory =(260)+( ) =(510)+( ) =(400)+( ) =(0)+( )-350  Aggregate plan

10-26 Aggregate Plan to Master Schedule Aggregate Planning Disaggregation Master Schedule Figure 10.4

10-27  Master schedule: The result of disaggregating an aggregate plan; shows quantity and timing of specific end items for a scheduled horizon. Disaggregating the Aggregate Plan

10-28 Master Scheduling Process Master Scheduling Beginning inventory Forecast Customer orders Inputs Outputs Projected inventory Master production schedule Uncommitted inventory Figure 10.6

10-29 Projected On-hand Inventory Projected on-hand inventory Inventory from previous week Current week’s requirements - =

Beginning inventory: 45 JUNEJULY Forecast20 40 Customer order POH Master Schedule Lot-size production:

10-31 Time Fences Time Fences – points in time that separate phases of a master schedule planning horizon.

10-32 c Period “frozen” (firm or fixed) “slushy” somewhat firm “liquid” (open) Figure