Forecasting And Aggregate Planning
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Transcript of Forecasting And Aggregate Planning
4 – 1
Departament d’Economia de l’EmpresaDepartament d’Economia de l’Empresa / / Department of Business Economics & AdministrationDepartment of Business Economics & Administration
Operations Management
Session 5 – Session 5 – Forecasting and Forecasting and Aggregate PlanningAggregate Planning
4 – 2Departament d’Economia de l’EmpresaDepartament d’Economia de l’Empresa / /
Department of Business Economics & AdministrationDepartment of Business Economics & Administration
OutlineOutline
Global Company Profile: Disney Global Company Profile: Disney WorldWorld
What Is Forecasting?What Is Forecasting? Forecasting Time HorizonsForecasting Time Horizons
The Influence of Product Life CycleThe Influence of Product Life Cycle
Types Of ForecastsTypes Of Forecasts
4 – 3Departament d’Economia de l’EmpresaDepartament d’Economia de l’Empresa / /
Department of Business Economics & AdministrationDepartment of Business Economics & Administration
Outline – ContinuedOutline – Continued
The Strategic Importance of The Strategic Importance of ForecastingForecasting Human ResourcesHuman Resources
CapacityCapacity
Supply Chain ManagementSupply Chain Management
Forecasting In The Service SectorForecasting In The Service Sector
4 – 4Departament d’Economia de l’EmpresaDepartament d’Economia de l’Empresa / /
Department of Business Economics & AdministrationDepartment of Business Economics & Administration
Learning ObjectivesLearning Objectives
When you complete this chapter you should When you complete this chapter you should be able to :be able to :
Understand the three time horizons and Understand the three time horizons and which models apply for each usewhich models apply for each use
Understand the different types of forecasts Understand the different types of forecasts used in managementused in management
Understand the specifics of forecasting in Understand the specifics of forecasting in the services industrythe services industry
4 – 5Departament d’Economia de l’EmpresaDepartament d’Economia de l’Empresa / /
Department of Business Economics & AdministrationDepartment of Business Economics & Administration
Forecasting at Disney WorldForecasting at Disney World
Global portfolio includes parks in Hong Global portfolio includes parks in Hong Kong, Paris, Tokyo, Orlando, and Kong, Paris, Tokyo, Orlando, and AnaheimAnaheim
Revenues are derived from people – how Revenues are derived from people – how many visitors and how they spend their many visitors and how they spend their moneymoney
Daily management report contains only Daily management report contains only the forecast and actual attendance at the forecast and actual attendance at each parkeach park
4 – 6Departament d’Economia de l’EmpresaDepartament d’Economia de l’Empresa / /
Department of Business Economics & AdministrationDepartment of Business Economics & Administration
Forecasting at Disney WorldForecasting at Disney World
Disney generates daily, weekly, monthly, Disney generates daily, weekly, monthly, annual, and 5-year forecastsannual, and 5-year forecasts
Forecast used by labor management, Forecast used by labor management, maintenance, operations, finance, and maintenance, operations, finance, and park schedulingpark scheduling
Forecast used to adjust opening times, Forecast used to adjust opening times, rides, shows, staffing levels, and guests rides, shows, staffing levels, and guests admittedadmitted
4 – 7Departament d’Economia de l’EmpresaDepartament d’Economia de l’Empresa / /
Department of Business Economics & AdministrationDepartment of Business Economics & Administration
Forecasting at Disney WorldForecasting at Disney World
20% of customers come from outside the 20% of customers come from outside the USAUSA
Economic model includes gross Economic model includes gross domestic product, cross-exchange rates, domestic product, cross-exchange rates, arrivals into the USAarrivals into the USA
A staff of 35 analysts and 70 field people A staff of 35 analysts and 70 field people survey 1 million park guests, employees, survey 1 million park guests, employees, and travel professionals each yearand travel professionals each year
4 – 8Departament d’Economia de l’EmpresaDepartament d’Economia de l’Empresa / /
Department of Business Economics & AdministrationDepartment of Business Economics & Administration
Forecasting at Disney WorldForecasting at Disney World
Inputs to the forecasting model include Inputs to the forecasting model include airline specials, Federal Reserve airline specials, Federal Reserve policies, Wall Street trends, policies, Wall Street trends, vacation/holiday schedules for 3,000 vacation/holiday schedules for 3,000 school districts around the worldschool districts around the world
Average forecast error for the 5-year Average forecast error for the 5-year forecast is 5%forecast is 5%
Average forecast error for annual Average forecast error for annual forecasts is between 0% and 3%forecasts is between 0% and 3%
4 – 9Departament d’Economia de l’EmpresaDepartament d’Economia de l’Empresa / /
Department of Business Economics & AdministrationDepartment of Business Economics & Administration
What is Forecasting?What is Forecasting?
Process of predicting Process of predicting a future eventa future event
Underlying basis of Underlying basis of all business all business decisionsdecisions ProductionProduction
InventoryInventory
PersonnelPersonnel
FacilitiesFacilities
??
4 – 10Departament d’Economia de l’EmpresaDepartament d’Economia de l’Empresa / /
Department of Business Economics & AdministrationDepartment of Business Economics & Administration
Short-range forecastShort-range forecast Up to 1 year, generally less than 3 monthsUp to 1 year, generally less than 3 months Purchasing, job scheduling, workforce Purchasing, job scheduling, workforce
levels, job assignments, production levelslevels, job assignments, production levels
Medium-range forecastMedium-range forecast 3 months to 3 years3 months to 3 years Sales and production planning, budgetingSales and production planning, budgeting
Long-range forecastLong-range forecast 33++ years years New product planning, facility location, New product planning, facility location,
research and developmentresearch and development
Forecasting Time HorizonsForecasting Time Horizons
4 – 11Departament d’Economia de l’EmpresaDepartament d’Economia de l’Empresa / /
Department of Business Economics & AdministrationDepartment of Business Economics & Administration
Distinguishing DifferencesDistinguishing Differences
Medium/long rangeMedium/long range forecasts deal with forecasts deal with more comprehensive issues and support more comprehensive issues and support management decisions regarding management decisions regarding planning and products, plants and planning and products, plants and processesprocesses
Short-termShort-term forecasting usually employs forecasting usually employs different methodologies than longer-term different methodologies than longer-term forecastingforecasting
Short-termShort-term forecasts tend to be more forecasts tend to be more accurate than longer-term forecastsaccurate than longer-term forecasts
4 – 12Departament d’Economia de l’EmpresaDepartament d’Economia de l’Empresa / /
Department of Business Economics & AdministrationDepartment of Business Economics & Administration
Types of ForecastsTypes of Forecasts
Economic forecastsEconomic forecasts Address business cycle – inflation rate, Address business cycle – inflation rate,
money supply, housing starts, etc.money supply, housing starts, etc.
Technological forecastsTechnological forecasts Predict rate of technological progressPredict rate of technological progress
Impacts development of new productsImpacts development of new products
Demand forecastsDemand forecasts Predict sales of existing products and Predict sales of existing products and
servicesservices
4 – 13Departament d’Economia de l’EmpresaDepartament d’Economia de l’Empresa / /
Department of Business Economics & AdministrationDepartment of Business Economics & Administration
Strategic Importance of Strategic Importance of ForecastingForecasting
Human Resources – Hiring, training, Human Resources – Hiring, training, laying off workerslaying off workers
Capacity – Capacity shortages can result Capacity – Capacity shortages can result in undependable delivery, loss of in undependable delivery, loss of customers, loss of market sharecustomers, loss of market share
Supply Chain Management – Good Supply Chain Management – Good supplier relations and price advantagessupplier relations and price advantages
4 – 14Departament d’Economia de l’EmpresaDepartament d’Economia de l’Empresa / /
Department of Business Economics & AdministrationDepartment of Business Economics & Administration
Forecasting in the Service Forecasting in the Service SectorSector
Presents unusual challengesPresents unusual challenges Special need for short term recordsSpecial need for short term records
Needs differ greatly as function of Needs differ greatly as function of industry and productindustry and product
Holidays and other calendar eventsHolidays and other calendar events
Unusual eventsUnusual events
4 – 15
Departament d’Economia de l’EmpresaDepartament d’Economia de l’Empresa / / Department of Business Economics & AdministrationDepartment of Business Economics & Administration
Operations Operations ManagementManagement
Aggregate PlanningAggregate Planning
4 – 16Departament d’Economia de l’EmpresaDepartament d’Economia de l’Empresa / /
Department of Business Economics & AdministrationDepartment of Business Economics & Administration
OutlineOutline
Global Company Profile: Anheuser-Global Company Profile: Anheuser-BuschBusch
The Planning ProcessThe Planning Process
The Nature of Aggregate PlanningThe Nature of Aggregate Planning
Aggregate Planning StrategiesAggregate Planning Strategies Capacity OptionsCapacity Options
Demand OptionsDemand Options
Mixing Options to Develop a PlanMixing Options to Develop a Plan
4 – 17Departament d’Economia de l’EmpresaDepartament d’Economia de l’Empresa / /
Department of Business Economics & AdministrationDepartment of Business Economics & Administration
Outline – ContinuedOutline – Continued
Summary of Methods for Aggregate Summary of Methods for Aggregate PlanningPlanning Graphical MethodsGraphical Methods
Mathematical ApproachesMathematical Approaches
Comparison of Aggregate Planning Comparison of Aggregate Planning MethodsMethods
4 – 18Departament d’Economia de l’EmpresaDepartament d’Economia de l’Empresa / /
Department of Business Economics & AdministrationDepartment of Business Economics & Administration
Outline – ContinuedOutline – Continued
Aggregate Planning in ServicesAggregate Planning in Services RestaurantsRestaurants
HospitalsHospitals
National Chains of Small Service FirmsNational Chains of Small Service Firms Miscellaneous ServicesMiscellaneous Services
Airline IndustryAirline Industry
4 – 19Departament d’Economia de l’EmpresaDepartament d’Economia de l’Empresa / /
Department of Business Economics & AdministrationDepartment of Business Economics & Administration
Learning ObjectivesLearning Objectives
When you complete this chapter you When you complete this chapter you should be able to:should be able to:
1.1. Define aggregate planningDefine aggregate planning
2.2. Identify optional strategies for Identify optional strategies for developing an aggregate plandeveloping an aggregate plan
4 – 20Departament d’Economia de l’EmpresaDepartament d’Economia de l’Empresa / /
Department of Business Economics & AdministrationDepartment of Business Economics & Administration
Anheuser-BuschAnheuser-Busch
Anheuser-Busch produces nearly 40% of Anheuser-Busch produces nearly 40% of the beer consumed in the U.S.the beer consumed in the U.S.
Matches fluctuating demand by brand to Matches fluctuating demand by brand to plant, labor, and inventory capacity to plant, labor, and inventory capacity to achieve high facility utilizationachieve high facility utilization
High facility utilization requiresHigh facility utilization requires Meticulous cleaning between batchesMeticulous cleaning between batches
Effective maintenanceEffective maintenance
Efficient employee and facility schedulingEfficient employee and facility scheduling
4 – 21Departament d’Economia de l’EmpresaDepartament d’Economia de l’Empresa / /
Department of Business Economics & AdministrationDepartment of Business Economics & Administration
Anheuser-BuschAnheuser-Busch
Product-focused facility with high fixed Product-focused facility with high fixed costscosts
High utilization requires effective High utilization requires effective aggregate planning of the four basic aggregate planning of the four basic stages of productionstages of production Selection and delivery of raw materialsSelection and delivery of raw materials
Brewing process from milling to agingBrewing process from milling to aging
PackagingPackaging
DistributionDistribution
4 – 22Departament d’Economia de l’EmpresaDepartament d’Economia de l’Empresa / /
Department of Business Economics & AdministrationDepartment of Business Economics & Administration
Aggregate PlanningAggregate Planning
Objective is to minimize cost over the Objective is to minimize cost over the planning period by adjustingplanning period by adjusting Production ratesProduction rates
Labor levelsLabor levels
Inventory levelsInventory levels
Overtime workOvertime work
Subcontracting ratesSubcontracting rates
Other controllable variablesOther controllable variables
Determine the quantity and timing of Determine the quantity and timing of production for the immediate futureproduction for the immediate future
4 – 23Departament d’Economia de l’EmpresaDepartament d’Economia de l’Empresa / /
Department of Business Economics & AdministrationDepartment of Business Economics & Administration
Aggregate PlanningAggregate Planning
A logical overall unit for measuring sales A logical overall unit for measuring sales and outputand output
A forecast of demand for an intermediate A forecast of demand for an intermediate planning period in these aggregate termsplanning period in these aggregate terms
A method for determining costsA method for determining costs
A model that combines forecasts and costs A model that combines forecasts and costs so that scheduling decisions can be made so that scheduling decisions can be made for the planning periodfor the planning period
Required for aggregate planningRequired for aggregate planning
4 – 24Departament d’Economia de l’EmpresaDepartament d’Economia de l’Empresa / /
Department of Business Economics & AdministrationDepartment of Business Economics & Administration
The Planning ProcessThe Planning Process
Figure 13.1Figure 13.1
Long-range plans Long-range plans (over one year)(over one year)Research and DevelopmentResearch and DevelopmentNew product plansNew product plansCapital investmentsCapital investmentsFacility location/expansionFacility location/expansion
Intermediate-range plans Intermediate-range plans (3 to 18 months)(3 to 18 months)Sales planningSales planningProduction planning and budgetingProduction planning and budgetingSetting employment, inventory, Setting employment, inventory,
subcontracting levelssubcontracting levelsAnalyzing operating plansAnalyzing operating plans
Short-range plans Short-range plans (up to 3 months)(up to 3 months)Job assignmentsJob assignmentsOrderingOrderingJob schedulingJob schedulingDispatchingDispatchingOvertimeOvertimePart-time helpPart-time help
Top Top executivesexecutives
Operations Operations managersmanagers
Operations Operations managers, managers, supervisors, supervisors, foremenforemen
ResponsibilityResponsibility Planning tasks and horizonPlanning tasks and horizon
4 – 25Departament d’Economia de l’EmpresaDepartament d’Economia de l’Empresa / /
Department of Business Economics & AdministrationDepartment of Business Economics & Administration
Aggregate PlanningAggregate Planning
Quarter 1Quarter 1
JanJan FebFeb MarMar
150,000150,000 120,000120,000 110,000110,000
Quarter 2Quarter 2
AprApr MayMay JunJun
100,000100,000 130,000130,000 150,000150,000
Quarter 3Quarter 3
JulJul AugAug SepSep
180,000180,000 150,000150,000 140,000140,000
4 – 26Departament d’Economia de l’EmpresaDepartament d’Economia de l’Empresa / /
Department of Business Economics & AdministrationDepartment of Business Economics & Administration
Aggregate Aggregate PlanningPlanning
Figure 13.2Figure 13.2
4 – 27Departament d’Economia de l’EmpresaDepartament d’Economia de l’Empresa / /
Department of Business Economics & AdministrationDepartment of Business Economics & Administration
Aggregate PlanningAggregate Planning
Combines appropriate resources into Combines appropriate resources into general termsgeneral terms
Part of a larger production planning Part of a larger production planning systemsystem
Disaggregation breaks the plan down Disaggregation breaks the plan down into greater detailinto greater detail
Disaggregation results in a master Disaggregation results in a master production scheduleproduction schedule
4 – 28Departament d’Economia de l’EmpresaDepartament d’Economia de l’Empresa / /
Department of Business Economics & AdministrationDepartment of Business Economics & Administration
Aggregate Planning Aggregate Planning StrategiesStrategies
1.1. Use inventories to absorb changes in Use inventories to absorb changes in demanddemand
2.2. Accommodate changes by varying workforce Accommodate changes by varying workforce sizesize
3.3. Use part-timers, overtime, or idle time to Use part-timers, overtime, or idle time to absorb changesabsorb changes
4.4. Use subcontractors and maintain a stable Use subcontractors and maintain a stable workforceworkforce
5.5. Change prices or other factors to influence Change prices or other factors to influence demanddemand
4 – 29Departament d’Economia de l’EmpresaDepartament d’Economia de l’Empresa / /
Department of Business Economics & AdministrationDepartment of Business Economics & Administration
Capacity OptionsCapacity Options
Changing inventory levelsChanging inventory levels Increase inventory in low demand Increase inventory in low demand
periods to meet high demand in the periods to meet high demand in the futurefuture
Increases costs associated with Increases costs associated with storage, insurance, handling, storage, insurance, handling, obsolescence, and capital investment obsolescence, and capital investment 15% to 40%15% to 40%
Shortages can mean lost sales due to Shortages can mean lost sales due to long lead times and poor customer long lead times and poor customer serviceservice
4 – 30Departament d’Economia de l’EmpresaDepartament d’Economia de l’Empresa / /
Department of Business Economics & AdministrationDepartment of Business Economics & Administration
Capacity OptionsCapacity Options
Varying workforce size by hiring or Varying workforce size by hiring or layoffslayoffs Match production rate to demandMatch production rate to demand
Training and separation costs for Training and separation costs for hiring and laying off workers hiring and laying off workers
New workers may have lower New workers may have lower productivityproductivity
Laying off workers may lower morale Laying off workers may lower morale and productivityand productivity
4 – 31Departament d’Economia de l’EmpresaDepartament d’Economia de l’Empresa / /
Department of Business Economics & AdministrationDepartment of Business Economics & Administration
Capacity OptionsCapacity Options
Varying production rate through Varying production rate through overtime or idle timeovertime or idle time Allows constant workforceAllows constant workforce
May be difficult to meet large May be difficult to meet large increases in demandincreases in demand
Overtime can be costly and may drive Overtime can be costly and may drive down productivitydown productivity
Absorbing idle time may be difficultAbsorbing idle time may be difficult
4 – 32Departament d’Economia de l’EmpresaDepartament d’Economia de l’Empresa / /
Department of Business Economics & AdministrationDepartment of Business Economics & Administration
Capacity OptionsCapacity Options
SubcontractingSubcontracting Temporary measure during periods of Temporary measure during periods of
peak demandpeak demand
May be costlyMay be costly
Assuring quality and timely delivery Assuring quality and timely delivery may be difficultmay be difficult
Exposes your customers to a Exposes your customers to a possible competitorpossible competitor
4 – 33Departament d’Economia de l’EmpresaDepartament d’Economia de l’Empresa / /
Department of Business Economics & AdministrationDepartment of Business Economics & Administration
Capacity OptionsCapacity Options
Using part-time workersUsing part-time workers Useful for filling unskilled or low Useful for filling unskilled or low
skilled positions, especially in skilled positions, especially in servicesservices
4 – 34Departament d’Economia de l’EmpresaDepartament d’Economia de l’Empresa / /
Department of Business Economics & AdministrationDepartment of Business Economics & Administration
Demand OptionsDemand Options
Influencing demandInfluencing demand Use advertising or promotion to Use advertising or promotion to
increase demand in low periodsincrease demand in low periods
Attempt to shift Attempt to shift demand to slow demand to slow periodsperiods
May not be May not be sufficient to sufficient to balance demand balance demand and capacityand capacity
4 – 35Departament d’Economia de l’EmpresaDepartament d’Economia de l’Empresa / /
Department of Business Economics & AdministrationDepartment of Business Economics & Administration
Demand OptionsDemand Options
Back ordering during high- demand Back ordering during high- demand periodsperiods Requires customers to wait for an Requires customers to wait for an
order without loss of goodwill or the order without loss of goodwill or the orderorder
Most effective when there are few if Most effective when there are few if any substitutes for the product or any substitutes for the product or serviceservice
Often results in lost salesOften results in lost sales
4 – 36Departament d’Economia de l’EmpresaDepartament d’Economia de l’Empresa / /
Department of Business Economics & AdministrationDepartment of Business Economics & Administration
Demand OptionsDemand Options
Counterseasonal product and Counterseasonal product and service mixingservice mixing Develop a product mix of Develop a product mix of
counterseasonal itemscounterseasonal items
May lead to products or services May lead to products or services outside the company’s areas of outside the company’s areas of expertiseexpertise
4 – 37Departament d’Economia de l’EmpresaDepartament d’Economia de l’Empresa / /
Department of Business Economics & AdministrationDepartment of Business Economics & Administration
Aggregate Planning OptionsAggregate Planning Options
Table 13.1Table 13.1
OptionOption AdvantagesAdvantages DisadvantagesDisadvantages Some CommentsSome Comments
Changing Changing inventory inventory levelslevels
Changes in Changes in human human resources are resources are gradual or none; gradual or none; no abrupt no abrupt production production changes.changes.
Inventory holding Inventory holding cost may cost may increase. increase. Shortages may Shortages may result in lost result in lost sales.sales.
Applies mainly to Applies mainly to production, not production, not service, service, operations.operations.
Varying Varying workforce workforce size by size by hiring or hiring or layoffslayoffs
Avoids the costs Avoids the costs of other of other alternatives.alternatives.
Hiring, layoff, and Hiring, layoff, and training costs training costs may be may be significant.significant.
Used where size Used where size of labor pool is of labor pool is large.large.
4 – 38Departament d’Economia de l’EmpresaDepartament d’Economia de l’Empresa / /
Department of Business Economics & AdministrationDepartment of Business Economics & Administration
Aggregate Planning OptionsAggregate Planning Options
Table 13.1Table 13.1
OptionOption AdvantagesAdvantages DisadvantagesDisadvantages Some CommentsSome Comments
Varying Varying production production rates rates through through overtime or overtime or idle timeidle time
Matches seasonal Matches seasonal fluctuations fluctuations without hiring/ without hiring/ training costs.training costs.
Overtime Overtime premiums; tired premiums; tired workers; may not workers; may not meet demand.meet demand.
Allows flexibility Allows flexibility within the within the aggregate plan.aggregate plan.
Sub-Sub-contractingcontracting
Permits flexibility Permits flexibility and smoothing of and smoothing of the firm’s output.the firm’s output.
Loss of quality Loss of quality control; reduced control; reduced profits; loss of profits; loss of future business.future business.
Applies mainly in Applies mainly in production production settings.settings.
4 – 39Departament d’Economia de l’EmpresaDepartament d’Economia de l’Empresa / /
Department of Business Economics & AdministrationDepartment of Business Economics & Administration
Aggregate Planning OptionsAggregate Planning Options
Table 13.1Table 13.1
OptionOption AdvantagesAdvantages DisadvantagesDisadvantages Some CommentsSome Comments
Using part-Using part-time workerstime workers
Is less costly and Is less costly and more flexible more flexible than full-time than full-time workers.workers.
High turnover/ High turnover/ training costs; training costs; quality suffers; quality suffers; scheduling scheduling difficult.difficult.
Good for unskilled Good for unskilled jobs in areas with jobs in areas with large temporary large temporary labor pools.labor pools.
Influencing Influencing demanddemand
Tries to use Tries to use excess capacity. excess capacity. Discounts draw Discounts draw new customers.new customers.
Uncertainty in Uncertainty in demand. Hard to demand. Hard to match demand to match demand to supply exactly.supply exactly.
Creates marketing Creates marketing ideas. ideas. Overbooking Overbooking used in some used in some businesses.businesses.
4 – 40Departament d’Economia de l’EmpresaDepartament d’Economia de l’Empresa / /
Department of Business Economics & AdministrationDepartment of Business Economics & Administration
Aggregate Planning OptionsAggregate Planning Options
Table 13.1Table 13.1
OptionOption AdvantagesAdvantages DisadvantagesDisadvantages Some CommentsSome Comments
Back ordering Back ordering during high-during high-demand demand periodsperiods
May avoid May avoid overtime. Keeps overtime. Keeps capacity capacity constant.constant.
Customer must be Customer must be willing to wait, but willing to wait, but goodwill is lost.goodwill is lost.
Many companies Many companies back order.back order.
Counter-Counter-seasonal seasonal product and product and service service mixingmixing
Fully utilizes Fully utilizes resources; resources; allows stable allows stable workforce.workforce.
May require skills May require skills or equipment or equipment outside the firm’s outside the firm’s areas of areas of expertise.expertise.
Risky finding Risky finding products or products or services with services with opposite demand opposite demand patterns.patterns.
4 – 41Departament d’Economia de l’EmpresaDepartament d’Economia de l’Empresa / /
Department of Business Economics & AdministrationDepartment of Business Economics & Administration
Methods for Aggregate Methods for Aggregate PlanningPlanning
A mixed strategy may be the best way A mixed strategy may be the best way to achieve minimum coststo achieve minimum costs
There are many possible mixed There are many possible mixed strategiesstrategies
Finding the optimal plan is not always Finding the optimal plan is not always possiblepossible
4 – 42Departament d’Economia de l’EmpresaDepartament d’Economia de l’Empresa / /
Department of Business Economics & AdministrationDepartment of Business Economics & Administration
Mixing Options to Mixing Options to Develop a PlanDevelop a Plan
Chase strategyChase strategy Match output rates to demand forecast Match output rates to demand forecast
for each periodfor each period
Vary workforce levels or vary Vary workforce levels or vary production rateproduction rate
Favored by many service organizationsFavored by many service organizations
4 – 43Departament d’Economia de l’EmpresaDepartament d’Economia de l’Empresa / /
Department of Business Economics & AdministrationDepartment of Business Economics & Administration
Mixing Options to Mixing Options to Develop a PlanDevelop a Plan
Level strategyLevel strategy Daily production is uniformDaily production is uniform
Use inventory or idle time as bufferUse inventory or idle time as buffer
Stable production leads to better quality Stable production leads to better quality and productivityand productivity
Some combination of capacity Some combination of capacity options, a mixed strategy, might be options, a mixed strategy, might be the best solutionthe best solution
4 – 44Departament d’Economia de l’EmpresaDepartament d’Economia de l’Empresa / /
Department of Business Economics & AdministrationDepartment of Business Economics & Administration
Summary of Aggregate Summary of Aggregate Planning MethodsPlanning Methods
TechniquesTechniquesSolution Solution
ApproachesApproaches Important AspectsImportant Aspects
GraphicalGraphicalmethodsmethods
Trial and errorTrial and error Simple to understand and Simple to understand and easy to use. Many easy to use. Many solutions; one chosen may solutions; one chosen may not be optimal.not be optimal.
Transportation Transportation method of linear method of linear programmingprogramming
OptimizationOptimization LP software available; LP software available; permits sensitivity analysis permits sensitivity analysis and new constraints; linear and new constraints; linear functions may not be functions may not be realistic.realistic.
Table 13.8Table 13.8
4 – 45Departament d’Economia de l’EmpresaDepartament d’Economia de l’Empresa / /
Department of Business Economics & AdministrationDepartment of Business Economics & Administration
Summary of Aggregate Summary of Aggregate Planning MethodsPlanning Methods
TechniquesTechniquesSolution Solution
ApproachesApproaches Important AspectsImportant Aspects
Management Management coefficients coefficients modelmodel
HeuristicHeuristic Simple, easy to implement; Simple, easy to implement; tries to mimic manager’s tries to mimic manager’s decision process; uses decision process; uses regression.regression.
SimulationSimulation Change Change parametersparameters
Complex; may be difficult to Complex; may be difficult to build and for managers to build and for managers to understand.understand.
Table 13.8Table 13.8
4 – 46Departament d’Economia de l’EmpresaDepartament d’Economia de l’Empresa / /
Department of Business Economics & AdministrationDepartment of Business Economics & Administration
Aggregate Planning in Aggregate Planning in ServicesServices
Controlling the cost of labor is criticalControlling the cost of labor is critical
1.1. Accurate scheduling of labor-hours to Accurate scheduling of labor-hours to assure quick response to customer assure quick response to customer demanddemand
2.2. An on-call labor resource to cover An on-call labor resource to cover unexpected demandunexpected demand
3.3. Flexibility of individual worker skillsFlexibility of individual worker skills
4.4. Flexibility in rate of output or hours of Flexibility in rate of output or hours of workwork
4 – 47Departament d’Economia de l’EmpresaDepartament d’Economia de l’Empresa / /
Department of Business Economics & AdministrationDepartment of Business Economics & Administration
Five Service ScenariosFive Service Scenarios
RestaurantsRestaurants Smoothing the production processSmoothing the production process
Determining the optimal workforce Determining the optimal workforce sizesize
HospitalsHospitals Responding to patient demandResponding to patient demand
4 – 48Departament d’Economia de l’EmpresaDepartament d’Economia de l’Empresa / /
Department of Business Economics & AdministrationDepartment of Business Economics & Administration
Five Service ScenariosFive Service Scenarios
National Chains of Small Service National Chains of Small Service FirmsFirms Planning done at national level and Planning done at national level and
at local levelat local level
Miscellaneous ServicesMiscellaneous Services Plan human resource requirementsPlan human resource requirements
Manage demandManage demand
4 – 49Departament d’Economia de l’EmpresaDepartament d’Economia de l’Empresa / /
Department of Business Economics & AdministrationDepartment of Business Economics & Administration
Law Firm ExampleLaw Firm Example
Table 13.9Table 13.9
Labor-Hours RequiredLabor-Hours Required Capacity Constraints Capacity Constraints
(2)(2) (3)(3) (4)(4) (5)(5) (6)(6)(1)(1) ForecastsForecasts MaximumMaximum Number ofNumber of
Category ofCategory of Best Best LikelyLikely WorstWorst Demand inDemand in QualifiedQualifiedLegal BusinessLegal Business (hours)(hours) (hours)(hours) (hours)(hours) PeoplePeople PersonnelPersonnel
Trial workTrial work 1,8001,800 1,5001,500 1,2001,200 3.63.6 44Legal researchLegal research 4,5004,500 4,0004,000 3,5003,500 9.09.0 3232Corporate lawCorporate law 8,0008,000 7,0007,000 6,5006,500 16.016.0 1515Real estate lawReal estate law 1,7001,700 1,5001,500 1,3001,300 3.43.4 66Criminal lawCriminal law 3,5003,500 3,0003,000 2,5002,500 7.07.0 1212
Total hoursTotal hours 19,50019,500 17,00017,000 15,00015,000Lawyers neededLawyers needed 3939 3434 3030
4 – 50Departament d’Economia de l’EmpresaDepartament d’Economia de l’Empresa / /
Department of Business Economics & AdministrationDepartment of Business Economics & Administration
Five Service ScenariosFive Service Scenarios
Airline industryAirline industry Extremely complex planning problemExtremely complex planning problem
Involves number of flights, number of Involves number of flights, number of passengers, air and ground passengers, air and ground personnel, allocation of seats to fare personnel, allocation of seats to fare classesclasses
Resources spread through the entire Resources spread through the entire systemsystem