1. Aggregate planning 1 Aggregate planning / scheduling Medium range plan - what we will make over the next 3-18 months. –general demand –controllable variables / forms of capacity production rates labor levels inventory levels outsourcing overtime –does not include investments in facilities

2. Aggregate planning 2 Linkages Marketing: –when will products be available ? Lead times ? Excess inventory (good time for a sale?) Accounting and Finance: –cash flows- will we be making more than we are selling? –do we have to finance inventory? –when will suppliers need to be paid? Human resources –timing of hiring, firing and training Information Systems –what to track –linkages to other supply chain members

3. Aggregate planning 3 Aggregate planning strategies Companies can do any or all of the following: –Use inventory to absorb changes in demand –Vary the size of the workforce –Vary work hours part timers overtime –Outsource parts they could make the entire product –Demand management

4. Aggregate planning 4 Examples of different strategies: tool and die shops 1) Atlas Tool and Die (competes on cost) –as demand increases working hours increase - until both shifts are working 65 hours a week –once the shop is effectively running 24 a day they start to outsource. If there is enough demand they will outsource the entire project. –as demand decrease they bring work back in house and then cut work hours

5. Aggregate planning 5 Examples: DieCast 2) DieCast (competes on innovation / knowledge) –work hours set at 50 a week size of workforce driven by decision to keep people working 50 hours a week all the time. –usually outsource simple work –never outsource entire project –when demand decreases they bring work back in house - have never laid off –when demand outstrips their capacity they turn work down

6. Aggregate planning 6 Examples: Grand Rapids Mold and Die 3) GRMD (competes on speed) –machine capacity set at maximum level of demand –hire workers as they get busier and fire when work slows down –only outsource if every machine is running 24 hours a day- and then only until they can get another machine

7. Aggregate planning 7 Aggregate planning options: capacity Changing inventory levels Varying workforce size by hiring or firing –Grand Rapids –Construction unions Over and idle time –why do companies prefer overtime to hiring new people? Part time or temps –Adjunct faculty members Outsourcing

8. Aggregate planning 8 Outsourcing pluses and minuses Pluses –increased flexibility –increased quality (?) –decreased costs (?) Minuses –decreased control –can be very expensive in certain situations –suppliers can become competitors

9. Aggregate planning 9 Aggregate planning options: demand management Directly influence demand –promotions –early bird specials and happy hour Back-orders –MTO verses MTS Product mixing –Sea-doo / Ski-doo –The golf / ski shop

10. Aggregate planning 10 Level verses chase strategies Level production strategies: if possible the best plan is to keep production level and use inventory or backlogs (note DieCast is level with no inventory) to act as a buffer between production and demand. –requires fairly stable demand (or very low inventory / backorder costs) –why is this preferred Chase demand production strategies: vary the level of production to match demand using a combination of the previously discussed options. –What must our capacity be to chase?

11. Aggregate planning 11 Methods of aggregate planning Mathematical approaches: a number of mathematical approaches to scheduling exist- but they are very complex, often do not work for large problems, and or take a very long time to run. So... Graphical / logical models tend to be used in practice

12. Aggregate planning 12 An example

13. Aggregate planning 13 Cost info. for example

14. Aggregate planning 14 A level demand strategy Produce 50 units a day - increasing inventory in Jan., Feb., and Mar., and decreasing it the last 3 months Workers required = 10 per day no O.T. Beginning inventory and ending inventory = 0

15. Aggregate planning 15 The level plan

16. Aggregate planning 16 Costs of level plan

17. Aggregate planning 17 Another option: outsourcing In this option we choose to set production at the level of the lowest demand month (like DieCast) and outsource the remaining work. The lowest demand month is March where we make 38 units per day - so 38 units per day is our production plan. In order to achieve this we need 7.6 workers (38 /5)

18. Aggregate planning 18 Outsourcing costs In house production = 38 * 124 = 4712 –7.6 workers * $ 40 per day * 124 days = 37,696 Outsourced production = 6200 - 4712 = 1488 –1488 * 10 unit = 14,880 Total costs = –37.696 + 14,880 = 52,576

19. Aggregate planning 19 Your turn Do a chase demand plan Use only whole employees Remember to include hire and fire costs Use overtime not idle time

20. Aggregate planning 20 Chase strategy Deman d DaysProduc e Emplo yee RTOTHire costs Fire costs Total 900224187040246.4007286.4 700183975040806.407006546.4 800213875880705.6006585.6 12002157119240470.42000011710. 4 150022681311440739.21000013179. 2 1100205511880000140010200 55508

21. Aggregate planning 21 Try this Use the same cost data but –Add backorder costs of $10 a unit Plan – split level: 1 level of production for Jan- March, a second for April – June Use overtime not idle time If you did not want to have backorders what could you do?

22. Aggregate planning 22 The basics of the split plan

23. Aggregate planning 23 Costs for the split plan Employ ment RTOTEnding Invento ry Invento ry backord er hireFiretotal 761601070..4 3 -34.430344007574.69 75040875.80-26.230262006178.1 758801021.77000006901.77 121008074.6766.6733302500012988 121056078.22-106.35010630011701.71 12960071.11000009671.11 55015.38

24. Aggregate planning 24 Aggregate planning conclusions These were only a few of a number of options. We generally focused on the price Other goals besides lowest price ? –customer service –employee morale –etc. –Should be linked to strategy