1. Aggregate Planning
Chapter 13

2. 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

3. 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

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

5. 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

6. 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

7. 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.

8. 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

9. 3 Levels of Planning for Manufacturing

10. 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

11. Aggregate Production Plan and Master Production Schedule (MPS)

12. Master Production Schedule

13. 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)

14. 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

15. 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