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

Capacity Planning A long-term strategic decision that establishes a firm’s overall level of production resources Examples of Decision Variables Involved: –Building or closing structures or facilities –Upgrading equipment –Acquiring new businesses or selling existing subcomponents –Outsourcing services

Aggregate Planning An intermediate time horizon “macro” approach for developing a production plan that determines what resource capacity a firm will need to meet its forecasted demand.

Relationships of the Aggregate Plan Aggregate Schedule for Production Priority Planning & Scheduling Demand Forecasts, orders Master Production Schedule Detailed Work Schedules Plant Capacity External Capacity Inventory On Hand Raw Materials Available Work Force Marketplace and Demand Research and Technology Product Decisions Process Planning & Decisions

Decision Variables for Aggregate Planning Demand Options –Pricing –Promotion –Product Mixing –Backordering –Stockout Supply Options –Stockpile Inventory –Maintain high demand- level resources –Overtime/Idle Time –Part Time –Subcontract –Resize Workforce

The Extremes Level Strategy Chase Strategy Production equals demand Production rate is constant

Mixed strategy –Combines 2 or more aggregate scheduling options Level scheduling strategy –Produce same amount every day –Keep work force level constant –Vary non-work force capacity or demand options Aggregate Planning Strategies

Graphical & charting techniques –Popular & easy-to-understand –Trial & error approach Mathematical approaches –Linear programming model –Simulation Aggregate Planning Methods

The Graphical Approach to Aggregate Planning Forecast the demand for each period Determine the capacity for regular time, overtime, and subcontracting, for each period Determine the labor costs, hiring and firing costs, and inventory holding costs Consider company policies which may apply to the workers or to stock levels Develop alternative plans, and examine their total costs