Chapter 16 Aggregate Sales and Operations Planning
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Transcript of Chapter 16 Aggregate Sales and Operations Planning
1Slides used in class may be different from slides in student pack
Chapter 16
Aggregate Sales and Operations Planning
Operations Planning Overview
The Hierarchical Planning Process
Aggregate Production Planning
Examples: Chase and Level strategies
2Slides used in class may be different from slides in student pack
Operations Planning Overview Long-range planning
– Greater than one year planning horizon– Usually with yearly increments
Intermediate-range planning– Six to eighteen months – Usually with monthly or quarterly increments
Short-range planning– One day to less than six months– Usually with weekly increments
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Master Production Scheduling
Material Requirements Planning
Order SchedulingWeekly Workforce &Customer Scheduling
Daily Workforce &Customer Scheduling
Process Planning
Strategic Capacity Planning
Sales and Operations (Aggregate) Planning
Long-range
Intermediate-range
Short-range
Manufacturing Services
Sales Plan Aggregate Operations Plan
Forecasting and Demand
Mgmt.
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Hierarchical Production Planning
Annual demand byitem and by region
Monthly demandfor 15 months by
product type
Monthly demandfor 5 months by
item
Forecasts needed
Allocatesproduction
among plants
Determinesseasonal plan by
product type
Determines monthlyitem production
schedules
Decision ProcessDecision Level
Corporate
Plant manager
Shopsuperintendent
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Aggregate Planning
Goal: Specify the optimal combination of– – –
Product group or broad category - family (Aggregation)
Intermediate-range planning period: 6-18 months
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Balancing Aggregate Demandand Aggregate Production Capacity
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Jan Feb Mar Apr May Jun
45005500
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10000
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6000
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Jan Feb Mar Apr May Jun
4500 4000
90008000
4000
6000
Suppose the figure to the right represents forecast demand in units.
Now suppose this lower figure represents the aggregate capacity of the company to meet demand.
What we want to do is balance out the production rate, workforce levels, and inventory to make these figures match up.
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13-13
– – – –
Aggregate Scheduling Goals
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Required Inputs to the Production Planning System
Planning for
production
External capacity
Competitors’behavior
Raw material availability
Market demand
Economic conditions
Currentphysical capacity
Current workforce
Inventory levels
Activities required for production
External to firm
Internal to firm
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Key Strategies for Meeting Demand
Chase - Match production to customer order rate by hiring and laying off employees
Level - Stable workforce with constant output, inventory and backlogs absorb fluctuations in demand
Some combination of the two - Stable workforce, variable hours - vary output through overtime or flexible schedules
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Costs Relevant to Aggregate Planning
Direct and indirect labor costs and overtime Costs associated with changing the
production rate - hiring, training, layoffs, temps
Inventory holding costs - costs of capital, storage, insurance, taxes, spoilage, obsolescence
Backordering costs - expediting, loss of goodwill, lost sales due to stocking out
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Aggregate Planning Examples: Unit Demand and Cost Data
Materials $5/unitHolding costs $1/unit per mo. based on ending inv.Marginal cost of backorder $1.25/unit per mo.Hiring and training cost $200/workerLayoff costs $250/workerLabor hours required .15 hrs/unitStraight time labor cost $8/hourBeginning inventory 250 unitsProductive hours/worker/day 7.25Paid straight hrs/day 8
Suppose we have the following unit demand and cost information:
Demand/mo Jan Feb Mar Apr May Jun
4500 7500 10500 11000 8000 5000
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Cut-and-Try Example: Determining Straight Labor Costs and Output
Demand/mo Jan Feb Mar Apr May Jun
4500 7500 10500 11000 8000 5000
Given the demand and cost information below, what are the aggregate hours/worker/month, units/worker, and dollars/worker?
Jan Feb Mar Apr May JunDays/mo 20 20 20 20 20 20Productive Hrs/worker/mo 145 145 145 145 145 145Units/worker/month 966.7 966.7 966.7 966.7 966.7 966.7$/worker $1,280 $1,280 $1,280 $1,280 $1,280 $1,280
Productive hours/worker/day 7.25Paid straight hrs/day 8
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JanDays/mo 20Productive Hrs/worker/mo 145Units/worker/month 966.7$/worker $1,280
JanDemand 4500Beg. inv. 250Net req. 4250Req. workers 5Beg. Workers 7Hired 0Fired 2Workforce 5Production 4834Ending inventory 584
Chase Strategy(Hiring & Firing to meet demand/ No Shortage)
Lets assume our current workforce is 7 workers.
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Below are the complete calculations for the remaining months in the six month planning horizon.
Jan Feb Mar Apr May JunDays/Month 20 20 20 20 20 20Productive Hrs./Worker/Month 145 145 145 145 145 145Units/Worker/Month 966.7 966.7 966.7 966.7 966.7 966.7$/Worker $1,280 $1,280 $1,280 $1,280 $1,280 $1,280
Jan Feb Mar Apr May JunDemand 4,500 7,500 10,500 11,000 8,000 5,000Beg. inv. 250 584 818 952 586 320Net req. 4,250 6,916 9,682 10,048 7,414 4,680Req. workers 5 8 11 11 8 5Beg. Workers 7 5 8 11 11 8Hired 0 3 3 0 0 0Fired 2 0 0 0 3 3Workforce 5 8 11 11 8 5Production 4834 7734 10634 10634 7734 4834Ending inventory 584 818 952 586 320 154
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Below are the complete calculations for January with the other costs included.
JanDemand 4,500Beg. inv. 250Net req. 4,250Req. workers 5Beg. Workers 7Hired 0Fired 2Workforce 5Production 4834Ending inventory 584Costs:Material $24,170Labor $6,400Hiring cost $0Firing cost $500Holding Cost $584
16Slides used in class may be different from slides in student pack
Below are the complete calculations for the remaining months in the six month planning horizon with the other costs included.
Hiring Cost $200Firing Cost $250Material Cost/unit $5Holding Cost $1
Jan Feb Mar Apr May JunDemand 4,500 7,500 10,500 11,000 8,000 5,000Beg. inv. 250 584 818 952 586 320Net req. 4,250 6,916 9,682 10,048 7,414 4,680Req. workers 5 8 11 11 8 5Beg. Workers 7 5 8 11 11 8Hired 0 3 3 0 0 0Fired 2 0 0 0 3 3Workforce 5 8 11 11 8 5Production 4834 7734 10634 10634 7734 4834Ending inventory 584 818 952 586 320 154Costs:Material $24,170 $38,670 $53,170 $53,170 $38,670 $24,170 $232,020Labor $6,400 $10,240 $14,080 $14,080 $10,240 $6,400 $61,440Hiring cost $0 $600 $600 $0 $0 $0 $1,200Firing cost $500 $0 $0 $0 $750 $750 $2,000Holding Cost $584 $818 $952 $586 $320 $154 $3,414
$300,074
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Level Workforce Strategy (Surplus and Shortage Allowed - minimize ending inventory)
Lets take the same problem as before but this time use the Level Workforce strategy.
What workforce level will minimize ending inventory?
Total demand =
Beginning inventory:
Total production required =
Minimum production required per month =
Workers required =
Actual monthly production =
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Below are the complete calculations for the six months in the planning horizon.
Jan Feb Mar Apr May Jun TotalDemand 4,500 7,500 10,500 11,000 8,000 5,000 46,500Beg. inv. 250 3,484 3,718 952 -2,314 -2,580Net req. 4,250 4,016 6,782 10,048 10,314 7,580Req. workers 8 8 8 8 8 8Beg. Workers 7 8 8 8 8 8Hired 1 0 0 0 0 0Fired 0 0 0 0 0 0Workforce 8 8 8 8 8 8Production 7734 7734 7734 7734 7734 7734Ending inventory 3,484 3,718 952 (2,314) (2,580) 154Costs:Material $38,670 $38,670 $38,670 $38,670 $38,670 $38,670 $232,020Labor $10,240 $10,240 $10,240 $10,240 $10,240 $10,240 $61,440Hiring cost $200 $0 $0 $0 $0 $0 $200Firing cost $0 $0 $0 $0 $0 $0 $0Holding Cost $3,484 $3,718 $952 $0 $0 $154 $8,308Backorder Cost $0 $0 $0 $2,893 $3,225 $0 $6,118
$308,086
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Level Strategy to Minimize Ending Inventory withNo Backorders By End of June
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Cum
ulat
ive
Dem
and/
Pro
duct
ion
Cumulative Demand Cumulative Production
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Master Scheduling Process - Determine amounts and dates of each end itemto be produced
Masterscheduling
Beginning inventory
Forecast
Customer orders
Inputs Outputs
Projected inventory
Master production schedule
Uncommitted inventory
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Master Scheduling Drives:
Rough cut capacity planning verifies equipment and labor availability
Material requirements planning (MRP) - breaks end product requirements into a materials plan for component parts