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To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved.
Aggregate Aggregate ProductionProduction Planning: Planning:IntroductionIntroduction
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved.
Objectives of Aggregate Planning
i. The overall objective is to balance conflicting objectives involving customer service, work force stability, cost and profit.
ii. To establish company-wide strategic plan for allocating resources.
iii.To develop an economic strategy to meet customer demand.
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved.
Planning Supply and Demand with Predictable Variety
• Managing predictable variability• Predictable variability: change in demand
that can be forecasted• Goal: respond to max. profitability• Broad options:
– Manage supply using capacity, inventory, sub-contracting, and backlogs
– Manage demand using short-term price discounts and trade promotions
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved.
Typical Approach to Managing Supply and
Demand• Marketing manages demand• Operations manages supply• Best when marketing and
operations coordinate
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved.
Managing Supply
• Control variables;– Production capacity– Inventory
• Managing capacity. Approaches:– Time flexibility from workforce (OT and otherwise)– Use of seasonal workforce– Use of subcontracting– Use of dual facilities – dedicated (steady state) and
flexible (for fluctuations)– Designing product flexibility into the production
process (more expensive production capacity, labor)
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved.
Managing Supply
• Managing inventory. Approaches:– Using common components across
multiple products– Build inventory of high demand or
predictable demand products
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved.
Planning RelationshipsPlanning Relationships
Figure 1
MPS or workforce schedule
Business or annual plan
Production or staffing plan
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved.
Managerial Managerial Inputs(importance of aggregate planInputs(importance of aggregate plan))
Figure 2
Supplier capabilities Storage capacity Materials availability
Materials
Current machine capacities Plans for future capacities Workforce capacities Current staffing level
Operations
New products Product design changes Machine standards
EngineeringLabor-market conditions Training capacity
Human resources
Cost data Financial condition of firm
Accounting and financeAggregate
plan
Customer needs Demand forecasts Competition behavior
Distribution and marketing
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved.
Aggregate Planning Aggregate Planning ObjectivesObjectives
Minimize Costs/Maximize ProfitsMinimize Costs/Maximize Profits Maximize Customer ServiceMaximize Customer Service Minimize Inventory InvestmentMinimize Inventory Investment Minimize Changes in Production RatesMinimize Changes in Production Rates Minimize Changes in Workforce Minimize Changes in Workforce
LevelsLevels Maximize Utilization of Plant and Maximize Utilization of Plant and
EquipmentEquipment
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved.
Aggregate Planning StrategiesAggregate Planning Strategies
Possible Alternatives Possible AlternativesStrategyduring Slack Season during Peak Season
1. Chase #1: vary workforce Layoffs Hiringlevel to match demand
2. Chase #2: vary output Layoffs, undertime, Hiring, overtime, rate to match demand vacations subcontracting
3. Level #1: constant No layoffs, building No hiring, depleting workforce level anticipation inventory, anticipation inventory,
undertime, vacations overtime, subcontracting, backorders, stockouts
4. Level #2: constant Layoffs, building antici- Hiring, depleting antici-output rate pation inventory, pation inventory, over-
undertime, vacations time, subcontracting, backorders, stockouts
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved.
Aggregate Planning ProcessAggregate Planning Process
Figure 3
Determine requirements for planning horizon
Identify alternatives, constraints, and costs
Prepare prospective plan for
planning horizon
Move aheadto next
planning session
Implement and update the plan
Is the plan acceptable?
No
Yes
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved.
Aggregate Planning CostsAggregate Planning Costs
Regular-time CostsRegular-time Costs Overtime CostsOvertime Costs Subcontracting CostsSubcontracting Costs Hiring and Layoff CostsHiring and Layoff Costs Inventory Carrying CostsInventory Carrying Costs Backorder and Stockout CostsBackorder and Stockout Costs