1. IOA- C th July

2. Chapter 13 Aggregate Planning
Seasonal variation in demand
E.g. Ice Cream Factories
Agora on employment and departmental space allocation

3. Planning Horizon/Levels
Short-range plans (Detailed plans)
Machine loading
Job assignments
Intermediate plans (General levels)
Employment
Output
Long-range plans
Long term capacity
Location / layout
Short
range
Intermediate range
Long range
Now
2-3 months
18 Months

4. AP and Master scheduling
planning the quantity and timing of output over the intermediate range by setting/adjusting the
production rate
Employment
Finished goods inventory, and related variables.
planning activities at this “early” stage are concerned with homogeneous categories, e.g. gross volumes
Aggregate planning
follows aggregate planning and expresses the overall plan in terms of the amounts of specific end items to produce and dates to produce them.
Master scheduling
Aggregate planning is the process of developing, analyzing, and maintaining a preliminary, approximate schedule of the overall operations of an organization.

5. Aggregate plan and master schedule for electric motors
Month
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
# of Motors 40 25 55 30 50 60
Master Schedule
5 hp 15 - 10
25 hp 20
20 hp
50 hp 5

6. Establishes schedules
Planning Sequence
Business Plan
Aggregate plan
Master schedule
Corporate
strategies
and policies
Economic,
competitive,
and political
conditions
Aggregate
demand
forecasts
Establishes operations
and capacity strategies
Establishes
operations capacity
Establishes schedules
for specific products

7. Balance demand & capacity
Aggregate Planning
Why AP?
Time to implement plans
E. g. New employees, Inventory item …
Variability in demand
Individual items vs. aggregate
Budgeting
Sync supply chain flow
Affect Cost, Equipment utilization, employment level, customer satisfaction
Begin with forecast of aggregate demand
Production plan is the output of aggregate planning
Update plan periodically – rolling planning horizon always covers the next 12 – 18 months
Balance demand & capacity

8. Aggregate Planning Inputs
Resources (Available)
Workforce
Facilities
Demand forecast
Policies
Subcontracting
Overtime
Inventory levels
Back orders
Costs
Inventory carrying
Hiring/firing
Inventory changes
AP Outputs
Total cost of a plan
Projected levels of
Inventory
Output
Employment
Subcontracting
Backordering

9. Aggregate Planning Strategies
Strategy
Proactive
Alter demand to match capacity
Reactive
Alter capacity to match demand
Mixed
Some of each

10. Demand Options Demand increased to match capacity
1. Pricing. Varying pricing to increase demand Hotels, airlines, movie theatre, sale at ____
2. Promotion. Advertising, direct marketing, and other forms of promotion are used to shift demand. Breakfast menu!
3. Back ordering. By postponing delivery on current orders demand is shifted- smoothing demand. Reservations vs. walk-ins
4. New demand creation. A new, but complementary demand. Peak time bus need- off peak trips!

11. Capacity Options- Increase/decrease capacity to match demand
1. Hire/lay off.
Hire and layoff workers
Shops at vacation spots- checkout lanes
Hiring cost of skilled worker
2. Overtime- temporary increase in capacity without the added expense of hiring
3. Part-time- on-call basis, and typically without the benefits given to full-time workers.

12. Capacity Options- Increase/decrease capacity to match demand …
4. Inventory- Finished-goods inventory can be built up in periods of slack demand
no temporary labor, and no overtime
5. Subcontracting
Additional capacity temporarily
6. Cross-training- flexibility when scheduling capacity.
7. Other methods- novel ways
sharing employees with counter-cyclical companies

13. Aggregate Planning Strategies for uneven demand
Maintain a level workforce
Maintain a steady output rate
Match demand period by period
Use a combination of decision variables

14. Chase Strategy Plan to exactly match the forecast of demand
by adding or laying off employees to change the level of production
overtime or subcontracting might also be used
no inventories would be accumulated

15. Level Production Strategy
When demand exceeds the average requirement in some months and is below average in others, a production plan could be developed to
produce at the constant rate
accumulating inventory
meet the above average demands
cumulative demand (forecast) never exceeds the cumulative averages (production), so no initial inventory is needed to prevent shortages.
some backorders could be allowed

16. Stable Work-Force Strategy
Stable work force capable of
producing same amount of product per month on regular time
Production might be increased by using overtime
Some workers would be idle if demand is too low
Build up some inventory during what might otherwise be idle time periods

17. Chase approach
Advantages
Investment in inventory is low
Labor utilization in high
Disadvantages
The cost of adjusting output rates and/or workforce levels
Level Approach
Stable output rates and workforce
Greater inventory costs
Increased overtime and idle time
Resource utilizations vary over time

18. How to make 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. Otherwise return to step 5.

19. Cumulative Graph What kind of strategy?
Figure 13.3
Cumulative output/demand
Cumulative
production
Cumulative
demand 1 2 3 4 5 6 7 8 9 10
Average
inventory
Beginning Inventory + Ending Inventory 2 =

20. 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.

21. Summary of Planning Techniques
Solution
Characteristics
Graphical/charting
Heuristic (trial and error)
Intuitively appealing, easy to understand; solution not necessarily optimal.
Linear
programming
Optimizing
Computerized; linear assumptions not always valid.
Simulation
Computerized models can be examined under a variety of conditions.
Table 13.7

22. Aggregate Planning in Services
Services generally have variable processing requirements that make it difficult to establish a suitable measure of capacity.
Capacity availability can be difficult to predict
Services occur when they are rendered. Services cannot be stockpiled or inventoried so they do not have this option. It is considered "perishable,“
An empty hotel room cannot be held and sold later
Demand for service can be difficult to predict
Labor flexibility can be an advantage in services

23. Aggregate Plan to Master Schedule
Disaggregating the Aggregate Plan
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.
Aggregate Planning
Disaggregation
Master Schedule

24. Master Scheduling Determines quantities needed to meet demand
Interfaces with
Marketing
Capacity planning
Production planning
Distribution planning
Master Scheduler
Evaluates impact of new orders
Provides delivery dates for orders
Deals with problems
Production delays
Revising master schedule
Insufficient capacity

25. The MPS Process- Inputs/Outputs
Capacity
Consts.
Company
Policies
Product
Charact.
Economic
Considerations
Placed Orders
MPS
Master Production
Schedule:
When & How Much
to produce for each
Product
* Projected inventory
* Uncommitted inventory …
Forecasted Demand
Current and Planned
Availability, eg.,
Initial Inventory,
Initiated Production,
Subcontracted quantities
Planning
Horizon
Time
unit
Capacity
Planning

26. “slushy” somewhat firm
Time Fences in MPS
Period 1 2 3 4 5 6 7 8 9
“frozen” (firm or fixed)
“slushy” somewhat firm
“liquid” (open)
Time Fences – points in time that separate phases of a master schedule planning
horizon.
Figure 13.12

27. Projected On-hand Inventory
Inventory from previous week
Current week’s requirements = -

28. Calculating ATP
Calculated only in current week and any week with MPS>0
Current period: on-hand plus any current period MPS, minus all orders in that and subsequent periods until next MPS
Later periods: MPS – all orders until next MPS

29. 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 13.8

30. Solved Problems: Problem 1
Period 1 2 3 4 5 6 7 8 9
Total
Forecast
190
230
260
280
210
170
160
180
1,940
# Employees 22
Output
Regular
220
1,980
Output-Forecast 30
-10
-40
-60 10 50 60 40
Inventory
Beginning 20
Ending
Average 15 25
110
Backlog 80 70
Costs:
1,100
9,900
Hire/Fire
500
150
250
100
200
Backorders
2000
8000
7000
19,000
1,750
1,350
3,200
9,100
8,100
3,100
1,300
30,500

31. More on MPS

32. Master Production Schedule
Provides basis for:
Making good use of manufacturing resources
Making customer delivery promises
Resolving tradeoffs between sales and manufacturing
Attaining strategic objectives in the sales and operations plan

33. What is “Master Production Scheduling?”- the Production Plan
Start with Aggregate plan
Aggregate Sales & Ops Plan
Output level designed to meet targets
Disaggregates
Converts into specific schedule for each item
“The role of the sales and operations plan is to balance supply and demand volume, while the MPS specifies the mix and volume of the output”
MPS shows when products will be available in future

34. Master Production Scheduling Techniques
Available inventory
= inventory position at end of week
= starting inventory + MPS – forecast
Plan to have positive inventory level
Buffer in case production below plan
Or demand higher than anticipated
MPS row is amount to make
MRP system has to figure out how to make it

35. Level demand, level production plan1 2 3 4 5 6 7 8 9 10 11 12
Forecast
Available (End) 20
MPS
On hand (start)

36. Level production plan Forecast Available (Ending) MPS1 2 3 4 5 6 7 8 9 10 11 12
Forecast 15
Available (Ending) 25 30 35 40 45 50 20
MPS
On hand (starting)
Different sales forecast Same total: 120 units, starts lower, goes higher

37. “Chase” production strategy1 2 3 4 5 6 7 8 9 10 11 12
Forecast 15
Available (Ending) 20
MPS
On hand (starting)
Production adjusts to meet demand

38. Lot size of 30 units Forecast Available (Ending) MPS1 2 3 4 5 6 7 8 9 10 11 12
Forecast 15
Available (Ending) 30 25 20
MPS
On hand (starting)
Produce if projected balance falls below 5 units
Extra on-hand inventory is “cycle stock”
5 unit “trigger” is safety stock

39. BOM formats Indented BOM Single-level BOM only shows one layer down.
Bike
Frame Assembly
Components
Frame
Wheel Assembly
Wheel
Hubs & Rims
Spokes
Tires
Single-level BOM only shows one layer down.
Spokes
Wheel
Tires

40. Low-Level Code Numbers
Lowest level in structure item occurs
Top level is 0; next level is 1 etc.
Process 0s first, then 1s
Know all demand for an item
Where should blue be?
LLC 1 2 3 4

41. LLC Drawing Item only appears in one level of LLC drawing
Easier to understand
Simplifies calculations
LLC 1 2 3 4

42. Final Assembly Schedule
Master Production schedule is anticipated build schedule
FAS is actual build schedule
Exact end-item configurations

43. Schedule Stability
Stable schedule means stable component schedules, more efficient
No changes means lost sales
Frozen zone- no changes at all
Time fences
>24 wks, all changes allowed (water)
16-23 wks substitutions, if parts there (slush)
8-16 minor changes only (slush)
< 8 no changes (ice)

44. HW

45. 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.