13 - 1© 2011 Pearson Education, Inc. publishing as Prentice Hall13 Aggregate PlanningPowerPoint presentation to accompanyH...
13 - 2© 2011 Pearson Education, Inc. publishing as Prentice HallOutline Global Company Profile: Frito-Lay The Planning P...
13 - 3© 2011 Pearson Education, Inc. publishing as Prentice HallOutline – Continued Methods for Aggregate Planning Graph...
13 - 4© 2011 Pearson Education, Inc. publishing as Prentice HallOutline – Continued Aggregate Planning in Services Resta...
13 - 5© 2011 Pearson Education, Inc. publishing as Prentice HallLearning ObjectivesWhen you complete this chapter youshoul...
13 - 6© 2011 Pearson Education, Inc. publishing as Prentice HallLearning ObjectivesWhen you complete this chapter youshoul...
13 - 7© 2011 Pearson Education, Inc. publishing as Prentice HallFrito-Lay More than three dozen brands, 15brands sell mor...
13 - 8© 2011 Pearson Education, Inc. publishing as Prentice HallFrito-Lay Demand profile based on historicalsales, foreca...
13 - 9© 2011 Pearson Education, Inc. publishing as Prentice HallAggregate PlanningThe objective of aggregate planningis to...
13 - 10© 2011 Pearson Education, Inc. publishing as Prentice HallThe Planning Process Objective is to minimize cost over ...
13 - 11© 2011 Pearson Education, Inc. publishing as Prentice HallAggregate Planning A logical overall unit for measuring ...
13 - 12© 2011 Pearson Education, Inc. publishing as Prentice HallPlanning HorizonsFigure 13.1Long-range plans(over one yea...
13 - 13© 2011 Pearson Education, Inc. publishing as Prentice HallAggregate PlanningQuarter 1Jan Feb Mar150,000 120,000 110...
13 - 14© 2011 Pearson Education, Inc. publishing as Prentice HallAggregatePlanningFigure 13.2
13 - 15© 2011 Pearson Education, Inc. publishing as Prentice HallAggregate Planning Combines appropriate resourcesinto ge...
13 - 16© 2011 Pearson Education, Inc. publishing as Prentice HallAggregate PlanningStrategies1. Use inventories to absorb ...
13 - 17© 2011 Pearson Education, Inc. publishing as Prentice HallCapacity Options Changing inventory levels Increase inv...
13 - 18© 2011 Pearson Education, Inc. publishing as Prentice HallCapacity Options Varying workforce size by hiringor layo...
13 - 19© 2011 Pearson Education, Inc. publishing as Prentice HallCapacity Options Varying production rate throughovertime...
13 - 20© 2011 Pearson Education, Inc. publishing as Prentice HallCapacity Options Subcontracting Temporary measure durin...
13 - 21© 2011 Pearson Education, Inc. publishing as Prentice HallCapacity Options Using part-time workers Useful for fil...
13 - 22© 2011 Pearson Education, Inc. publishing as Prentice HallDemand Options Influencing demand Use advertising or pr...
13 - 23© 2011 Pearson Education, Inc. publishing as Prentice HallDemand Options Back ordering during high-demand periods...
13 - 24© 2011 Pearson Education, Inc. publishing as Prentice HallDemand Options Counterseasonal product andservice mixing...
13 - 25© 2011 Pearson Education, Inc. publishing as Prentice HallAggregate Planning OptionsTable 13.1Option Advantages Dis...
13 - 26© 2011 Pearson Education, Inc. publishing as Prentice HallAggregate Planning OptionsTable 13.1Option Advantages Dis...
13 - 27© 2011 Pearson Education, Inc. publishing as Prentice HallAggregate Planning OptionsTable 13.1Option Advantages Dis...
13 - 28© 2011 Pearson Education, Inc. publishing as Prentice HallAggregate Planning OptionsTable 13.1Option Advantages Dis...
13 - 29© 2011 Pearson Education, Inc. publishing as Prentice HallMethods for AggregatePlanning A mixed strategy may be th...
13 - 30© 2011 Pearson Education, Inc. publishing as Prentice HallMixing Options toDevelop a Plan Chase strategy Match ou...
13 - 31© 2011 Pearson Education, Inc. publishing as Prentice HallMixing Options toDevelop a Plan Level strategy Daily pr...
13 - 32© 2011 Pearson Education, Inc. publishing as Prentice HallGraphical Methods Popular techniques Easy to understand...
13 - 33© 2011 Pearson Education, Inc. publishing as Prentice HallGraphical Methods1. Determine the demand for each period2...
13 - 34© 2011 Pearson Education, Inc. publishing as Prentice HallRoofing Supplier Example 1Table 13.2Month Expected Demand...
13 - 35© 2011 Pearson Education, Inc. publishing as Prentice HallRoofing Supplier Example 1Figure 13.370 –60 –50 –40 –30 –...
13 - 36© 2011 Pearson Education, Inc. publishing as Prentice HallRoofing Supplier Example 2Table 13.3Cost InformationInven...
13 - 37© 2011 Pearson Education, Inc. publishing as Prentice HallRoofing Supplier Example 2Table 13.3Cost InformationInven...
13 - 38© 2011 Pearson Education, Inc. publishing as Prentice HallRoofing Supplier Example 2Table 13.3Cost InformationInven...
13 - 39© 2011 Pearson Education, Inc. publishing as Prentice HallRoofing Supplier Example 2Figure 13.4Cumulativedemandunit...
13 - 40© 2011 Pearson Education, Inc. publishing as Prentice HallRoofing Supplier Example 3Table 13.2Month Expected Demand...
13 - 41© 2011 Pearson Education, Inc. publishing as Prentice HallRoofing Supplier Example 370 –60 –50 –40 –30 –0 –Jan Feb ...
13 - 42© 2011 Pearson Education, Inc. publishing as Prentice HallRoofing Supplier Example 3Table 13.3Cost InformationInven...
13 - 43© 2011 Pearson Education, Inc. publishing as Prentice HallRoofing Supplier Example 3Table 13.3Cost InformationInven...
13 - 44© 2011 Pearson Education, Inc. publishing as Prentice HallTable 13.3Cost InformationInventory carry cost $ 5 per un...
13 - 45© 2011 Pearson Education, Inc. publishing as Prentice HallRoofing Supplier Example 4Table 13.2Month Expected Demand...
13 - 46© 2011 Pearson Education, Inc. publishing as Prentice HallRoofing Supplier Example 470 –60 –50 –40 –30 –0 –Jan Feb ...
13 - 47© 2011 Pearson Education, Inc. publishing as Prentice HallRoofing Supplier Example 4Table 13.3Cost InformationInven...
13 - 48© 2011 Pearson Education, Inc. publishing as Prentice HallRoofing Supplier Example 4Table 13.3Cost InformationInven...
13 - 49© 2011 Pearson Education, Inc. publishing as Prentice HallComparison of Three PlansTable 13.5Cost Plan 1 Plan 2 Pla...
13 - 50© 2011 Pearson Education, Inc. publishing as Prentice HallMathematical Approaches Useful for generating strategies...
13 - 51© 2011 Pearson Education, Inc. publishing as Prentice HallTransportation MethodTable 13.6CostsRegular time $40 per ...
13 - 52© 2011 Pearson Education, Inc. publishing as Prentice HallTransportation ExampleImportant points1. Carrying costs a...
13 - 53© 2011 Pearson Education, Inc. publishing as Prentice HallTransportation ExampleImportant points4. Quantities in ea...
13 - 54© 2011 Pearson Education, Inc. publishing as Prentice HallTransportationExampleTable 13.7
13 - 55© 2011 Pearson Education, Inc. publishing as Prentice HallManagement CoefficientsModel Builds a model based on man...
13 - 56© 2011 Pearson Education, Inc. publishing as Prentice HallOther ModelsLinear Decision Rule Minimizes costs using q...
13 - 57© 2011 Pearson Education, Inc. publishing as Prentice HallSummary of AggregatePlanning MethodsTechniquesSolutionApp...
13 - 58© 2011 Pearson Education, Inc. publishing as Prentice HallSummary of AggregatePlanning MethodsTechniquesSolutionApp...
13 - 59© 2011 Pearson Education, Inc. publishing as Prentice HallAggregate Planning inServicesControlling the cost of labo...
13 - 60© 2011 Pearson Education, Inc. publishing as Prentice HallFive Service Scenarios Restaurants Smoothing the produc...
13 - 61© 2011 Pearson Education, Inc. publishing as Prentice HallFive Service Scenarios National Chains of Small ServiceF...
13 - 62© 2011 Pearson Education, Inc. publishing as Prentice HallLaw Firm ExampleTable 13.9Labor-Hours Required Capacity C...
13 - 63© 2011 Pearson Education, Inc. publishing as Prentice HallFive Service Scenarios Airline industry Extremely compl...
13 - 64© 2011 Pearson Education, Inc. publishing as Prentice HallYield ManagementAllocating resources to customers atprice...
13 - 65© 2011 Pearson Education, Inc. publishing as Prentice HallDemandCurveYield Management ExampleFigure 13.5Passed-upco...
13 - 66© 2011 Pearson Education, Inc. publishing as Prentice HallTotal $ contribution =(1st price) x 30 rooms + (2nd price...
13 - 67© 2011 Pearson Education, Inc. publishing as Prentice HallYield Management MatrixDurationofuseTendtobeTendtobeUncer...
13 - 68© 2011 Pearson Education, Inc. publishing as Prentice HallMaking Yield ManagementWork1. Multiple pricing structures...
13 - 69© 2011 Pearson Education, Inc. publishing as Prentice HallAll rights reserved. No part of this publication may be r...
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Heizer om10 ch13

  1. 1. 13 - 1© 2011 Pearson Education, Inc. publishing as Prentice Hall13 Aggregate PlanningPowerPoint presentation to accompanyHeizer and RenderOperations Management, 10ePrinciples of Operations Management, 8ePowerPoint slides by Jeff Heyl
  2. 2. 13 - 2© 2011 Pearson Education, Inc. publishing as Prentice HallOutline Global Company Profile: Frito-Lay The Planning Process Planning Horizons The Nature of Aggregate Planning Aggregate Planning Strategies Capacity Options Demand Options Mixing Options to Develop a Plan
  3. 3. 13 - 3© 2011 Pearson Education, Inc. publishing as Prentice HallOutline – Continued Methods for Aggregate Planning Graphical Methods Mathematical Approaches Comparison of Aggregate PlanningMethods
  4. 4. 13 - 4© 2011 Pearson Education, Inc. publishing as Prentice HallOutline – Continued Aggregate Planning in Services Restaurants Hospitals National Chains of Small ServiceFirms Miscellaneous Services Airline Industry Yield Management
  5. 5. 13 - 5© 2011 Pearson Education, Inc. publishing as Prentice HallLearning ObjectivesWhen you complete this chapter youshould be able to:1. Define aggregate planning2. Identify optional strategies fordeveloping an aggregate plan3. Prepare a graphical aggregate plan
  6. 6. 13 - 6© 2011 Pearson Education, Inc. publishing as Prentice HallLearning ObjectivesWhen you complete this chapter youshould be able to:4. Solve an aggregate plan via thetransportation method of linearprogramming5. Understand and solve a yieldmanagement problem
  7. 7. 13 - 7© 2011 Pearson Education, Inc. publishing as Prentice HallFrito-Lay More than three dozen brands, 15brands sell more than $100 millionannually, 7 sell over $1 billion Planning processes covers 3 to 18months Unique processes and speciallydesigned equipment High fixed costs require high volumesand high utilization
  8. 8. 13 - 8© 2011 Pearson Education, Inc. publishing as Prentice HallFrito-Lay Demand profile based on historicalsales, forecasts, innovations,promotion, local demand data Match total demand to capacity,expansion plans, and costs Quarterly aggregate plan goes to 38plants in 18 regions Each plant develops 4-week plan forproduct lines and production runs
  9. 9. 13 - 9© 2011 Pearson Education, Inc. publishing as Prentice HallAggregate PlanningThe objective of aggregate planningis to meet forecasted demand whileminimizing cost over the planningperiod
  10. 10. 13 - 10© 2011 Pearson Education, Inc. publishing as Prentice HallThe Planning Process Objective is to minimize cost over theplanning period by adjusting Production rates Labor levels Inventory levels Overtime work Subcontracting rates Other controllable variablesDetermine the quantity and timing ofproduction for the intermediate future
  11. 11. 13 - 11© 2011 Pearson Education, Inc. publishing as Prentice HallAggregate Planning A logical overall unit for measuring salesand output A forecast of demand for an intermediateplanning period in these aggregate terms A method for determining costs A model that combines forecasts andcosts so that scheduling decisions canbe made for the planning periodRequired for aggregate planning
  12. 12. 13 - 12© 2011 Pearson Education, Inc. publishing as Prentice HallPlanning HorizonsFigure 13.1Long-range plans(over one year)Research and DevelopmentNew product plansCapital investmentsFacility location/expansionIntermediate-range plans(3 to 18 months)Sales planningProduction planning and budgetingSetting employment, inventory,subcontracting levelsAnalyzing operating plansShort-range plans(up to 3 months)Job assignmentsOrderingJob schedulingDispatchingOvertimePart-time helpTopexecutivesOperationsmanagersOperationsmanagers,supervisors,foremenResponsibility Planning tasks and horizon
  13. 13. 13 - 13© 2011 Pearson Education, Inc. publishing as Prentice HallAggregate PlanningQuarter 1Jan Feb Mar150,000 120,000 110,000Quarter 2Apr May Jun100,000 130,000 150,000Quarter 3Jul Aug Sep180,000 150,000 140,000
  14. 14. 13 - 14© 2011 Pearson Education, Inc. publishing as Prentice HallAggregatePlanningFigure 13.2
  15. 15. 13 - 15© 2011 Pearson Education, Inc. publishing as Prentice HallAggregate Planning Combines appropriate resourcesinto general terms Part of a larger production planningsystem Disaggregation breaks the plandown into greater detail Disaggregation results in a masterproduction schedule
  16. 16. 13 - 16© 2011 Pearson Education, Inc. publishing as Prentice HallAggregate PlanningStrategies1. Use inventories to absorb changes indemand2. Accommodate changes by varyingworkforce size3. Use part-timers, overtime, or idle time toabsorb changes4. Use subcontractors and maintain astable workforce5. Change prices or other factors toinfluence demand
  17. 17. 13 - 17© 2011 Pearson Education, Inc. publishing as Prentice HallCapacity Options Changing inventory levels Increase inventory in low demandperiods to meet high demand inthe future Increases costs associated withstorage, insurance, handling,obsolescence, and capitalinvestment Shortages may mean lost salesdue to long lead times and poorcustomer service
  18. 18. 13 - 18© 2011 Pearson Education, Inc. publishing as Prentice HallCapacity Options Varying workforce size by hiringor layoffs Match production rate to demand Training and separation costs forhiring and laying off workers New workers may have lowerproductivity Laying off workers may lowermorale and productivity
  19. 19. 13 - 19© 2011 Pearson Education, Inc. publishing as Prentice HallCapacity Options Varying production rate throughovertime or idle time Allows constant workforce May be difficult to meet largeincreases in demand Overtime can be costly and maydrive down productivity Absorbing idle time may bedifficult
  20. 20. 13 - 20© 2011 Pearson Education, Inc. publishing as Prentice HallCapacity Options Subcontracting Temporary measure duringperiods of peak demand May be costly Assuring quality and timelydelivery may be difficult Exposes your customers to apossible competitor
  21. 21. 13 - 21© 2011 Pearson Education, Inc. publishing as Prentice HallCapacity Options Using part-time workers Useful for filling unskilled or lowskilled positions, especially inservices
  22. 22. 13 - 22© 2011 Pearson Education, Inc. publishing as Prentice HallDemand Options Influencing demand Use advertising or promotionto increase demand in lowperiods Attempt to shiftdemand to slowperiods May not besufficient tobalance demandand capacity
  23. 23. 13 - 23© 2011 Pearson Education, Inc. publishing as Prentice HallDemand Options Back ordering during high-demand periods Requires customers to wait for anorder without loss of goodwill orthe order Most effective when there are fewif any substitutes for the productor service Often results in lost sales
  24. 24. 13 - 24© 2011 Pearson Education, Inc. publishing as Prentice HallDemand Options Counterseasonal product andservice mixing Develop a product mix ofcounterseasonal items May lead to products or servicesoutside the company’s areas ofexpertise
  25. 25. 13 - 25© 2011 Pearson Education, Inc. publishing as Prentice HallAggregate Planning OptionsTable 13.1Option Advantages Disadvantages Some CommentsChanginginventorylevelsChanges inhumanresources aregradual ornone; no abruptproductionchanges.Inventoryholding costmay increase.Shortages mayresult in lostsales.Applies mainly toproduction, notservice,operations.Varyingworkforcesize byhiring orlayoffsAvoids the costsof otheralternatives.Hiring, layoff,and trainingcosts may besignificant.Used where sizeof labor pool islarge.
  26. 26. 13 - 26© 2011 Pearson Education, Inc. publishing as Prentice HallAggregate Planning OptionsTable 13.1Option Advantages Disadvantages Some CommentsVaryingproductionratesthroughovertime oridle timeMatchesseasonalfluctuationswithout hiring/training costs.Overtimepremiums; tiredworkers; maynot meetdemand.Allows flexibilitywithin theaggregate plan.Sub-contractingPermitsflexibility andsmoothing ofthe firm’soutput.Loss of qualitycontrol;reduced profits;loss of futurebusiness.Applies mainly inproductionsettings.
  27. 27. 13 - 27© 2011 Pearson Education, Inc. publishing as Prentice HallAggregate Planning OptionsTable 13.1Option Advantages Disadvantages Some CommentsUsing part-timeworkersIs less costlyand moreflexible thanfull-timeworkers.High turnover/training costs;quality suffers;schedulingdifficult.Good forunskilled jobs inareas with largetemporary laborpools.InfluencingdemandTries to useexcesscapacity.Discounts drawnew customers.Uncertainty indemand. Hardto matchdemand tosupply exactly.Createsmarketingideas.Overbookingused in somebusinesses.
  28. 28. 13 - 28© 2011 Pearson Education, Inc. publishing as Prentice HallAggregate Planning OptionsTable 13.1Option Advantages Disadvantages Some CommentsBackorderingduringhigh-demandperiodsMay avoidovertime.Keeps capacityconstant.Customer mustbe willing towait, butgoodwill is lost.Many companiesback order.Counter-seasonalproductand servicemixingFully utilizesresources;allows stableworkforce.May requireskills orequipmentoutside thefirm’s areas ofexpertise.Risky findingproducts orservices withoppositedemandpatterns.
  29. 29. 13 - 29© 2011 Pearson Education, Inc. publishing as Prentice HallMethods for AggregatePlanning A mixed strategy may be the bestway to achieve minimum costs There are many possible mixedstrategies Finding the optimal plan is notalways possible
  30. 30. 13 - 30© 2011 Pearson Education, Inc. publishing as Prentice HallMixing Options toDevelop a Plan Chase strategy Match output rates to demandforecast for each period Vary workforce levels or varyproduction rate Favored by many serviceorganizations
  31. 31. 13 - 31© 2011 Pearson Education, Inc. publishing as Prentice HallMixing Options toDevelop a Plan Level strategy Daily production is uniform Use inventory or idle time as buffer Stable production leads to betterquality and productivity Some combination of capacityoptions, a mixed strategy, might bethe best solution
  32. 32. 13 - 32© 2011 Pearson Education, Inc. publishing as Prentice HallGraphical Methods Popular techniques Easy to understand and use Trial-and-error approaches that donot guarantee an optimal solution Require only limited computations
  33. 33. 13 - 33© 2011 Pearson Education, Inc. publishing as Prentice HallGraphical Methods1. Determine the demand for each period2. Determine the capacity for regular time,overtime, and subcontracting each period3. Find labor costs, hiring and layoff costs,and inventory holding costs4. Consider company policy on workers andstock levels5. Develop alternative plans and examinetheir total costs
  34. 34. 13 - 34© 2011 Pearson Education, Inc. publishing as Prentice HallRoofing Supplier Example 1Table 13.2Month Expected DemandProductionDaysDemand Per Day(computed)Jan 900 22 41Feb 700 18 39Mar 800 21 38Apr 1,200 21 57May 1,500 22 68June 1,100 20 556,200 124= = 50 units per day6,200124Averagerequirement =Total expected demandNumber of production days
  35. 35. 13 - 35© 2011 Pearson Education, Inc. publishing as Prentice HallRoofing Supplier Example 1Figure 13.370 –60 –50 –40 –30 –0 –Jan Feb Mar Apr May June = Month     22 18 21 21 22 20 = Number ofworking daysProductionrateperworkingdayLevel production using averagemonthly forecast demandForecast demand
  36. 36. 13 - 36© 2011 Pearson Education, Inc. publishing as Prentice HallRoofing Supplier Example 2Table 13.3Cost InformationInventory carrying cost $ 5 per unit per monthSubcontracting cost per unit $20 per unitAverage pay rate $10 per hour ($80 per day)Overtime pay rate$17 per hour(above 8 hours per day)Labor-hours to produce a unit 1.6 hours per unitCost of increasing daily production rate(hiring and training)$300 per unitCost of decreasing daily production rate(layoffs)$600 per unit
  37. 37. 13 - 37© 2011 Pearson Education, Inc. publishing as Prentice HallRoofing Supplier Example 2Table 13.3Cost InformationInventory carrying cost $ 5 per unit per monthSubcontracting cost per unit $20 per unitAverage pay rate $10 per hour ($80 per day)Overtime pay rate$17 per hour(above 8 hours per day)Labor-hours to produce a unit 1.6 hours per unitCost of increasing daily production rate(hiring and training)$300 per unitCost of decreasing daily production rate(layoffs)$600 per unitMonthProductionDaysProductionat 50 Unitsper DayDemandForecastMonthlyInventoryChangeEndingInventoryJan 22 1,100 900 +200 200Feb 18 900 700 +200 400Mar 21 1,050 800 +250 650Apr 21 1,050 1,200 -150 500May 22 1,100 1,500 -400 100June 20 1,000 1,100 -100 01,850Total units of inventory carried over from onemonth to the next = 1,850 unitsWorkforce required to produce 50 units per day = 10 workers
  38. 38. 13 - 38© 2011 Pearson Education, Inc. publishing as Prentice HallRoofing Supplier Example 2Table 13.3Cost InformationInventory carrying cost $ 5 per unit per monthSubcontracting cost per unit $20 per unitAverage pay rate $10 per hour ($80 per day)Overtime pay rate$17 per hour(above 8 hours per day)Labor-hours to produce a unit 1.6 hours per unitCost of increasing daily production rate(hiring and training)$300 per unitCost of decreasing daily production rate(layoffs)$600 per unitMonthProductionDaysProductionat 50 Unitsper DayDemandForecastMonthlyInventoryChangeEndingInventoryJan 22 1,100 900 +200 200Feb 18 900 700 +200 400Mar 21 1,050 800 +250 650Apr 21 1,050 1,200 -150 500May 22 1,100 1,500 -400 100June 20 1,000 1,100 -100 01,850Total units of inventory carried over from onemonth to the next = 1,850 unitsWorkforce required to produce 50 units per day = 10 workersCosts CalculationsInventory carrying $9,250 (= 1,850 units carried x $5per unit)Regular-time labor 99,200 (= 10 workers x $80 perday x 124 days)Other costs (overtime,hiring, layoffs,subcontracting) 0Total cost $108,450
  39. 39. 13 - 39© 2011 Pearson Education, Inc. publishing as Prentice HallRoofing Supplier Example 2Figure 13.4Cumulativedemandunits7,000 –6,000 –5,000 –4,000 –3,000 –2,000 –1,000 ––Jan Feb Mar Apr May JuneCumulative forecastrequirementsCumulative levelproduction usingaverage monthlyforecastrequirementsReductionof inventoryExcess inventory6,200 units
  40. 40. 13 - 40© 2011 Pearson Education, Inc. publishing as Prentice HallRoofing Supplier Example 3Table 13.2Month Expected DemandProductionDaysDemand Per Day(computed)Jan 900 22 41Feb 700 18 39Mar 800 21 38Apr 1,200 21 57May 1,500 22 68June 1,100 20 556,200 124Minimum requirement = 38 units per day
  41. 41. 13 - 41© 2011 Pearson Education, Inc. publishing as Prentice HallRoofing Supplier Example 370 –60 –50 –40 –30 –0 –Jan Feb Mar Apr May June = Month     22 18 21 21 22 20 = Number ofworking daysProductionrateperworkingdayLevel productionusing lowestmonthly forecastdemandForecast demand
  42. 42. 13 - 42© 2011 Pearson Education, Inc. publishing as Prentice HallRoofing Supplier Example 3Table 13.3Cost InformationInventory carrying cost $ 5 per unit per monthSubcontracting cost per unit $20 per unitAverage pay rate $10 per hour ($80 per day)Overtime pay rate$17 per hour(above 8 hours per day)Labor-hours to produce a unit 1.6 hours per unitCost of increasing daily production rate(hiring and training)$300 per unitCost of decreasing daily production rate(layoffs)$600 per unit
  43. 43. 13 - 43© 2011 Pearson Education, Inc. publishing as Prentice HallRoofing Supplier Example 3Table 13.3Cost InformationInventory carry cost $ 5 per unit per monthSubcontracting cost per unit $10 per unitAverage pay rate $ 5 per hour ($40 per day)Overtime pay rate$ 7 per hour(above 8 hours per day)Labor-hours to produce a unit 1.6 hours per unitCost of increasing daily production rate(hiring and training)$300 per unitCost of decreasing daily production rate(layoffs)$600 per unitIn-house production = 38 units per dayx 124 days= 4,712 unitsSubcontract units = 6,200 - 4,712= 1,488 units
  44. 44. 13 - 44© 2011 Pearson Education, Inc. publishing as Prentice HallTable 13.3Cost InformationInventory carry cost $ 5 per unit per monthSubcontracting cost per unit $10 per unitAverage pay rate $ 5 per hour ($40 per day)Overtime pay rate$ 7 per hour(above 8 hours per day)Labor-hours to produce a unit 1.6 hours per unitCost of increasing daily production rate(hiring and training)$300 per unitCost of decreasing daily production rate(layoffs)$600 per unitRoofing Supplier Example 3In-house production = 38 units per dayx 124 days= 4,712 unitsSubcontract units = 6,200 - 4,712= 1,488 unitsCosts CalculationsRegular-time labor $75,392 (= 7.6 workers x $80 perday x 124 days)Subcontracting 29,760 (= 1,488 units x $20 perunit)Total cost $105,152
  45. 45. 13 - 45© 2011 Pearson Education, Inc. publishing as Prentice HallRoofing Supplier Example 4Table 13.2Month Expected DemandProductionDaysDemand Per Day(computed)Jan 900 22 41Feb 700 18 39Mar 800 21 38Apr 1,200 21 57May 1,500 22 68June 1,100 20 556,200 124Production = Expected Demand
  46. 46. 13 - 46© 2011 Pearson Education, Inc. publishing as Prentice HallRoofing Supplier Example 470 –60 –50 –40 –30 –0 –Jan Feb Mar Apr May June = Month     22 18 21 21 22 20 = Number ofworking daysProductionrateperworkingdayForecast demand andmonthly production
  47. 47. 13 - 47© 2011 Pearson Education, Inc. publishing as Prentice HallRoofing Supplier Example 4Table 13.3Cost InformationInventory carrying cost $ 5 per unit per monthSubcontracting cost per unit $20 per unitAverage pay rate $10 per hour ($80 per day)Overtime pay rate$17 per hour(above 8 hours per day)Labor-hours to produce a unit 1.6 hours per unitCost of increasing daily production rate(hiring and training)$300 per unitCost of decreasing daily production rate(layoffs)$600 per unit
  48. 48. 13 - 48© 2011 Pearson Education, Inc. publishing as Prentice HallRoofing Supplier Example 4Table 13.3Cost InformationInventory carrying cost $ 5 per unit per monthSubcontracting cost per unit $10 per unitAverage pay rate $ 5 per hour ($40 per day)Overtime pay rate$ 7 per hour(above 8 hours per day)Labor-hours to produce a unit 1.6 hours per unitCost of increasing daily production rate(hiring and training)$300 per unitCost of decreasing daily production rate(layoffs)$600 per unitMonthForecast(units)DailyProdRateBasicProductionCost(demand x1.6 hrs/unit x$10/hr)Extra Cost ofIncreasingProduction(hiring cost)Extra Cost ofDecreasingProduction(layoff cost) Total CostJan 900 41 $ 14,400 — — $ 14,400Feb 700 39 11,200 —$1,200(= 2 x $600)12,400Mar 800 38 12,800 —$600(= 1 x $600)13,400Apr 1,200 57 19,200$5,700(= 19 x $300)— 24,900May 1,500 68 24,000$3,300(= 11 x $300)— 24,300June 1,100 55 17,600 —$7,800(= 13 x $600)25,400$99,200 $9,000 $9,600 $117,800Table 13.4
  49. 49. 13 - 49© 2011 Pearson Education, Inc. publishing as Prentice HallComparison of Three PlansTable 13.5Cost Plan 1 Plan 2 Plan 3Inventory carrying $ 9,250 $ 0 $ 0Regular labor 99,200 75,392 99,200Overtime labor 0 0 0Hiring 0 0 9,000Layoffs 0 0 9,600Subcontracting 0 29,760 0Total cost $108,450 $105,152 $117,800Plan 2 is the lowest cost option
  50. 50. 13 - 50© 2011 Pearson Education, Inc. publishing as Prentice HallMathematical Approaches Useful for generating strategies Transportation Method of LinearProgramming Produces an optimal plan Management Coefficients Model Model built around manager’sexperience and performance Other Models Linear Decision Rule Simulation
  51. 51. 13 - 51© 2011 Pearson Education, Inc. publishing as Prentice HallTransportation MethodTable 13.6CostsRegular time $40 per tireOvertime $50 per tireSubcontracting $70 per tireCarrying $ 2 per tire per monthSales PeriodMar Apr MayDemand 800 1,000 750Capacity:Regular 700 700 700Overtime 50 50 50Subcontracting 150 150 130Beginning inventory 100 tires
  52. 52. 13 - 52© 2011 Pearson Education, Inc. publishing as Prentice HallTransportation ExampleImportant points1. Carrying costs are $2/tire/month. Ifgoods are made in one period and heldover to the next, holding costs areincurred2. Supply must equal demand, so a dummycolumn called “unused capacity” isadded3. Because back ordering is not viable inthis example, cells that might be used tosatisfy earlier demand are not available
  53. 53. 13 - 53© 2011 Pearson Education, Inc. publishing as Prentice HallTransportation ExampleImportant points4. Quantities in each column designatethe levels of inventory needed to meetdemand requirements5. In general, production should beallocated to the lowest cost cellavailable without exceeding unusedcapacity in the row or demand in thecolumn
  54. 54. 13 - 54© 2011 Pearson Education, Inc. publishing as Prentice HallTransportationExampleTable 13.7
  55. 55. 13 - 55© 2011 Pearson Education, Inc. publishing as Prentice HallManagement CoefficientsModel Builds a model based on manager’sexperience and performance A regression model is constructedto define the relationships betweendecision variables Objective is to removeinconsistencies in decision making
  56. 56. 13 - 56© 2011 Pearson Education, Inc. publishing as Prentice HallOther ModelsLinear Decision Rule Minimizes costs using quadratic cost curves Operates over a particular time periodSimulation Uses a search procedure to try differentcombinations of variables Develops feasible but not necessarily optimalsolutions
  57. 57. 13 - 57© 2011 Pearson Education, Inc. publishing as Prentice HallSummary of AggregatePlanning MethodsTechniquesSolutionApproaches Important AspectsGraphicalmethodsTrial anderrorSimple to understand andeasy to use. Manysolutions; one chosenmay not be optimal.Transportationmethod of linearprogrammingOptimization LP software available;permits sensitivityanalysis and newconstraints; linearfunctions may not berealistic.Table 13.8
  58. 58. 13 - 58© 2011 Pearson Education, Inc. publishing as Prentice HallSummary of AggregatePlanning MethodsTechniquesSolutionApproaches Important AspectsManagementcoefficientsmodelHeuristic Simple, easy to implement;tries to mimic manager’sdecision process; usesregression.Simulation ChangeparametersComplex; may be difficultto build and for managersto understand.Table 13.8
  59. 59. 13 - 59© 2011 Pearson Education, Inc. publishing as Prentice HallAggregate Planning inServicesControlling the cost of labor is critical1. Accurate scheduling of labor-hoursto assure quick response to customerdemand2. An on-call labor resource to coverunexpected demand3. Flexibility of individual worker skills4. Flexibility in rate of output or hours ofwork
  60. 60. 13 - 60© 2011 Pearson Education, Inc. publishing as Prentice HallFive Service Scenarios Restaurants Smoothing the productionprocess Determining the optimalworkforce size Hospitals Responding to patient demand
  61. 61. 13 - 61© 2011 Pearson Education, Inc. publishing as Prentice HallFive Service Scenarios National Chains of Small ServiceFirms Planning done at national leveland at local level Miscellaneous Services Plan human resourcerequirements Manage demand
  62. 62. 13 - 62© 2011 Pearson Education, Inc. publishing as Prentice HallLaw Firm ExampleTable 13.9Labor-Hours Required Capacity Constraints(2) (3) (4) (5) (6)(1) Forecasts Maximum Number ofCategory of Best Likely Worst Demand in QualifiedLegal Business (hours) (hours) (hours) People PersonnelTrial work 1,800 1,500 1,200 3.6 4Legal research 4,500 4,000 3,500 9.0 32Corporate law 8,000 7,000 6,500 16.0 15Real estate law 1,700 1,500 1,300 3.4 6Criminal law 3,500 3,000 2,500 7.0 12Total hours 19,500 17,000 15,000Lawyers needed 39 34 30
  63. 63. 13 - 63© 2011 Pearson Education, Inc. publishing as Prentice HallFive Service Scenarios Airline industry Extremely complex planningproblem Involves number of flights,number of passengers, air andground personnel, allocation ofseats to fare classes Resources spread through theentire system
  64. 64. 13 - 64© 2011 Pearson Education, Inc. publishing as Prentice HallYield ManagementAllocating resources to customers atprices that will maximize yield orrevenue1. Service or product can be sold inadvance of consumption2. Demand fluctuates3. Capacity is relatively fixed4. Demand can be segmented5. Variable costs are low and fixed costsare high
  65. 65. 13 - 65© 2011 Pearson Education, Inc. publishing as Prentice HallDemandCurveYield Management ExampleFigure 13.5Passed-upcontributionMoney lefton the tablePotential customers exist whoare willing to pay more than the$15 variable cost of the room,but not $150Some customers who paid$150 were actually willingto pay more for the roomTotal$ contribution= (Price) x (50rooms)= ($150 - $15)x (50)= $6,750PriceRoom sales10050$150Price chargedfor room$15Variable costof room
  66. 66. 13 - 66© 2011 Pearson Education, Inc. publishing as Prentice HallTotal $ contribution =(1st price) x 30 rooms + (2nd price) x 30 rooms =($100 - $15) x 30 + ($200 - $15) x 30 =$2,550 + $5,550 = $8,100DemandCurveYield Management ExampleFigure 13.6PriceRoom sales1006030$100Price 1for room$200Price 2for room$15Variable costof room
  67. 67. 13 - 67© 2011 Pearson Education, Inc. publishing as Prentice HallYield Management MatrixDurationofuseTendtobeTendtobeUncertainpredictablePriceTend to be fixed Tend to be variableQuadrant 1: Quadrant 2:Movies HotelsStadiums/arenas AirlinesConvention centers Rental carsHotel meeting space Cruise linesQuadrant 3: Quadrant 4:Restaurants Continuing careGolf courses hospitalsInternet serviceprovidersFigure 13.7
  68. 68. 13 - 68© 2011 Pearson Education, Inc. publishing as Prentice HallMaking Yield ManagementWork1. Multiple pricing structures mustbe feasible and appear logical tothe customer2. Forecasts of the use andduration of use3. Changes in demand
  69. 69. 13 - 69© 2011 Pearson Education, Inc. publishing as Prentice HallAll rights reserved. No part of this publication may be reproduced, stored in a retrievalsystem, or transmitted, in any form or by any means, electronic, mechanical, photocopying,recording, or otherwise, without the prior written permission of the publisher.Printed in the United States of America.

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