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Operations Management Dr. Ron Lembke

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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

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