Aggregate PlanningAggregate Planning

OverviewOverview

Aggregate planning in the planning Aggregate planning in the planning processprocess

Aggregate planning strategiesAggregate planning strategies• Capacity optionsCapacity options

Chase strategyChase strategy Level strategyLevel strategy

• Demand optionsDemand options

• Mixing optionsMixing options Graphical/charting methodsGraphical/charting methods Linear programmingLinear programming SimulationSimulation

Planning RelationshipsPlanning Relationships

Planning RelationshipsPlanning Relationships

Business or annual plan

Planning RelationshipsPlanning Relationships

Business or annual plan

Aggregate plan – production and staffing plan

Planning RelationshipsPlanning Relationships

MPS or workforce schedule

Business or annual plan

Aggregate plan – production and staffing plan

Planning RelationshipsPlanning Relationships

MPS or workforce schedule

Business or annual plan

Aggregate plan – production and staffing plan

Planning RelationshipsPlanning Relationships

MPS or workforce schedule

Business or annual plan

Aggregate plan – production and staffing plan

Planning HorizonsPlanning Horizons

Today 3 Months 1 year 5 years

Planning Horizon

Intermediate-range plansSales planningProduction planning and budgetingSetting employment, inventory, subcontracting levelsAnalyzing operating plans

Responsible: Operations managers

Planning HorizonsPlanning Horizons

Today 3 Months 1 year 5 years

Planning Horizon

Long-range plansR&DNew product plansCapital expensesFacility location, expansion

Responsible: Top executives

Planning HorizonsPlanning Horizons

Today 3 Months 1 year 5 years

Planning Horizon

Short-range plansJob assignmentsOrderingJob schedulingDispatching

Responsible: Operations managers, supervisors, foremen

Planning HorizonsPlanning Horizons

Today 3 Months 1 year 5 years

Planning Horizon

Short-range plansJob assignmentsOrderingJob schedulingDispatching

Intermediate-range plansSales planningProduction planning and budgetingSetting employment, inventory, subcontracting levelsAnalyzing operating plans

Long-range plansR&DNew product plansCapital expensesFacility location, expansion

Responsible: Operations managers, supervisors, foremen

Responsible: Operations managers

Responsible: Top executives

Planning hierarchyPlanning hierarchyLong-range

capacityplanning

Aggregateplanning

Masterproductionschedule

Productionplanning

and controlsystems

Pullsystems(J I T)

Pushsystems(MRP)

Many othersystems

Long-rangecapacityplanning

Aggregateplanning

Masterproductionschedule

Productionplanning

and controlsystems

Pullsystems(J I T)

Pushsystems(MRP)

Many othersystems

Planning horizon

Long range: Years

Itermediate range:

6 – 18 months

Short range: Weeks

Planning hierarchyPlanning hierarchy

Long-rangecapacityplanning

Aggregateplanning

Masterproductionschedule

Productionplanning

and controlsystems

Pullsystems(J I T)

Pushsystems(MRP)

Many othersystems

Planning horizon

Long range: Years

Itermediate range:

6 – 18 months

Short range: Weeks

Scope

Entire production line i.e. Ford trucks

Product Family

i.e. Ford F series

Specific model

i.e. Ford F-150

Planning hierarchyPlanning hierarchy

What is an aggregate plan?What is an aggregate plan?

Aggregate Plan

What is an aggregate plan?What is an aggregate plan?

Demandforecast

I nventory

Machinecapacitiesand costs

Laborcapacitiesand costs

Outsourcingcapacitiesand costs

Aggregate Plan

Amount toproduce

Amount oflabor andovertimerequired

ProjectedI nventories

Amount tooutsource

Demandforecast

I nventory

Machinecapacitiesand costs

Laborcapacitiesand costs

Outsourcingcapacitiesand costs

Aggregate Plan

What is an aggregate plan?What is an aggregate plan?

Managerial InputsManagerial Inputs

Managerial InputsManagerial Inputs

Aggregate plan

Managerial InputsManagerial Inputs

Aggregate plan

Customer needs Demand forecasts Competition behavior

Distribution and marketing

Managerial InputsManagerial Inputs

Cost data Financial condition of firm

Accounting and financeAggregate

plan

Customer needs Demand forecasts Competition behavior

Distribution and marketing

Managerial InputsManagerial Inputs

Labor-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

Managerial InputsManagerial Inputs

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

Managerial InputsManagerial Inputs

Supplier capabilities Storage capacity Materials availability

Materials

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

Managerial InputsManagerial Inputs

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

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

Aggregate Planning StrategiesAggregate Planning StrategiesPure StrategiesPure Strategies

Capacity Options — change Capacity Options — change capacitycapacity::•changing inventory levelschanging inventory levels•varying work force size by varying work force size by

hiring or layoffshiring or layoffs•varying production capacity varying production capacity

through overtime or idle timethrough overtime or idle time•subcontractingsubcontracting•using part-time workersusing part-time workers

Aggregate Planning StrategiesAggregate Planning StrategiesPure StrategiesPure Strategies

Demand Options — change demandDemand Options — change demand::

• influencing demandinfluencing demand

• backordering during high demand backordering during high demand

periodsperiods

• counterseasonal product mixingcounterseasonal product mixing

Advantage/Disadvantages of Advantage/Disadvantages of

Aggregate Planning OptionsAggregate Planning Options

See Table 13.1See Table 13.1

Mixing the options:Mixing the options:The ExtremesThe Extremes

Level Strategy

Chase Strategy

Production equals

demand

Production rate is constant

Level planning strategyLevel planning strategy• Produce same amount every Produce same amount every monthmonth• Keep work force level constant Keep work force level constant

Find alternative work for employees when there Find alternative work for employees when there is less demandis less demand

• Vary non-work force capacity or demand Vary non-work force capacity or demand optionsoptions

Inventory levels allowed to fluctuateInventory levels allowed to fluctuate• Often results in lowest production costsOften results in lowest production costs• Toyota, Nissan employ this strategyToyota, Nissan employ this strategy

Aggregate Planning StrategiesAggregate Planning Strategies

Chase planning strategyChase planning strategy• Output rates match demandOutput rates match demand• Vary work force level Vary work force level

Hiring/laying offHiring/laying off• Vary non-work force capacity or demand Vary non-work force capacity or demand

optionsoptions Overtime and outsourceOvertime and outsource Part time employeesPart time employees

• Service industries often utilize this strategyService industries often utilize this strategy Hospitality, construction, educationHospitality, construction, education

Aggregate Planning StrategiesAggregate Planning Strategies