1. 14-1 McGraw-Hill/Irwin Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Aggregate Planning Chapter 14

2. 14-2 McGraw-Hill/Irwin Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Aggregate Planning Planning Horizon Aggregate planning: Intermediate-range capacity planning, usually covering 2 to 12 months. Short range Intermediate range Long range Now2 months1 Year

3. 14-3 McGraw-Hill/Irwin Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Aggregate Planning 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

4. 14-4 McGraw-Hill/Irwin Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Aggregate Planning Planning Sequence Corporate strategies and policies Economic, competitive, and political conditions Aggregate demand forecasts Business Plan Production plan Master schedule Establishes production and capacity strategies Establishes production capacity Establishes schedules for specific products

5. 14-5 McGraw-Hill/Irwin Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Aggregate Planning Resources –Workforce –Facilities Demand forecast Policy statements –Subcontracting –Overtime –Inventory levels –Back orders Costs –Inventory carrying –Back orders –Hiring/firing –Overtime –Inventory changes –subcontracting Aggregate Planning Inputs

6. 14-6 McGraw-Hill/Irwin Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Aggregate Planning Total cost of a plan Projected levels of inventory –Inventory –Output –Employment –Subcontracting –Backordering Aggregate Planning Outputs

7. 14-7 McGraw-Hill/Irwin Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Aggregate Planning Pricing Promotion Back orders New demand Demand Options

8. 14-8 McGraw-Hill/Irwin Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Aggregate Planning Hire and layoff workers Overtime/slack time Part-time workers Inventories Subcontracting Capacity Options

9. 14-9 McGraw-Hill/Irwin Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Aggregate Planning Aggregate Planning Strategies Maintain a level workforce Maintain a steady output rate Match demand period by period Use a combination of decision variables

10. 14-10 McGraw-Hill/Irwin Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Aggregate Planning Basic Strategies Level capacity: –Maintaining a steady rate of regular-time output while meeting variations in demand by a combination of options. Chase demand: –Matching capacity to demand; the planned output for a period is the expected demand for that period.

11. 14-11 McGraw-Hill/Irwin Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Aggregate Planning Determine demand for each period Determine capacities for each period Identify policies that are pertinent Determine units costs Develop alternative plans and costs Select the best plan that satisfies objectives Techniques for Aggregate Planning

12. 14-12 McGraw-Hill/Irwin Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Aggregate Planning Cumulative Graph 12345 67 8910 Cumulative production Cumulative demand Cumulative output/demand Figure 14-3

13. 14-13 McGraw-Hill/Irwin Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Aggregate Planning Average Inventory Average inventory Beginning Inventory + Ending Inventory 2 =

14. 14-14 McGraw-Hill/Irwin Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Aggregate Planning Mathematical Techniques Linear programming: Methods for obtaining optimal solutions to problems involving allocation of scarce resources in terms of cost minimization. Linear decision rule: Optimizing technique that seeks to minimize combined costs, using a set of cost-approximating functions to obtain a single quadratic equation.

15. 14-15 McGraw-Hill/Irwin Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Aggregate Planning Summary of Planning Techniques

16. 14-16 McGraw-Hill/Irwin Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Aggregate Planning Services occur when they are rendered Demand for service can be difficult to predict Capacity availability can be difficult to predict Labor flexibility can be an advantage in services Aggregate Planning in Services

17. 14-17 McGraw-Hill/Irwin Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Aggregate Planning Master schedule: The result of disaggregating an aggregate plan; shows quantity and timing of specific end items for a scheduled horizon. Rough-cut capacity planning: Approximate balancing of capacity and demand to test the feasibility of a master schedule. Disaggregating

18. 14-18 McGraw-Hill/Irwin Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Aggregate Planning Master Scheduling Process Master Scheduling Beginning inventory Forecast Customer orders Inputs Outputs Projected inventory Master production schedule Uncommitted inventory Figure 14-5

19. 14-19 McGraw-Hill/Irwin Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Aggregate Planning Projected On-hand Inventory Beginning Inventory Customer orders are larger than forecast in week 1 Forecast is larger than Customer orders in week 2 Forecast is larger than Customer orders in week 3 Figure 14-8

20. 14-20 McGraw-Hill/Irwin Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Aggregate Planning Time Fences in MPS Period frozenfirmfullopen Figure 14-12 123456789101112

21. 14-21 McGraw-Hill/Irwin Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Aggregate Planning Solved Problems: Problem 1