1. Operations Management Dr. Ron Lembke
Aggregate Planning
Operations Management
Dr. Ron Lembke

2. Learning Objectives Describe planning Distinguish the types of plans
Define aggregate scheduling
Relate aggregate scheduling to the overall planning process
Explain aggregate scheduling options
Develop aggregate schedules

3. Example
You’ve started a new company. You’ve developed 2 production plans: Month Forecast Plan 1 Plan 2 Jan Feb Mar You estimate 1 worker can make 100 units per month. Which plan do you use? How many workers do you hire? How do you meet demand?

4. Planning Setting goals & objectives Determining steps to achieve goals
Example: Meet demand within the limits of available resources at the least cost
Determining steps to achieve goals
Example: Hire more workers
Setting start & completion dates
Example: Begin hiring in Jan.; finish, Mar.
Assigning responsibility

5. Types of Plans Management Level High Long-Range Facility location
Top Executives
Intermediate-Range
Aggregate plans
Operations Managers
Short-Range
Dispatching
Supervisors
Low
Today
3 months
1 year
18 months
5 years

6. Aggregate Scheduling
Production quantity & timing of production for intermediate future
Usually 3 to 18 months into future
Combines (‘aggregates’) production
Expressed in common units
Example: Hours, dollars, equivalents (e.g., FTE students)
Time to make ‘average’ product

7. Relationships of Aggregate Schedule
Forecast &
Resource
Production
Firm Orders
Availability
Planning
Work force
Inventory
Material
Master
Subcontractors
Requirements
Production
Planning
Scheduling
No, modify CRP, MRP, or MPS
Capacity
Shop
Requirements
Realistic?
Floor
Yes
Planning
Schedules

8. Aggregate Level Scheduling
Aggregate Schedule: Month Jan Feb Mar Apr May No. of Chips
© 1995 Corel Corp.

9. Aggregate Schedule Example
Aggregate Schedule: Month Jan Feb Mar Apr May No. of Chips Master Production Schedule: Month Jan Feb Mar Apr May P4 1.5 ghz P4 1.7 ghz

10. Aggregate Scheduling Goals
Meet demand
Use capacity efficiently
Meet inventory policy
Minimize cost
Labor
Inventory
Plant & equipment
Subcontract

11. Aggregate Scheduling Options
Capacity
Demand
Inventory
Hire or layoff
Overtime or idle
Subcontract
Part-time workers
Outsource
Promotion & price
Back ordering
Counterseasonal product mixing

12. Costs “Smoothing” costs: Holding costs - charged on inv At end
Hiring: advertise, interview, train
Firing: severance, bad morale, future hiring
Holding costs - charged on inv At end
Shortage costs
Labor costs / overtime, materials
Subcontracting / outsourcing

13. Aggregate Scheduling Strategies
Level scheduling strategy
Produce same amount every day
Keep work force level constant
Vary non-work force capacity or demand
Often results in lowest production costs
Chase strategy
Hire / Fire workers to make production capacity meet necessary production

14. Aggregate Scheduling Strategies
Mixed strategy
Combines 2 or more aggregate scheduling options
Overtime
Price
Mixed Strategy
Sub-contract
Inventory

15. Aggregate Scheduling Methods
Graphical & charting techniques
Popular & easy-to-understand
Trial & error approach
Mathematical approaches
Linear Programming
Simulation
More involved, but usually better answers

16. Linear Programming Parameters
CH = hiring cost CF = firing cost CI = Inv. Cost CR = reg production CO = Ovt. Cost CI = idle cost CS = subcontract nt = days in period t K = daily prod. I0 = Inventory to start W0 = workers to start Dt = Demand for t

17. Variables It = Inventory for t Ot = Overtime
Wt = workers for t Ut = idle time
Ht = hired in t St = subcontracted
Ft = fired in t
Pt= production for t
All must be >= 0

18. Constraints Workforce conservation Wt = Wt-1 + Ht - Ft
Units Conervation
It = It-1 + Pt + St - Dt
Production and workforce level
Pt= K*nt*Wt + Ot - Ut
Each of these must be satisfied for all t

19. LP Formulation

20. LP Considerations
LP can be modified to include minimum inv. level each period
Negative inventory can be allowed
Care needed when rounding

21. Conclusion Described role of aggregate planning
Described types of plans
Explained aggregate scheduling options
Developed aggregate schedules
Chase, Level, and Hybrid
Linear Programming