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OPERATIONS MANAGEMENT

AGGREGATE PLANNING

By Arun Mishra

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INTRODUCTION

Aggregate planning involves planning the best quality toproduce in the intermediate-range horizon (3 months to one year)

Aggregate production planning is the process of determiningoutput levels of product groups over the next 6 to 18 months

period.

Objectives of Aggregate Planning

i. The overall objective is to balance conflicting objectivesinvolving customer service, work force stability, cost and

profit.

ii. To establish company-wide strategic plan for allocatingresources.

iii. To develop an economic strategy to meet customer demand.

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INPUTS TO AND OUTPUTS FROM AGGREGATE

PRODUCTION PLANNING

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IMPORTANCE OF AGGREGATE PLANS

i. Engineering

New product, design changes.ii. Materials suppliers capabilities, storage capacity & material

availability.

iii. Operations current machine capacities, future capacity plans, workforce capacities & current staffing level.

iv. Marketing and distribution customer needs, demandforecast & competition.

v. Accounting and finance Cost data & financial condition.

vi. Human resources

training capacity, labour market conditions

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AGGREGATE PLANNING OR

AGGREGATE CAPACITY PLANNING

Need for Aggregate Capacity Planning

1. It facilitates fully loaded facilities and minimizes

overloading and under loading and keeps production

costs low.

2. Adequate production capacity is provided to meet

expected aggregate demand.

3. Orderly and systematic transition of production

capacity to meet the peaks and valleys of expected

customer demand is facilitated.

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i. Determine the demand (i.e., sales forecast) for each product for each

time period (i.e., weeks or months or quarters) over the planninghorizon (6 to 12 months).

ii. Determine the aggregate demand by summing up the demand forindividual products.

iii. Transform the aggregate demand for each time period into workers,materials, machines required to satisfy aggregate demand.

iv. Identify company policies that are pertinent (e.g., policy regardingsafety stock maintenance, maintaining stable workforce etc.).

v. Determine unit costs for regular time, overtime, subcontracting,holding inventories, back orders, layoffs etc.

vi. Develop alternative resource plans for providing necessary production

capacity to support the cumulative aggregate demand and compute thecost of each alternative plan.

vii. Select the resource plan from among the alternatives considered thatsatisfies aggregate demand and best meets the objectives of the firm.

Steps in Aggregate Capacity Planning

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APPROACHES TO AGGREGATE

PLANNING

1. Top down approach2. A bottom-up approach or sub-plan consolidation

approach

Rough-cut Capacity Planning

This is done in conjunction with the tentative masterproduction schedule to test its feasibility in terms ofcapacity before the master production schedule(MPS) is finalized.

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FLOW CHART FOR ROUGH-CUT CAPACITY PLANNING

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CAPACITY PLANNING AND CAPACITY

REQUIREMENT PLANNING (CRP)

Production capacity is defined as the maximumproduction rate of a facility or a plant.

Usually expressed as volume of output per period oftime.

Types of Capacity1. Fixed capacity

2. Adjustable capacity

3. Design capacity

4. System capacity

5. Potential capacity

6. Immediate capacity

7. Effective capacity

8. Normal capacity or rated capacity

9. Actual or utilized capacity

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System efficiency is the ratio of the actual measuredoutput of goods/services to the system capacity

System efficiency = System capacity

Actual Output

SYSTEM EFFICIENCY

Design Capacity

System Capacity

Actual Capacity

Reduced by long range effects like, product-mix, market

conditions, tight quality specifications, labour equipment

imbalance etc.

Reduced by short range effects like, actual demand, managerial

performance, machine break down, staffing, strategy & control,

labour inefficiencies etc.

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Capacity Decisions

a. What size of plant? How much capacity to install?

b. When capacity is needed? When to phase-in capacity orphase-out capacity?

c. At what cost? How to budget for the cost?

Factors Affecting Determination of Plant Capacity1. Market demand for a product/service.

2. The amount of capital that can be invested.

3. Degree of automation desired.

4. Level of integration (i.e., vertical integration).

5. Type of technology selected.

6. Flexibility for capacity additions.

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CAPACITY PLANNING

Capacity planning involves activities such as:

a. Assessing existing capacity

b. Forecasting future capacity needs

c. Identifying alternative ways to modify capacityd. Evaluating financial, economical and technological

capacity alternatives

e. Selecting a capacity alternative most suited to achievethe strategic mission of the firm. Capacity planninginvolves capacity decisions that must merge consumerdemands with human, material and financial resourcesof the organization.

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4 Types of Capacity Planning are: Long term Capacity Planning

Short-term Capacity Planing

Finite Capacity Planning

Infinite Capacity Planning. Two catagories of factors affecting capacity planning are:

Controllable Factors

Less Controllable Factors.

Capacity Requirement Planning (CRP): A technique to

determine the labour and equipment capacities needed tomeet the objectives.

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MASTER PRODUCTION SCHEDULING

Objectives of Master Production Scheduling

1. To schedule end items to be completed promptlyand when promised to customers.

2. To avoid overloading or underloading the

production facility so that production capacity isefficiently utilized and low production costs result.

Functions of MPS:

Translating aggregate plans

Evaluating alternative master schedules

Generating material and capacity requirements Facilitating information processing

Maintaining priorities

Utilizing the capacity effectively.

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