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Chapter 13

Aggregate Planning

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Planning HorizonPlanning Horizon

Aggregate planning: Intermediate-range capacity planning, usually covering 2 to 12 months.

Shortrange

Intermediate range

Long range

Now 2 months 1 Year

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Short-range plans (Detailed plans) Machine loading Job assignments

Intermediate plans (General levels) Employment Output

Long-range plans Long term capacity Location / layout

Overview of Planning LevelsOverview of Planning Levels

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Planning SequencePlanning Sequence

Business PlanEstablishes operationsand capacity strategiesEstablishes operationsand capacity strategies

Aggregate plan Establishesoperations capacity

Establishesoperations capacity

Master schedule Establishes schedulesfor specific products

Establishes schedulesfor specific products

Corporatestrategies

and policies

Economic,competitive,and political conditions

Aggregatedemand

forecasts

Figure 13.1

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Aggregate PlanningAggregate 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

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Aggregate Planning StrategiesAggregate Planning Strategies

We will focus on aggregate planning as matching varying demand to fixed capacity.

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Total cost of a plan Projected levels of the following:

Inventory Output Employment Subcontracting Backordering

Aggregate Planning OutputsAggregate Planning Outputs

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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 InputsAggregate Planning Inputs

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Pricing

Promotion

Back orders

New demand

Demand OptionsDemand Options

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Hire and layoff workers Overtime/slack time Part-time workers Inventories Subcontracting

Capacity OptionsCapacity Options

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Aggregate Planning StrategiesAggregate Planning Strategies

Maintain a level workforce

Maintain a steady output rate

Match demand period by period

Use a combination of decision variables

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Basic StrategyBasic Strategy

Level capacity strategy:

Maintaining a steady rate of regular-time output while meeting variations in demand by a combination of options.

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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.

Techniques for Aggregate Techniques for Aggregate PlanningPlanning

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Average InventoryAverage Inventory

Averageinventory

Beginning Inventory + Ending Inventory2

=

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Summary of Planning Summary of Planning TechniquesTechniques

Technique Solution Characteristics

Graphical/ Spreadsheet

Heuristic (trial and error)

Intuitively appealing, easy to understand; solution not necessarily optimal.

Linear programming

Optimizing Computerized; linear assumptions not always valid.

Simulation Heuristic (trial and error)

Computerized models can be examined under a variety of conditions.

Table 13.7

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Mathematical TechniquesMathematical 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 problems.

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Try problem 10, plan B only, on page 642. The solution is given on one of the last slides of this presentation.

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Aggregate Plan to Master ScheduleAggregate Plan to Master Schedule

AggregatePlanning

Disaggregation

MasterSchedule

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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 Disaggregating the Aggregate Plan Plan

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Aggregate Plan to Master ScheduleAggregate Plan to Master Schedule

(from lawnmowers in general to specific types of lawnmowers)

(Types of Lawnmowers)

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Master Scheduling ProcessMaster Scheduling Process

MasterScheduling

Beginning inventory

Forecast

Customer orders

Inputs Outputs

Projected inventory

Master production schedule

Uncommitted inventory

PROCESS

Adjust plan if it is less than capacity

Feedback Loop

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Master SchedulingMaster Scheduling

Master schedule Determines quantities needed to meet

demand Interfaces with

Marketing Capacity planning Production planning Distribution planning

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Master SchedulerMaster Scheduler

Evaluates impact of new orders Provides delivery dates for orders Deals with problems

Production delays Revising master schedule Insufficient capacity

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Solved Problems: Problem 1Solved Problems: Problem 1 (pages 637 and 638 in the text)

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Solution to Problem 10, plan B, on page 642 of the text

Period 1 2 3 4 5 6 7 8 9 Total

Forecast 190 230 260 280 210 170 160 260 180 1,940OutputRegular 210 210 210 210 210 210 210 210 210 1,890Overtime – – – – – – – – –Subcontract 10 20 20 50Output-Forecast 30 0 -30 -70 0 40 50 -50 30InventoryBeginning 0 30 30 0 0 0 0 20 0Ending 30 30 0 0 0 0 20 0 0Average 15 30 15 0 0 0 10 10 0 80Backlog 0 0 0 70 70 30 0 30 0 200

Costs:OutputRegular @ 6 $1,260 1,260 1,260 1,260 1,260 1,260 1,260 1,260 1,260 $11,340 OvertimeSubcontract @ 8 80 160 160 0 0 0 0 0 0 $400 Inventory @ 5 75 150 75 0 0 0 50 50 0 $400 Backorder @ 10 0 0 0 700 700 300 0 300 0 $2,000 Total $1,415 1,570 1,495 1,960 1,960 1,560 1,310 1,610 1,260 $14,140

Plan B: Hire one worker and subcontract. Workforce = 20 + 1 = 21 workers.

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Solution to Problem 10 (continued)

The total cost of Plan B is $14,140 + $200 = $14,340

On the top of page 638, the total cost of Plan A is $14,790.

Therefore, Plan B is less costly, and it would be the preferred plan.

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See you in our next class meeting