1. Copyright © 2014 by McGraw-Hill Education (Asia). All rights reserved. 13 Aggregate Planning

2. 13-2 Learning Objectives  Explain what aggregate planning is and how it is useful.  Identify the variables decision makers have to work with in aggregate planning and some of the possible strategies they can use.  Describe some of the graphical and quantitative techniques planners use.  Prepare aggregate plans and compute their costs.

3. 13-3 Aggregate Planning Deals with intermediate-range capacity planning, usually covering 2 to 12 months. Short range Intermediate range Long range Now2 months1 Year

4. 13-4  Short-range plans (Detailed plans)  Machine loading  Job assignments  Intermediate plans (General levels)  Employment  Output  Long-range plans  Long-term capacity  Facility size/location/layout Overview of Planning Levels

5. 13-5 Planning Sequence Business Plan Establishes operations and capacity strategies Aggregate plan Establishes operations capacity Master schedule Establishes schedules for specific products Corporate strategies and policies Economic, competitive, and political conditions Aggregate demand forecasts Figure 13.1

6. 13-6 Aggregate Planning  Begin with forecast of aggregate demand  Forecast intermediate range  General plan to meet demand by setting  Output levels  Employment  Finished goods inventory level  Production plan is the output of aggregate planning  Update plan periodically – rolling planning horizon always covers the next 12–18 months

7. 13-7  Resources  Workforce  Facilities  Demand forecast  Policies  Subcontracting  Overtime  Inventory levels  Back orders  Costs  Inventory carrying  Back orders  Hiring/firing  Overtime  Inventory changes  Subcontracting Aggregate Planning Inputs

8. 13-8  Total cost of a plan  Projected levels of:  Inventory  Output  Employment  Subcontracting  Backordering Aggregate Planning Outputs

9. 13-9 Aggregate Planning Strategies  Proactive  Alter demand to match capacity  Reactive  Alter capacity to match demand  Mixed  Some of each

10. 13-10  Pricing  Promotion  Back orders  New demand Demand Options

11. 13-11  Hire and lay off workers  Overtime/slack time  Part-time workers  Inventories  Subcontracting Capacity Options

12. 13-12 Aggregate Planning Strategies  Maintain a level workforce  Maintain a steady output rate  Match demand period by period  Use a combination of decision variables

13. 13-13 Basic Strategies  Level capacity strategy:  Maintaining a steady rate of regular-time output while meeting variations in demand by a combination of options.  Chase demand strategy:  Matching capacity to demand; the planned output for a period is set at the expected demand for that period.

14. 13-14 Level Approach  Advantages  Stable output rates and workforce  Disadvantages  Greater inventory costs  Increased overtime and idle time  Resource utilizations vary over time

15. 13-15 Chase Approach  Advantages  Investment in inventory is low  Labor utilization in high  Disadvantages  The cost of adjusting output rates and/or workforce levels

16. 13-16 1.Determine demand for each period 2.Determine capacities for each period 3.Identify policies that are pertinent 4.Determine units costs 5.Develop alternative plans and costs 6.Select the best plan that satisfies objectives. Otherwise return to Step 5. Procedure for Aggregate Planning

17. 13-17 Cumulative Graph 12345 67 8910 Cumulative production Cumulative demand Cumulative output/demand Figure 13.3

18. 13-18 Average Inventory Average inventory Beginning Inventory + Ending Inventory 2 =

19. 13-19 Mathematical Techniques Linear programming: Methods for obtaining optimal solutions to problems involving allocation of scarce resources in terms of cost minimization. Simulation models: Computerized models that can be tested under different scenarios to identify acceptable solutions to problems.

20. 13-20 Summary of Planning Techniques Table 13.7

21. 13-21  Services occur when they are rendered  Demand for service can be difficult to predict  Capacity availability can be difficult to predict  Labor flexibility can be an advantage Aggregate Planning in Services

22. 13-22 Aggregate Plan to Master Schedule Aggregate Planning Disaggregation Master Schedule Figure 13.4

23. 13-23  Master schedule: The result of disaggregating an aggregate plan; shows quantity and timing of specific end items for a scheduled horizon.  Rough-cut capacity planning: Approximate balancing of capacity and demand to test the feasibility of a master schedule. Disaggregating the Aggregate Plan

24. 13-24 Master Scheduling  Master schedule  Determines quantities needed to meet demand  Interfaces with  Marketing  Capacity planning  Production planning  Distribution planning

25. 13-25 Master Scheduler  Evaluates impact of new orders  Provides delivery dates for orders  Deals with problems  Production delays  Revising master schedule  Insufficient capacity

26. 13-26 Master Scheduling Process Master Scheduling Beginning inventory Forecast Customer orders Inputs Outputs Projected inventory Master production schedule Uncommitted inventory Figure 13.6

27. 13-27 Projected On-Hand Inventory Projected on-hand inventory Inventory from previous week Current week’s requirements - =

28. 13-28 Projected On-Hand Inventory Beginning inventory Customer orders are larger than forecast in week 1 Forecast is larger than customer orders in week 2 Forecast is larger than customer orders in week 3 Figure 13.8

29. 13-29 Time Fences Time Fences: points in time that separate phases of a master schedule planning horizon.

30. 13-30 Time Fences in MPS Period “frozen” (firm or fixed) “slushy” somewhat firm “liquid” (open) Figure 13.12 123456789

31. 13-31 Solved Problems: Problem 1