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Operations Management Session 5 –  Forecasting and Aggregate Planning
Outline ,[object Object],[object Object],[object Object],[object Object],[object Object]
Outline – Continued ,[object Object],[object Object],[object Object],[object Object],[object Object]
Learning Objectives When you complete this chapter you should be able to : ,[object Object],[object Object],[object Object]
Forecasting at Disney World ,[object Object],[object Object],[object Object]
Forecasting at Disney World ,[object Object],[object Object],[object Object]
Forecasting at Disney World ,[object Object],[object Object],[object Object]
Forecasting at Disney World ,[object Object],[object Object],[object Object]
What is Forecasting? ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],??
[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Forecasting Time Horizons
Distinguishing Differences ,[object Object],[object Object],[object Object]
Types of Forecasts ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Strategic Importance of Forecasting ,[object Object],[object Object],[object Object]
Forecasting in the Service Sector ,[object Object],[object Object],[object Object],[object Object],[object Object]
Operations Management Aggregate Planning
Outline ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Outline – Continued ,[object Object],[object Object],[object Object],[object Object]
Outline – Continued ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Learning Objectives ,[object Object],[object Object],[object Object]
Anheuser-Busch ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Anheuser-Busch ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Aggregate Planning ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Determine the quantity and timing of production for the immediate future
Aggregate Planning ,[object Object],[object Object],[object Object],[object Object],Required for aggregate planning
The Planning Process Figure 13.1 Long-range plans  (over one year) Research and Development New product plans Capital investments Facility location/expansion Intermediate-range plans  (3 to 18 months) Sales planning Production planning and budgeting Setting employment, inventory, subcontracting levels Analyzing operating plans Short-range plans  (up to 3 months) Job assignments Ordering Job scheduling Dispatching Overtime Part-time help Top executives Operations managers Operations managers, supervisors, foremen Responsibility Planning tasks and horizon
Aggregate Planning Quarter 1 Jan Feb Mar 150,000 120,000 110,000 Quarter 2 Apr May Jun 100,000 130,000 150,000 Quarter 3 Jul Aug Sep 180,000 150,000 140,000
Aggregate Planning Figure 13.2
Aggregate Planning ,[object Object],[object Object],[object Object],[object Object]
Aggregate Planning Strategies ,[object Object],[object Object],[object Object],[object Object],[object Object]
Capacity Options ,[object Object],[object Object],[object Object],[object Object]
Capacity Options ,[object Object],[object Object],[object Object],[object Object],[object Object]
Capacity Options ,[object Object],[object Object],[object Object],[object Object],[object Object]
Capacity Options ,[object Object],[object Object],[object Object],[object Object],[object Object]
Capacity Options ,[object Object],[object Object]
Demand Options ,[object Object],[object Object],[object Object],[object Object]
Demand Options ,[object Object],[object Object],[object Object],[object Object]
Demand Options ,[object Object],[object Object],[object Object]
Aggregate Planning Options Table 13.1 Option Advantages Disadvantages Some Comments Changing inventory levels Changes in human resources are gradual or none; no abrupt production changes. Inventory holding cost may increase. Shortages may result in lost sales. Applies mainly to production, not service, operations. Varying workforce size by hiring or layoffs Avoids the costs of other alternatives. Hiring, layoff, and training costs may be significant. Used where size of labor pool is large.
Aggregate Planning Options Table 13.1 Option Advantages Disadvantages Some Comments Varying production rates through overtime or idle time Matches seasonal fluctuations without hiring/ training costs. Overtime premiums; tired workers; may not meet demand. Allows flexibility within the aggregate plan. Sub-contracting Permits flexibility and smoothing of the firm’s output. Loss of quality control; reduced profits; loss of future business. Applies mainly in production settings.
Aggregate Planning Options Table 13.1 Option Advantages Disadvantages Some Comments Using part-time workers Is less costly and more flexible than full-time workers. High turnover/ training costs; quality suffers; scheduling difficult. Good for unskilled jobs in areas with large temporary labor pools. Influencing demand Tries to use excess capacity. Discounts draw new customers. Uncertainty in demand. Hard to match demand to supply exactly. Creates marketing ideas. Overbooking used in some businesses.
Aggregate Planning Options Table 13.1 Option Advantages Disadvantages Some Comments Back ordering during high-demand periods May avoid overtime. Keeps capacity constant. Customer must be willing to wait, but goodwill is lost. Many companies back order. Counter-seasonal product and service mixing Fully utilizes resources; allows stable workforce. May require skills or equipment outside the firm’s areas of expertise. Risky finding products or services with opposite demand patterns.
Methods for Aggregate Planning ,[object Object],[object Object],[object Object]
Mixing Options to  Develop a Plan ,[object Object],[object Object],[object Object],[object Object]
Mixing Options to  Develop a Plan ,[object Object],[object Object],[object Object],[object Object],[object Object]
Summary of Aggregate Planning Methods Table 13.8 Techniques Solution Approaches Important Aspects Graphical methods Trial and error Simple to understand and easy to use. Many solutions; one chosen may not be optimal. Transportation method of linear programming Optimization LP software available; permits sensitivity analysis and new constraints; linear functions may not be realistic.
Summary of Aggregate Planning Methods Table 13.8 Techniques Solution Approaches Important Aspects Management coefficients model Heuristic Simple, easy to implement; tries to mimic manager’s decision process; uses regression. Simulation Change parameters Complex; may be difficult to build and for managers to understand.
Aggregate Planning in Services Controlling the cost of labor is critical ,[object Object],[object Object],[object Object],[object Object]
Five Service Scenarios ,[object Object],[object Object],[object Object],[object Object],[object Object]
Five Service Scenarios ,[object Object],[object Object],[object Object],[object Object],[object Object]
Law Firm Example Table 13.9 Labor-Hours Required   Capacity Constraints (2) (3) (4) (5) (6) (1) Forecasts Maximum Number of Category of Best  Likely Worst Demand in Qualified Legal Business (hours) (hours) (hours) People Personnel Trial work 1,800 1,500 1,200 3.6 4 Legal research 4,500 4,000 3,500 9.0 32 Corporate law 8,000 7,000 6,500 16.0 15 Real estate law 1,700 1,500 1,300 3.4 6 Criminal law 3,500 3,000 2,500 7.0 12 Total hours 19,500 17,000 15,000 Lawyers needed 39 34 30
Five Service Scenarios ,[object Object],[object Object],[object Object],[object Object]

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Forecasting And Aggregate Planning

  • 1. Operations Management Session 5 – Forecasting and Aggregate Planning
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  • 24. The Planning Process Figure 13.1 Long-range plans (over one year) Research and Development New product plans Capital investments Facility location/expansion Intermediate-range plans (3 to 18 months) Sales planning Production planning and budgeting Setting employment, inventory, subcontracting levels Analyzing operating plans Short-range plans (up to 3 months) Job assignments Ordering Job scheduling Dispatching Overtime Part-time help Top executives Operations managers Operations managers, supervisors, foremen Responsibility Planning tasks and horizon
  • 25. Aggregate Planning Quarter 1 Jan Feb Mar 150,000 120,000 110,000 Quarter 2 Apr May Jun 100,000 130,000 150,000 Quarter 3 Jul Aug Sep 180,000 150,000 140,000
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  • 37. Aggregate Planning Options Table 13.1 Option Advantages Disadvantages Some Comments Changing inventory levels Changes in human resources are gradual or none; no abrupt production changes. Inventory holding cost may increase. Shortages may result in lost sales. Applies mainly to production, not service, operations. Varying workforce size by hiring or layoffs Avoids the costs of other alternatives. Hiring, layoff, and training costs may be significant. Used where size of labor pool is large.
  • 38. Aggregate Planning Options Table 13.1 Option Advantages Disadvantages Some Comments Varying production rates through overtime or idle time Matches seasonal fluctuations without hiring/ training costs. Overtime premiums; tired workers; may not meet demand. Allows flexibility within the aggregate plan. Sub-contracting Permits flexibility and smoothing of the firm’s output. Loss of quality control; reduced profits; loss of future business. Applies mainly in production settings.
  • 39. Aggregate Planning Options Table 13.1 Option Advantages Disadvantages Some Comments Using part-time workers Is less costly and more flexible than full-time workers. High turnover/ training costs; quality suffers; scheduling difficult. Good for unskilled jobs in areas with large temporary labor pools. Influencing demand Tries to use excess capacity. Discounts draw new customers. Uncertainty in demand. Hard to match demand to supply exactly. Creates marketing ideas. Overbooking used in some businesses.
  • 40. Aggregate Planning Options Table 13.1 Option Advantages Disadvantages Some Comments Back ordering during high-demand periods May avoid overtime. Keeps capacity constant. Customer must be willing to wait, but goodwill is lost. Many companies back order. Counter-seasonal product and service mixing Fully utilizes resources; allows stable workforce. May require skills or equipment outside the firm’s areas of expertise. Risky finding products or services with opposite demand patterns.
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  • 44. Summary of Aggregate Planning Methods Table 13.8 Techniques Solution Approaches Important Aspects Graphical methods Trial and error Simple to understand and easy to use. Many solutions; one chosen may not be optimal. Transportation method of linear programming Optimization LP software available; permits sensitivity analysis and new constraints; linear functions may not be realistic.
  • 45. Summary of Aggregate Planning Methods Table 13.8 Techniques Solution Approaches Important Aspects Management coefficients model Heuristic Simple, easy to implement; tries to mimic manager’s decision process; uses regression. Simulation Change parameters Complex; may be difficult to build and for managers to understand.
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  • 49. Law Firm Example Table 13.9 Labor-Hours Required Capacity Constraints (2) (3) (4) (5) (6) (1) Forecasts Maximum Number of Category of Best Likely Worst Demand in Qualified Legal Business (hours) (hours) (hours) People Personnel Trial work 1,800 1,500 1,200 3.6 4 Legal research 4,500 4,000 3,500 9.0 32 Corporate law 8,000 7,000 6,500 16.0 15 Real estate law 1,700 1,500 1,300 3.4 6 Criminal law 3,500 3,000 2,500 7.0 12 Total hours 19,500 17,000 15,000 Lawyers needed 39 34 30
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