2. Industrial Facilities Design (7 th Term, Batch 2009)  28/3/2012 11  lectur # 31 & 32

3. Lecture Outline  Production + Planning  Common of Objectives Of P Planning  P Planning (Classification)  Aggregate P Planning  Capacity Decision Hierarchy  Aggregate Planning Process  Methods of Influencing Demand & Supply  APP Variables  Strategies for Adjusting Capacity  Aggregate P Planning Example  13-2  28/3/2012  lectur # 31 & 32

4. Production Production is a function in which raw materials or human efforts (inputs) are transformed into finished good or services (outputs)  13-3  28/3/2012  lectur # 31 & 32

5. Planning An organizational process of creating and maintaining a plan;plan Or The psychological process of thinking about the activities required to create a desired goal on some scalethinking  13-4  28/3/2012  lectur # 31 & 32

6.  Slide 11.5 Common objectives of production planning...  MINIMIZE: cost, inventory levels, changes in work force levels, use of overtime, use of subcontracting, changes in production rates, plant/personnel idle time  MAXIMIZE: profits, customer service  28/3/2012  lectur # 31 & 32

7.  Slide 11.6 Production Planning  Long Range Planning Strategic planning (1-5 years)  Medium Range Planning Employment, output, and inventory levels (2- 18 months)  Short Range Planning Job scheduling, machine loading, and job sequencing (0-2 months)  28/3/2012  lectur # 31 & 32

8.  Slide 11.7 Aggregate production planning is medium-term capacity planning over a two to eighteen month planning horizon. It involves determining the lowest-cost method of providing the adjustable capacity for meeting production requirements.  28/3/2012  lectur # 31 & 32

9.  Slide 11.8 Capacity Decisions Hierarchy  Linkages  Facilities  Planning  Aggregate  Planning  Scheduling  Time Frame  Facilities Planning  Aggregate Planning  Scheduling  Time  28/3/2012  lectur # 31 & 32

10.  Slide 11.9 Aggregation refers to the idea of focusing on overall capacity, rather than individual products or services. Aggregation is done according to: Products Labor Time  28/3/2012  lectur # 31 & 32

11.  Slide 11.10 Aggregate production planning involves managing...  Work force levels  Work force levels - the number of workers required for production.  Production rates  Production rates - the number of units produced per time period.  Inventory levels  Inventory levels - the balance of unused units carried forward from the previous period.  28/3/2012  lectur # 31 & 32

12.  13-11 Aggregate Planning Process  28/3/2012  lectur # 31 & 32

13.  Slide 11.12 Methods of Influencing Demand  Price Incentives  Reservations  Backlogs  Complementary Products or Services  Advertising/promotion  28/3/2012  lectur # 31 & 32

14.  Slide 11.13 Methods of Influencing Supply  Hiring/firing workers  Overtime/slack time  Part time/temporary labor  Subcontracting  Cooperative arrangements  Inventories  28/3/2012  lectur # 31 & 32

15.  Slide 11.14 Aggregate Production Planning Variable Costs  Hiring/firing costs  Overtime/slack time costs  Part time/temporary labor costs  Subcontracting costs  Cooperative arrangements costs  Inventory carrying costs  Backorder or stock out costs  28/3/2012  lectur # 31 & 32

16. Strategies for Adjusting Capacity  Level production Producing at a constant rate and using inventory to absorb fluctuations in demand  Chase demand Hiring and firing workers to match demand  Peak demand Maintaining resources for high-demand levels   Overtime and under-time Increasing or decreasing working hours   Subcontracting Let outside companies complete the work   Part-time workers Hiring part time workers to complete the work   Backordering Providing the service or product at a later time period  13-15  28/3/2012  lectur # 31 & 32

17. Level Production  13-16 Demand Units Time Production  28/3/2012  lectur # 31 & 32

18. Chase Demand  13-17 Demand Units Time Production  28/3/2012  lectur # 31 & 32

19. Level Production Strategy  13-18 Level production = 100,000 pounds (50,000 + 120,000 + 150,000 + 80,000) 4 Spring80,000100,00020,000 Summer50,000100,00070,000 Fall120,000100,00050,000 Winter150,000100,0000 400,000140,000 Cost of Level Production Strategy (400,000 X $2.00) + (140,00 X $.50) = $870,000 SALESPRODUCTION QUARTERFORECASTPLANINVENTORY  28/3/2012  lectur # 31 & 32

20. Chase Demand Strategy  13-19 Spring80,00080,00080020 Summer50,00050,00050030 Fall120,000120,000120700 Winter150,000150,000150300 10050 SALESPRODUCTIONWORKERSWORKERSWORKERS SALESPRODUCTIONWORKERSWORKERSWORKERS QUARTERFORECASTPLANNEEDEDHIREDFIRED Cost of Chase Demand Strategy (400,000 X $2.00) + (100 x $100) + (50 x $500) = $835,000  28/3/2012  lectur # 31 & 32

21. Mixed Strategy  Combination of Level Production and Chase Demand strategies  Examples of management policies no more than x% of the workforce can be laid off in one quarter inventory levels cannot exceed x dollars  Many industries may simply shut down manufacturing during the low demand season and schedule employee vacations during that time  13-20  28/3/2012  lectur # 31 & 32

22.  A small manufacturing company with 200 employees produces umbrellas. The company produces the following three product lines: 1) the Executive Line, 2) the Durable Line and 3) the Compact line, as shown in the below  Executive Line  Durable Line  Compact Line Aggregate Planning Example  28/3/2012  13-21  lectur # 31 & 32

23.  Number of working days:  Jan: 22  Feb:19  Mar:21  Apr:21  May:22  Jun:20 Aggregate Planning Example: Demand for Executive Umbrellas  28/3/2012  13-22  lectur # 31 & 32

24. Aggregate Planning Example: Cost Information for Executive Umbrellas  28/3/2012  13-23  lectur # 31 & 32

25. Aggregate Planning Example: Determining Straight Labor Costs and Output for Executive Umbrellas  January  159.5 = 22 [days/month] * 7.25 [productive hrs/worker]  1063.33 = 159.5 [hrs/worker/month] /.15 [hrs/unit]  $1,408 = 8 [$/hr] * 8 [paid hrs/day] * 22 [days/month]  28/3/2012  13-24  lectur # 31 & 32

26. Aggregate Planning Example: Determining Straight Labor Costs and Output for Executive Umbrellas  28/3/2012  13-25  lectur # 31 & 32

27. 4,500 units is the demand in January (any combination of firm orders and forecast4,500 units is the demand in January (any combination of firm orders and forecast 250 is the starting inventory position250 is the starting inventory position 4,250 = 4,500 – 2504,250 = 4,500 – 250 3.997 = 4,250 / 1,063.333.997 = 4,250 / 1,063.33 7 = workforce level at the beginning of January7 = workforce level at the beginning of January 3 = 7 – 4 = workers fired3 = 7 – 4 = workers fired 4 = workforce level at end of January4 = workforce level at end of January 0 = ending inventory level0 = ending inventory level Aggregate Planning Example Chase Strategy for Executive Umbrellas Objective: Adjust workforce level so as to eliminate the need to carry inventory from period to periodObjective: Adjust workforce level so as to eliminate the need to carry inventory from period to period  28/3/2012  13-26  lectur # 31 & 32

28. Aggregate Planning Example Chase Strategy for Executive Umbrellas  28/3/2012  13-27  lectur # 31 & 32

29. Aggregate Planning Example Chase Strategy for Executive Umbrellas  January costs: $21,250.00 = 4,250 [units] * $5 [$/unit] $ 5,627.59 = 3.997 [workers] * 1,408 [$/worker] $ 750.00 = 3 [workers fired] * 250 [$/worker fired]  28/3/2012  13-28  lectur # 31 & 32

30. Aggregate Planning Example Level Strategy for Executive Umbrellas Objective: Adjust inventory level so as to eliminate the need to hire or fire workers from period to periodObjective: Adjust inventory level so as to eliminate the need to hire or fire workers from period to period Assume that January is started with 6 employeesAssume that January is started with 6 employees 6,380 = 6 [employees] *6,380 = 6 [employees] *  1,063.33 [units/worker] 2,130 = 6,380 – 4,250 (surplus)2,130 = 6,380 – 4,250 (surplus)  28/3/2012  13-29  lectur # 31 & 32

31. Aggregate Planning Example Level Strategy for Executive Umbrellas  28/3/2012  13-30  lectur # 31 & 32

32. Aggregate Planning Example Level Strategy for Executive Umbrellas  January costs: $8,448 = 6 [workers] * $1,408 [$/worker] $ 31,900 = 6,380 [units] * $5 [$/unit] $ 2,130 = 2,130 [surplus units] * $1 [$/unit held/month]  28/3/2012  13-31  lectur # 31 & 32

33. Aggregate Planning Example Which Plan is Cheaper? Level Capacity Chase $249,100.00$260,411.00  Clearly, the level capacity plan is cheaper over the selected time horizon  Note: Be cautious in using the chase strategy as many intangibles, such as employee loyalty and commitment to the organization are adversely affected  28/3/2012  13-32  lectur # 31 & 32