1

Aggregate Planning This Chapter explores:

– An overview of operations planning techniques

– The hierarchical planning process

– Aggregate production planning

– Production planning strategies

– Applications: pure and mixed strategies

– Master Production Scheduling

2

Operations Planning Overview Long-range planning

– Greater than one year planning horizon

Intermediate-range planning– Six to nine months

Short-range planning– One day to less than six months

1 year

6 months

1 week

Process Planning

Strategic Capacity Planning

Aggregate Planning

Master Production Scheduling

Material Requirements Planning

Order Scheduling Weekly Workforce &Customer Scheduling

Daily Workforce &Customer Scheduling

LongRange

MediumRange

ShortRange

Manufacturing Services

Major Operations Planing Activities

4

Chapter 7: Schedule Management

5

Some Definitions Process planning is selecting specific processes and

technologies to produce a product or service. Strategic capacity planning is the determination of the

long-term capabilities of the system. Aggregate planning involves translating long-term

forecasted demand into specific production rates and the corresponding labor requirements for the intermediate term

AggregatePlanning

Long-termdemand

Production rates

Laborrequirements

6

Hierarchical Production Planning

Allocatesproduction

among plants

Annual demand byitem and by region

Determinesseasonal plan by

product type

Monthly demandfor 15 months by

product type

Monthly demandfor 5 months by

item

Determines monthlyitem production

schedules

Decision Process Forecasts neededDecision Level

Corporate

Plant manager

Shopsuperintendent

7

Aggregate Production Planning Goal: Specify the optimal combination of

– production rate (units/time)– workforce level (how many workers?)– inventory on hand (unsold product from previous runs)

**the three items above are the basic controllable variables for production planning

Product group or broad category (Aggregation)

Medium-Range: 6-18 months

8

Example: Factors Complicating Aggregate Planning at Henry Ford Clinic

High degree of demand variability– average number of occupied beds in 1991 was

770– in one 8-week period an average of 861 beds was

occupied– in another 8-week period an average of 660 beds

were occupied– number of beds occupied could change by as

may as 146 beds in less than two weeks

9

Complicating Factors continued

Large penalty for not being able to admit HMO patients– lost revenue

– must pay other hospital for patient’s stay

– a simple obstetrics case cost $5,000

Tight labor market for RNs– 12 to 16 weeks to recruit and train nurses at cost of $7,600

Cost of 8-bed modules exceeds $35,000/ month

10

Importance of Aggregate Planning

Without sufficiently long-term view may make short-term decisions that hurt the organization in the long-term

For example, shortly after Henry Ford Hospital reduced staff, it determined the staff was needed

New staff was recruited Both staff reduction and recruiting costs incurred

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Extremely Difficult Decision

Demand can shift by more than 16% in a two-week period

Takes 12 - 16 weeks and costs $7,600 a piece to recruit new nurses

By time staff hired, demand may have shifted again

12

Extremely Difficult Decision continued

If don’t have enough staff, cost $5,000 per patient turned away (simple cases)

Cost of one idle 8-bed module is $35,000/month or $420,000/year

13

The Aggregate Plan

Approximate schedule of overall operations that will satisfy demand forecast at minimum cost

Planning horizon often a year or more and broken into monthly or quarterly periods

Purpose is to minimize short-sighted effects Work with aggregate units and resources

14

The Aggregate Plan continued

Equivalent units Relevant costs

– hiring and layoff costs– inventory and backorder costs– wages and overtime charges– subcontracting costs

Major cost categories are: production costs (direct, fixed and variable); production changes (hiring, firing, training); inventory holding costs; backlog costs.

15

The Production Plan

Result of managerial iteration and changes to aggregate plan

Often disaggregated one level into major output groups: E.G.– Aggregate Plan: number of automobiles to be

produced in each of the upcoming 12 months– Production Plan: number of compacts, mid-size,

full-size, light trucks, and minivans to produce in each of the upcoming 12 months

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Aggregate Planning Example

Keepdry, a small manufacturing company (200 employees), produces umbrellas. The company, founded in 1991 produces the following three product lines: 1) the Executive Line, 2) the Durable Line and 3) the Compact line shown in the following figure.

Executive Line Durable Line Compact Line ....

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Aggregate Demand(Executive Line)

0

2000

4000

6000

8000

10000

J an Feb Mar Apr May J un

45005500

7000

10000

8000

6000

Number of working days:Jan 22Feb 19Mar 21Apr 21May 22Jun 20

....

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Aggregate Planning: Some Key Strategies for Meeting Demand – Pure Plans

Chase

Stable Workforce--Variable Work Hours

Level ....

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Cost Information

Materials $5/unitHolding costs $1/unit per monthMarginal cost of stockout $1.25/unit per monthHiring and training cost $200/workerLayoff costs $250/workerLabor hours required .15 hrs/unitStraight time labor cost $8/hourBeginning inventory 250 units

....

20

Costs of Production PlansCosts of four plans will be considered with the following assumptions:

Plan 1: Exact production; vary workforce

Plan 2: Constant workforce; vary inventory

Plan 3: Constant low workforce; subcontract

Plan 4: Constant workforce; overtime

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Determining Straight Labor Costs and Output

Work Hrs/worker Units per StraightDays/mo per mo. Worker Cost/worker

J an 22 176 1,173 $1,408Feb 19 152 1,013 1,216Mar 21 168 1,120 1,344Apr 21 168 1,120 1,344

May 22 176 1,173 1,408J un 20 160 1,066 1,280

....

22

Chase Strategy(Hiring & Firing)

Month Demand Beginning Prod. Workers # Hired # Fired Total Units EndingInventory Reqmt Required Workforce Produced Inventory

J an 4500 250 4250 3.62 0 3 4 4692 442

Work Hrs/worker Units perDays/mo per mo. Worker

J an 22 176 1,173

Beginning workforce level: 7 employees

....

4250 / 1173 (i.e. normal production rate per worker)

Month Demand Beginning Prod. Workers # Hired # Fired Total Units EndingInventory Reqmt Required Workforce Produced Inventory

J an 4500 250 4250 3.62 0 3 4 4692 442Feb 5500 442 5058 4.99 1 0 5 5065 7

Work Hrs/worker Units perDays/mo per mo. Worker

J an 22 176 1,173Feb 19 152 1,013

....

Month Demand Beginning Prod. Workers # Hired # Fired Total Units EndingInventory Reqmt Required Workforce Produced Inventory

J an 4500 250 4250 3.62 0 3 4 4692 442Feb 5500 442 5058 4.99 1 0 5 5065 7Mar 7000 7 6993 6.24 2 0 7 7840 847

Work Hrs/worker Units perDays/mo per mo. Worker

J an 22 176 1,173Feb 19 152 1,013Mar 21 168 1,120

....

Month Demand Beginning Prod. Workers # Hired # Fired Total Units EndingInventory Reqmt Required Workforce Produced Inventory

J an 4500 250 4250 3.62 0 3 4 4692 442Feb 5500 442 5058 4.99 1 0 5 5065 7Mar 7000 7 6993 6.24 2 0 7 7840 847Apr 10000 847 9153 8.17 2 0 9 10080 927May 8000 927 7073 6.03 0 2 7 8211 1138J un 6000 1138 4862 4.56 0 2 5 5330 468

Month Material Straight Hire Fire Holding TotalCost Labor Cost Cost Cost Cost

J an $23,460 $5,632 $0 $750 $442 $30,284

Materials $5/unitHolding costs $1/unit per mo.Marginal cost of stockout $4/unit per mo.Hiring and training cost $200/workerLayoff costs $250/workerLabor hours required .15 hrs/unitStraight time labor cost $8/hourBeginning inventory 250 unitsBeginning workforce level 7 employees

StraightCost/worker

J an 1408Feb 1216Mar 1344Apr 1344May 1408J un 1280

....

Month Demand Beginning Prod. Workers # Hired # Fired Total Units EndingInventory Reqmt Required Workforce Produced Inventory

J an 4500 250 4250 3.62 0 3 4 4692 442Feb 5500 442 5058 4.99 1 0 5 5065 7Mar 7000 7 6993 6.24 2 0 7 7840 847Apr 10000 847 9153 8.17 2 0 9 10080 927May 8000 927 7073 6.03 0 2 7 8211 1138J un 6000 1138 4862 4.56 0 2 5 5330 468

Month Material Straight Hire Fire Holding TotalCost Labor Cost Cost Cost Cost

J an $23,460 $5,632 $0 $750 $442 $30,284Feb 25,325 6,080 200 0 7 31,612Mar 39,200 9,408 400 0 847 49,855Apr 50,400 12,096 400 0 927 63,823May 41,055 9,856 0 500 1,138 52,549J un 26,650 6,400 0 500 468 34,018

$262,141

....

27

Level Production(Surplus and Shortage Allowed)

Beginning workforce level: 6 employees

Month Demand Beginning Prod. Units EndingInventory Reqmt Workers Produced Backlog Surplus Inventory

J an 4500 250 4250 6 7038 0 2788 2788

Work Hrs/worker Units perDays/mo per mo. Worker

J an 22 176 1,173

....

Month Demand Beginning Prod. Units EndingInventory Reqmt Workers Produced Backlog Surplus Inventory

J an 4500 250 4250 6 7038 0 2788 2788Feb 5500 2788 2712 6 6078 0 3366 3366

Work Hrs/worker Units perDays/mo per mo. Worker

J an 22 176 1,173Feb 19 152 1,013

....

Month Demand Beginning Prod. Units EndingInventory Reqmt Workers Produced Backlog Surplus Inventory

J an 4500 250 4250 6 7038 0 2788 2788Feb 5500 2788 2712 6 6078 0 3366 3366Mar 7000 3366 3634 6 6720 0 3086 3086Apr 10000 3086 6914 6 6720 194 0 -194

Work Hrs/worker Units perDays/mo per mo. Worker

J an 22 176 1,173Feb 19 152 1,013Mar 21 168 1,120Apr 21 168 1,120

0

2000

4000

6000

8000

10000

J an Feb Mar Apr May J un

45005500

7000

10000

8000

6000

....

Month Demand Beginning Prod. Units EndingInventory Reqmt Workers Produced Backlog Surplus Inventory

J an 4500 250 4250 6 7038 0 2788 2788Feb 5500 2788 2712 6 6078 0 3366 3366Mar 7000 3366 3634 6 6720 0 3086 3086Apr 10000 3086 6914 6 6720 194 0 -194May 8000 -194 8194 6 7038 1156 0 -1156J un 6000 -1156 7156 6 6396 760 0 -760

Month Material Straight Backlog Holding TotalCost Labor Cost Cost Cost

J an $35,190 $8,448 $0 $2,788 $46,426Feb $30,390 $7,296 $0 $3,366 $41,052Mar $33,600 $8,064 $0 $3,086 $44,750Apr $33,600 $8,064 $243 $0 $41,907May $35,190 $8,448 $1,445 $0 $45,083J un $31,980 $7,680 $950 $0 $40,610

$259,828

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Chapter 7: Schedule Management

32

The Master Schedule

Point where actual orders are incorporated into scheduling system

Aggregate outputs broken down into individual end items– “It is the time-phased plan specifying how many and

when the firm plans to build each end item.”– Show mattress example …

33

MPS Activities: Check for the Following Problems

Does schedule meet production plan? Does schedule meet demand forecasts? Are there priority or capacity conflicts? Are other constraints violated? Does schedule conform to policy? Does schedule conform to laws and rules? Does schedule provide flexibility?

34

Rough-Cut Capacity Planning

Feasibility check of master production schedule Historical ratios of loads placed on workcenters

used Workloads assumed to fall in period end items

demanded

35

Priority Planning

What materials are needed when Feasibility check of master production schedule to

make sure all materials will be available when needed

Determine when order is needed and schedule backwards from that date

Material Requirements Planning (MRP) systems often used

36

Capacity Requirement Planning (CRP)

Inventory control system and master schedule used to determine required capacity over planning horizon

Load reports generated for each work center Inventory and lead times considered

37

Loading

Deciding which jobs to assign to which work centers

Often some equipment or workers better for certain jobs

38

Sequencing

After jobs assigned to work centers, order in which to process the jobs must be decided

Sequencing can have impact on timeliness of job completions

Priority rules often used

39

Detailed (Short-Term) Scheduling

Detailed schedules itemizing specific jobs, times, materials developed

Typically done for only a few days in advance

40

Dispatching

All previous activities are planning activities Dispatching is the physical release of a work order

from production planning

41

Expediting

Task of getting job done on time once it is released to the shop floor

Special tags used to identify hot jobs