Presentation on theme: "Ardavan Asef-Vaziri Systems and Operations Management"— Presentation transcript:
1 Ardavan Asef-Vaziri Systems and Operations Management Chapter 13Aggregate PlanningArdavan Asef-Vaziri Systems and Operations Management
2 Intermediate-range capacity planning Aggregate PlanningIntermediate-range capacity planningUsually covers a period of 12 months.ShortrangeIntermediate rangeLong rangeNow2 months1 Year
3 Overview of Planning Levels Long-range plansLong term capacityLocation / LayoutIntermediate plans (Aggregate Planning)Manpower Utilization regular time, overtimeOutsourcing Buying from a third partyInventory carrying product for latter periodsBacklog satisfying the demand of the earlier periodsHiring and layoffShort-range plans (Scheduling)Job assignmentsMachine loading
4 Aggregate PlanningAggregate planning is a big picture approach to production planning.It is a production plan to meet the demand throughout the year.It is not concerned with individual products, but with a single aggregate product representing all products.For example, in a TV manufacturing plant, the aggregate planning does not go into all models and sizes. It only deals with a single representative aggregate TV. Such an aggregate TV may even does not exist in reality.All models are lumped together and represent a single product; hence the term aggregate planning.
5 Aggregate PlanningAggregate approach permits planners to develop intermediate-range capacity planning without being involved in too much details.In aggregate planning we are concerned with the quantity and also timing of demand. Demand is uneven through the year.Two basic characteristics of aggregate planning1-Aggregate Product2-Uneven DemandIt begins with a forecast of aggregate demand for one year. Then a one year plan is prepared for each month. It includes volume of output, working hours, overtime, outsourcing, inventories, back orders, and hiring and layoffs.
6 Aggregate Planning 1-Demand 2-Regular time production 3-Overtime production4-Outsourcing; buying from a third party5-Inventory; production in one period and sale in one or more later periods.6-Backlog; production in one period to satisfy the demand of one or more earlier periods.7-Hiring and layoffsA number of aggregate plans are examined in terms of feasibility and their costs. The best one is selected.
7 Aggregate Planning : Summary The question is how to produce to meet the demand. How manyemployees, how much overtime, outsourcing, inventories, back orders?Basic aggregate planning strategies are:Level CapacityChase DemandDemandTime period (year)
8 Level CapacityMaintaining a steady rate of output while meeting variations in demand by a combination of optionsDemandProductionProductionTime period (one year)
9 Interesting Observation in Cumulative Graph Cumulative output/demandCumulativeproductionCumulativedemand
10 Interesting Observation in Cumulative Graph Give the following demand and production.Using a line segment show the maximum inventory?Cumulative output/demandCumulativeproductionCumulativedemand
11 Chase DemandMatching capacity to demand; production in each period is equal to the expected demand for that period.DemandTime period (year)andProduction
12 General Procedure for Aggregate Planning Determine demand for each period.Determine capacities (regular time, over time, subcontracting) for each period.Identify company’s policies regarding inventories and work force. How much inventory is allowed? What rate of overtime and outsourcing is allowed?Determine cost of working regular time and over time work, subcontracting, inventories, back orders.Develop alternative plans, compare them and select.
13 Back order (backlog)Back order cost is the cost of satisfying the demand of one period in one or more periods later.It is the cost of loss of goodwill, potential discounts, backtracking, extra paperwork for transactions, etc.Back order cost is stated as cost / unit / period(the same as inventory cost).Total back order cost per period is(cost / unit / period) × (total back order in the period).
14 Problem 1DemandTotalThere are 20 full time employees, each can produce 10 units per period at the cost of $6 per unit. Therefore the supply of full time workers is as followsTotalOvertime cost is $13 per unit.Inventory carrying cost $5 per unit per periodBacklog cost $10 per unit per periodMaximum over time production is 20 units per periodFormulated the problem as a Linear Programming model. Using excel and solver find the optimal solution.