Sales & Operation Planning 8

7/28/2019 Sales & Operation Planning 8

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Aggregate Sales and Operations Planning



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Sales and Operations Planning

The Aggregate Operations Plan

Examples: Chase and Level

strategies

OBJECTIVES



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Master scheduling

Material requirements planning

Order scheduling

Weekly workforce and

customer scheduling

Daily workforce and 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

& demand

management



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Sales and Operations Planning

Activities

Long-range planning – Greater than one year planning horizon

– Usually performed in annual increments

Medium-range planning – Six to eighteen months

– Usually with weekly, monthly or quarterlyincrements

Short-range planning – One day to less than six months

– Usually with weekly or daily increments



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The Aggregate Operations Plan

•Main purpose: Specify the optimalcombination of

• production rate (units completed per unit

of time)

• workforce level (number of workers)

• inventory on hand (inventory carried from

previous period)

• Product group or broad category

(Aggregation)

• This planning is done over an intermediate-

range planning period of 3 to18 months



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Balancing Aggregate Demand

and Aggregate Production Capacity

0

2000

4000

6000

8000

10000

Jan Feb Mar Apr May Jun

45005500

7000

10000

8000

6000

0

2000

4000

6000

8000

10000


4500 4000

90008000

4000

6000

Suppose the figure to

the right represents

forecast demand in

units

Now suppose thislower figure represents

the aggregate capacity

of the company to

meet demand

What we want to do isbalance out the

production rate,

workforce levels, and

inventory to make

these figures match up



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Required Inputs to the Production

Planning System

Planningfor

production

External

capacity

Competitors’behavior

Raw materialavailability

Marketdemand

Economic

conditions

Current

physical

capacity

Current

workforce

Inventory

levels

Activities

required

for

production

External

to firm

Internal

to firm



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Key Strategies for Meeting Demand

(Production Planning Strategies)

• Chase Strategy

• Stable workforce – variable work

hours

• Level Strategy



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Key Strategies for Meeting Demand

(Production Planning Strategies)

• Pure Strategy – only one of the

variables used to absorb demand

fluctuations

•Mixed Strategy – two or morevariables used in combination

constitute this strategy



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Prodn Plan 1 - Exact Production / Varyworkforce

Prodn Plan 2 – Constant workforce /Vary Inventory & permit stockouts

Prodn Plan 3 – Constant workforce /Subcontract

Prodn Plan 4 – Vary wrkforce/Subcont.

AGGREGATE PLANNING

TECHNIQUES (cut-and-try)



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Aggregate Planning Examples: Unit

Demand and Cost Data

Materials Rs5/unit

Holding costs Rs1/unit per mo.

Marginal cost of stockout Rs1.25/unit per mo.

Hiring and training cost Rs200/worker

Layoff costs Rs250/worker

Labor hours required .15 hrs/unitStraight time labor cost Rs8/hour

Beginning inventory 250 units

Productive hours/worker/day 7.25

Paid straight hrs/day 8

Suppose we have the following unit

demand and cost information:

Demand/mo Jan Feb Mar Apr May Jun

4500 5500 7000 10000 8000 6000

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Jan Feb Mar Apr May JunDays/mo 22 19 21 21 22 20

Hrs/worker/mo 159.5 137.75 152.25 152.25 159.5 145

Units/worker 1063.33 918.33 1015 1015 1063.33 966.67

Rs/worker 1,408 1,216 1,344 1,344 1,408 1,280

Productive hours/worker/day 7.25

Paid straight hrs/day 8

Demand/mo Jan Feb Mar Apr May

Jun

4500 5500 7000 10000 8000

6000

Given the demand and cost information below, what

are the aggregate hours/worker/month, units/worker, andRuppees/worker?

7.25x

22

7.25/0.15=48.33 &

48.33x22=1063.3322x8hrsxRs8=Rs1

408

Cut-and-Try Example: Determining

Straight Labor Costs and Output

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Chase Strategy

(Hiring & Firing to meet demand)

Jan

Days/mo 22

Hrs/worker/mo 159.5

Units/worker 1,063.33

Rs/worker 1,408

Jan

Demand 4,500

Beg. inv. 250

Net req. 4,250Req. workers 3.997

Hired

Fired 3

Workforce 4

Ending inventory 0

Lets assume our current workforce is 7workers.

First, calculate net requirements for

production, or 4500-250=4250 units

Then, calculate number of workers

needed to produce the net

requirements, or

4250/1063.33=3.997 or 4 workers

Finally, determine the number of

workers to hire/fire. In this case we

only need 4 workers, we have 7, so

3 can be fired.

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Jan Feb Mar Apr May JunDays/mo 22 19 21 21 22 20

Hrs/worker/mo 159.5 137.75 152.25 152.25 159.5 145

Units/worker 1,063 918 1,015 1,015 1,063 967

Rs/worker 1,408 1,216 1,344 1,344 1,408 1,280


Demand 4,500 5,500 7,000 10,000 8,000 6,000

Beg. inv. 250

Net req. 4,250 5,500 7,000 10,000 8,000 6,000

Req. workers 3.997 5.989 6.897 9.852 7.524 6.207

Hired 2 1 3

Fired 3 2 1

Workforce 4 6 7 10 8 7

Ending inventory 0 0 0 0 0 0

Below are the complete calculations for the remaining

months in the six month planning horizon

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Demand 4,500 5,500 7,000 10,000 8,000 6,000

Beg. inv. 250

Net req. 4,250 5,500 7,000 10,000 8,000 6,000

Req. workers 3.997 5.989 6.897 9.852 7.524 6.207

Hired 2 1 3

Fired 3 2 1

Workforce 4 6 7 10 8 7

Ending inventory 0 0 0 0 0 0

Jan Feb Mar Apr May Jun CostsMaterial 21,250.00 27,500.00 35,000.00 50,000.00 40,000.00 30,000.00 203,750.00

Labor 5,627.59 7,282.76 9,268.97 13,241.38 10,593.10 7,944.83 53,958.62

Hiring cost 400.00 200.00 600.00 1,200.00

Firing cost 750.00 500.00 250.00 1,500.00

260,408.62

Below are the complete calculations for the remaining months in

the six month planning horizon with the other costs included

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Level Workforce Strategy (Surplus

and Shortage Allowed)

Jan

Demand 4,500

Beg. inv. 250

Net req. 4,250

Workers 6

Production 6,380Ending inventory 2,130

Surplus 2,130

Shortage

Lets take the same problem as

before but this time use the

Level Workforce strategy

This time we will seek to usea workforce level of 6 workers

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Demand 4,500 5,500 7,000 10,000 8,000 6,000

Beg. inv. 250 2,130 2,140 1,230 -2,680 -1,300

Net req. 4,250 3,370 4,860 8,770 10,680 7,300

Workers 6 6 6 6 6 6

Production 6,380 5,510 6,090 6,090 6,380 5,800

Ending inventory 2,130 2,140 1,230 -2,680 -1,300 -1,500

Surplus 2,130 2,140 1,230

Shortage 2,680 1,300 1,500

Note, if we recalculate this sheet with 7 workers

we would have a surplus


months in the six month planning horizon

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4,500 5,500 7,000 10,000 8,000 6,000

250 2,130 10 -910 -3,910 -1,620

4,250 3,370 4,860 8,770 10,680 7,300

6 6 6 6 6 6

6,380 5,510 6,090 6,090 6,380 5,800

2,130 2,140 1,230 -2,680 -1,300 -1,500

2,130 2,140 1,230

2,680 1,300 1,500


8,448.00 7,296.00 8,064.00 8,064.00 8,448.00 7,680.00 48,000.00

31,900.00 27,550.00 30,450.00 30,450.00 31,900.00 29,000.00 181,250.00

2,130.00 2,140.00 1,230.00 5,500.00

3,350.00 1,625.00 1,875.00 6,850.00

241,600.00


months in the six month planning horizon with the

other costs included

Note, total

costs under

this strategy

are less thanChase at

Rs260.408.62

Labor

Material

Storage

Stockout

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Question Bowl

Sales and Operations Planning activitiesare usually conducted during which

planning time horizon?

a. Long-range

b. Intermediate-range

c. Short-range

d. Really short-range

e. None of the above

Answer: b. Intermediate-range (i.e., 6 to

18 months)

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Question Bowl

Which of the following are Production Planning

Strategies can involve trade-offs among the

workforce size, work hours, inventory, and

backlogs?

a. Chase strategy

b. Stable workforce-variable work hours

c. Level strategy

d. All of the above


Answer: d. All of the above

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Question Bowl

Which of the following are considered “relevant

costs” in the Aggregate Production Plan?

a. Costs associated with changes in the production

rate

b. Inventory holding costsc. Backordering costs

d. Basic production costs

e. All of the above

Answer: e. All of the above

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Question Bowl

Which of the following Aggregate Planning

Techniques can be performed using simple

spreadsheets?

a. Cut-and-try

b. Linear programmingc. Transportation method

d. All of the above


Answer: a. Cut-and-try (The other two involve morecomplex computational effort than simple

spreadsheets.)

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Question Bowl

Which of the following methods can be used

to allocate the right type of capacity to the

right type of customer at the right price and

in time to maximize revenue?

a. Cut-and-try

b. Yield management

c. Transportation method

d. All of the above


Answer: b. Yield management

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Question Bowl

From an operational perspective Yield

Management is most effective as a capacity

technique, then which of the following

happens?

a. Demand can not be segmented by customer

b. Variable costs are high

c. Fixed costs are low

d.

Demand is highly variablee. All of the above

Answer: d. Demand is highly variable

Sales & Operation Planning 8

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