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Tata McGraw
CHAPTER 16
Aggregate Sales &Operations Planning
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Learning Outcomes
After discussion of this chapter students
should be able to:
Develop an aggregate plan for the resources
Adopt a chase strategy
Adopt a level strategy
Assist the upper-middle-level managers in
formulating SOP in their respective jobs
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Sales and Operations Planning
The Aggregate Operations Plan
Eamples on !hase and "evel strategies
OBJECTIVES
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1-4
Process planning
Strategic capacity
planning
Sales and operations
&aggregate' planning
Sales
plan
Aggregate
operations
plan
Supply net(or)
planning
*orecasting and
demand management
+aster scheduling
+aterial re,uirements
planning
Order scheduling
ehicle capacity
planning
ehicle loading
ehicle dispatching
.arehouse
receipt
planning
.ee)ly (or)force
scheduling
Daily (or)force
scheduling
+anufacturing "ogistics Services
"ong
range
+edium
range
Short
range
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Sales and Operations Planning hori0ons
Long-range planning Greater than one ear planning hori!on "suall per#orme$ in annual increments
%e$ium-range planning Si to eighteen months "suall 'ith 'ee(l) monthl or *uarterl
increments
Short-range planning One $a to less than si months "suall 'ith 'ee(l or $ail increments
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The Aggregate Operations Plan
%ain purpose+ Specify the optimal combination of production rate &units completed per unit of
time' (or)force level &number of (or)ers' 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 % to#2 months
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3alancing Aggregate Demandand Aggregate Production !apacity
0
2000
4000
6000
8000
10000
Jan Feb Mar Apr May Jun
45005500
7000
10000
8000
6000
0
2000
4000
6000
8000
10000
Jan Feb Mar Apr May Jun
4500 4000
90008000
4000
6000
Suppose the #igure tothe right represents#orecast $eman$ inunits
Suppose the #igure tothe right represents#orecast $eman$ inunits
,o' suppose thislo'er #igure representsthe aggregate capacito# the compan tomeet $eman$
,o' suppose thislo'er #igure representsthe aggregate capacito# the compan tomeet $eman$
hat 'e 'ant to $o is.alance out thepro$uction rate)'or(#orce le/els) an$in/entor to ma(ethese #igures match up
hat 'e 'ant to $o is.alance out thepro$uction rate)'or(#orce le/els) an$in/entor to ma(ethese #igures match up
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5e,uired 6nputs to the Production Planning System
Planningfor
production
External
capacity
Competitorsbea!ior
"a# materiala!ailability
$ar%etdemand
Economic
conditions
Current
pysical
capacity
Current
#or%force
In!entory
le!els
&cti!ities
re'uired
for
production
External
to firm
Internal
to firm
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7ey Strategies for +eeting Demand
Chase strateg
Sta.le 'or(#orce 0/aria.le 'or( hrs
Le/el strateg
%ie$ strateg
Su.contracting
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5elevant !osts
2asic pro$uction cost 3ie$-/aria.le) $irect-in$irect la.or) regular-o/ertime
Costs associate$ 'ith change in pro$uction rate
Hiring 0regular 4 temporar) training) laing-o##
5n/entor hol$ing cost
Cost o# capital tie$-up) storing) insurance) taes)spoilage) pil#erage) o.solescence
2ac( or$ering cost
Epe$iting) loss o# goo$'ill) loss o# sales
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Aggregate Planning Eamples: nit Demand and !ost Data
Materials $5/unitHoldin !osts $1/unit per "o#
Marinal !ost o sto!%out $1#25/unit per "o#
Hirin and trainin !ost $200/&or%er
'ayo !osts $250/&or%er
'abor (ours re)uired #15 (rs/unit*trai(t ti"e labor !ost $8/(our
+einnin in,entory 250 units
-rodu!ti,e (ours/&or%er/day 7#25
-aid strai(t (rs/day 8
Suppose 'e ha/e the #ollo'ing unit
$eman$ an$ cost in#ormation+
Suppose 'e ha/e the #ollo'ing unit
$eman$ an$ cost in#ormation+
.e"and/"o Jan Feb Mar Apr May Jun
4500 5500 7000 10000 8000 6000
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-rodu!ti,e (ours/&or%er/day 7#25
-aid strai(t (rs/day 8
.e"and/"o Jan Feb Mar Apr MayJun
4500 5500 7000 10000 8000 6000
Gi/en the $eman$ an$ cost in#ormation .elo') 'hat
are the aggregate hours4'or(er4month) units4'or(er) an$$ollars4'or(er
Gi/en the $eman$ an$ cost in#ormation .elo') 'hatare the aggregate hours4'or(er4month) units4'or(er) an$$ollars4'or(er
7#25 22 159#5
7#25 / 0#1548#
48#22106#228(rs$8$1408
!ut-and-Try Eample: DeterminingStraight "abor !osts and Output
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Chase Strateg&>=>8??7 or 9 'or(ers
3inall) $etermine the num.er o#'or(ers to hire4#ire8 5n this case 'eonl nee$ 9 'or(ers) 'e ha/e 7) so> can .e #ire$8
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Jan
Days/mo 22
Hrs/worker/mo 159.5
Units/worker 1,063.33
$/worker $1,408
Jan
Demand 4,500
Be. in". 250
#et re. 4,250%e. workers 3.99&
Hired
'ired 3
(ork)or*e 4
+ndin in"entory 0
#$ #/
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2elo' are the complete calculations #or the remainingmonths in the si month planning hori!on
2elo' are the complete calculations #or the remainingmonths in the si month planning hori!on
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Jan 'e -ar r -ay JnDays/mo 22 19 21 21 22 20
Hrs/worker/mo 159.5 13&.&5 152.25 152.25 159.5 145
Units/worker 1,063 918 1,015 1,015 1,063 96&
$/worker $1,408 1,216 1,344 1,344 1,408 1,280
Jan 'e -ar r -ay Jn
Demand 4,500 5,500 &,000 10,000 8,000 6,000
Be. in". 250
#et re. 4,250 5,500 &,000 10,000 8,000 6,000
%e. workers 3.99& 5.989 6.89& 9.852 &.524 6.20&
Hired 2 1 3
'ired 3 2 1
(ork)or*e 4 6 & 10 8 &
+ndin in"entory 0 0 0 0 0 0
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2elo' are the complete calculations #or the remaining months inthe si month planning hori!on 'ith the other costs inclu$e$
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Jan 'e -ar /r -ay Jn
Demand 4,500 5,500 &,000 10,000 8,000 6,000Be. in". 250
#et re. 4,250 5,500 &,000 10,000 8,000 6,000
%e. workers 3.99& 5.989 6.89& 9.852 &.524 6.20&
Hired 2 1 3
'ired 3 2 1(ork)or*e 4 6 & 10 8 &
+ndin in"entory 0 0 0 0 0 0
Jan 'e -ar /r -ay Jn osts-ateria $21,250.00 $2&,500.00 $35,000.00 $50,000.00 $40,000.00 $30,000.00 203,&50.00
aor 5,62&.59 &,282.&6 9,268.9& 13,241.38 10,593.10 &,944.83 53,958.62
Hirin *ost 400.00 200.00 600.00 1,200.00
'irin *ost &50.00 500.00 250.00 1,500.00
@
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Le/el or(#orce Strateg&Surplus and Shortage Allo(ed'
Lets ta(e the same pro.lem as.e#ore .ut this time use theLe/el or(#orce strateg
Lets ta(e the same pro.lem as.e#ore .ut this time use theLe/el or(#orce strateg
This time 'e 'ill see( to usea 'or(#orce le/el o# 6 'or(ersThis time 'e 'ill see( to usea 'or(#orce le/el o# 6 'or(ers
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Jan
Demand 4,500
Be. in". 250
#et re. 4,250
(orkers 6
rod*tion 6,380+ndin in"entory 2,130
rs 2,130
ortae
#$ #4
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>ote? if (e recalculate this sheet (ith 4 (or)ers
(e (ould have a surplus
>ote? if (e recalculate this sheet (ith 4 (or)ers
(e (ould have a surplus
2elo' are the complete calculations #or the remainingmonths in the si month planning hori!on
2elo' are the complete calculations #or the remainingmonths in the si month planning hori!on
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@an *eb +ar Apr +ay @un
Demand /?199 1?199 4?999 #9?999 2?999 $?999
3eg inv ;19 ;?#%9 ;?#/9 #?;%9 -;?$29 -#?%99
>et re, /?;19 %?%49 /?2$9 2?449 #9?$29 4?%99
.or)ers $ $ $ $ $ $
Production $?%29 1?1#9 $?989 $?989 $?%29 1?299
Ending inventory ;?#%9 ;?#/9 #?;%9 -;?$29 -#?%99 -#?199
Surplus ;?#%9 ;?#/9 #?;%9
Shortage ;?$29 #?%99 #?199
#$ #2
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Belo# are te complete calculations for te
remaining monts in te six mont planning
ori(on #it te oter costs included
Belo# are te complete calculations for te
remaining monts in te six mont planning
ori(on #it te oter costs included
,ote) totalcosts un$erthis strategare less thanChase at@
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Cuestion 3o(l
Sales an$ Operations Planning
acti/ities are usuall con$ucte$$uring 'hich planning timehori!on
a8 Long-range.8 5nterme$iate-rangec8 Short-range
$8 Reall short-rangee8 ,one o# the a.o/e
&ns#er) b* Intermediate+range ,i*e*- . to
/0 monts1
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Cuestion 3o(l
hich o# the #ollo'ing are
Pro$uction Planning Strategiescan in/ol/e tra$e-o##s among the'or(#orce si!e) 'or( hours)
in/entor) an$ .ac(logsa8 Chase strateg.8 Sta.le 'or(#orce-/aria.le 'or(
hours
c8 Le/el strateg$8 All o# the a.o/ee8 ,one o# the a.o/e
&ns#er) d* &ll of te abo!e
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Cuestion 3o(l
hich o# the #ollo'ing are consi$ere$Brele/ant costs in the AggregatePro$uction Plan
a8 Costs associate$ 'ith changes inthe pro$uction rate
.8 5n/entor hol$ing costsc8 2ac(or$ering costs
$8 2asic pro$uction costse8 All o# the a.o/e
&ns#er) e* &ll of te abo!e
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Cuestion 3o(l
hich o# the #ollo'ing AggregatePlanning Techni*ues can .eper#orme$ using simplesprea$sheets
a8 Cut-an$-tr.8 Linear programmingc8 Transportation metho$$8 All o# the a.o/e
e8 ,one o# the a.o/e
&ns#er) a* Cut+and+try ,Te oter t#o in!ol!e more
complex computational effort tan simple
spreadseets*1
#$ ;;
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En$ o# Chapter 16
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