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Aggregate Planning <ul><li>Determine the resource capacity needed to meet demand over an intermediate time horizon </li></...
Aggregate Planning Process
Meeting Demand Strategies <ul><li>Adjusting capacity </li></ul><ul><ul><li>Resources necessary to meet demand are acquired...
Strategies for Adjusting Capacity <ul><li>Level production </li></ul><ul><ul><li>Producing at a constant rate and using in...
Level Production Demand Units Time Production
Chase Demand Demand Units Time Production
Strategies for Managing Demand <ul><li>Shifting demand into other time periods </li></ul><ul><ul><li>Incentives </li></ul>...
Quantitative Techniques For APP <ul><li>Pure Strategies </li></ul><ul><li>Mixed Strategies </li></ul><ul><li>Linear Progra...
Pure Strategies Hiring cost = $100 per worker Firing cost = $500 per worker Regular production cost per pound = $2.00   In...
Level Production Strategy Level production = 100,000 pounds (50,000 + 120,000 + 150,000 + 80,000) 4 Spring 80,000 100,000 ...
Chase Demand Strategy Spring 80,000 80,000 80 0 20 Summer 50,000 50,000 50 0 30 Fall 120,000 120,000 120 70 0 Winter 150,0...
Mixed Strategy <ul><li>Combination of Level Production and Chase Demand strategies </li></ul><ul><li>Examples of managemen...
General Linear Programming (LP) Model <ul><li>LP gives an optimal solution, but demand and costs must be linear </li></ul>...
LP MODEL Minimize Z = $100 ( H 1  +  H 2  +  H 3  +  H 4 ) + $500 ( F 1  +  F 2  +  F 3  +  F 4 ) + $0.50 ( I 1  +  I 2  +...
Transportation Method 1 900 1000 100 500 2 1500 1200 150 500 3 1600 1300 200 500 4 3000 1300 200 500 Regular production co...
Transportation Tableau Unused PERIOD OF PRODUCTION 1 2 3 4 Capacity Capacity Beginning 0 3 6 9 Inventory 300 — — — 300 Reg...
Burruss’ Production Plan 1 900 1000 100 0 500 2 1500 1200 150 250 600 3 1600 1300 200 500 1000 4 3000 1300 200 500 0 Total...
Other Quantitative Techniques <ul><li>Linear decision rule (LDR) </li></ul><ul><li>Search decision rule (SDR) </li></ul><u...
Hierarchical Nature of Planning Items Product lines or families Individual products Components Manufacturing operations Re...
Available-to-Promise (ATP) <ul><li>Quantity of items that can be promised to the customer </li></ul><ul><li>Difference bet...
ATP: Example
ATP: Example (cont.)
ATP: Example (cont.) ATP in April = (10+100) – 70 = 40 ATP in May = 100 – 110 = -10 ATP in June = 100 – 50 = 50 Take exces...
Rule Based ATP Product Request Is the product available at this location? Is an alternative product available at an altern...
Aggregate Planning for Services <ul><li>Most services can’t be inventoried </li></ul><ul><li>Demand for services is diffic...
Yield Management
Yield Management (cont.)
Yield Management: Example Hotel should be overbooked by two rooms NO-SHOWS PROBABILITY P ( N  <  X ) 0 .15 .00 1 .25 .15 2...
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Aggregate Planning

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Aggregate Planning

  1. 1. Aggregate Planning <ul><li>Determine the resource capacity needed to meet demand over an intermediate time horizon </li></ul><ul><ul><li>Aggregate refers to product lines or families </li></ul></ul><ul><ul><li>Aggregate planning matches supply and demand </li></ul></ul><ul><li>Objectives </li></ul><ul><ul><li>Establish a company wide game plan for allocating resources </li></ul></ul><ul><ul><li>Develop an economic strategy for meeting demand </li></ul></ul>
  2. 2. Aggregate Planning Process
  3. 3. Meeting Demand Strategies <ul><li>Adjusting capacity </li></ul><ul><ul><li>Resources necessary to meet demand are acquired and maintained over the time horizon of the plan </li></ul></ul><ul><ul><li>Minor variations in demand are handled with overtime or under-time </li></ul></ul><ul><li>Managing demand </li></ul><ul><ul><li>Proactive demand management </li></ul></ul>
  4. 4. Strategies for Adjusting Capacity <ul><li>Level production </li></ul><ul><ul><li>Producing at a constant rate and using inventory to absorb fluctuations in demand </li></ul></ul><ul><li>Chase demand </li></ul><ul><ul><li>Hiring and firing workers to match demand </li></ul></ul><ul><li>Peak demand </li></ul><ul><ul><li>Maintaining resources for high-demand levels </li></ul></ul><ul><li>Overtime and under-time </li></ul><ul><ul><li>Increasing or decreasing working hours </li></ul></ul><ul><li>Subcontracting </li></ul><ul><ul><li>Let outside companies complete the work </li></ul></ul><ul><li>Part-time workers </li></ul><ul><ul><li>Hiring part time workers to complete the work </li></ul></ul><ul><li>Backordering </li></ul><ul><ul><li>Providing the service or product at a later time period </li></ul></ul>
  5. 5. Level Production Demand Units Time Production
  6. 6. Chase Demand Demand Units Time Production
  7. 7. Strategies for Managing Demand <ul><li>Shifting demand into other time periods </li></ul><ul><ul><li>Incentives </li></ul></ul><ul><ul><li>Sales promotions </li></ul></ul><ul><ul><li>Advertising campaigns </li></ul></ul><ul><li>Offering products or services with counter-cyclical demand patterns </li></ul><ul><li>Partnering with suppliers to reduce information distortion along the supply chain </li></ul>
  8. 8. Quantitative Techniques For APP <ul><li>Pure Strategies </li></ul><ul><li>Mixed Strategies </li></ul><ul><li>Linear Programming </li></ul><ul><li>Transportation Method </li></ul><ul><li>Other Quantitative Techniques </li></ul>
  9. 9. Pure Strategies Hiring cost = $100 per worker Firing cost = $500 per worker Regular production cost per pound = $2.00 Inventory carrying cost = $0.50 pound per quarter Production per employee = 1,000 pounds per quarter Beginning work force = 100 workers Example: QUARTER SALES FORECAST (LB) Spring 80,000 Summer 50,000 Fall 120,000 Winter 150,000
  10. 10. Level Production Strategy Level production = 100,000 pounds (50,000 + 120,000 + 150,000 + 80,000) 4 Spring 80,000 100,000 20,000 Summer 50,000 100,000 70,000 Fall 120,000 100,000 50,000 Winter 150,000 100,000 0 400,000 140,000 Cost of Level Production Strategy (400,000 X $2.00) + (140,00 X $.50) = $870,000 SALES PRODUCTION QUARTER FORECAST PLAN INVENTORY
  11. 11. Chase Demand Strategy Spring 80,000 80,000 80 0 20 Summer 50,000 50,000 50 0 30 Fall 120,000 120,000 120 70 0 Winter 150,000 150,000 150 30 0 100 50 SALES PRODUCTION WORKERS WORKERS WORKERS QUARTER FORECAST PLAN NEEDED HIRED FIRED Cost of Chase Demand Strategy (400,000 X $2.00) + (100 x $100) + (50 x $500) = $835,000
  12. 12. Mixed Strategy <ul><li>Combination of Level Production and Chase Demand strategies </li></ul><ul><li>Examples of management policies </li></ul><ul><ul><li>no more than x % of the workforce can be laid off in one quarter </li></ul></ul><ul><ul><li>inventory levels cannot exceed x dollars </li></ul></ul><ul><li>Many industries may simply shut down manufacturing during the low demand season and schedule employee vacations during that time </li></ul>
  13. 13. General Linear Programming (LP) Model <ul><li>LP gives an optimal solution, but demand and costs must be linear </li></ul><ul><li>Let </li></ul><ul><ul><li>W t = workforce size for period t </li></ul></ul><ul><ul><li>P t =units produced in period t </li></ul></ul><ul><ul><li>I t =units in inventory at the end of period t </li></ul></ul><ul><ul><li>F t =number of workers fired for period t </li></ul></ul><ul><ul><li>H t = number of workers hired for period t </li></ul></ul>
  14. 14. LP MODEL Minimize Z = $100 ( H 1 + H 2 + H 3 + H 4 ) + $500 ( F 1 + F 2 + F 3 + F 4 ) + $0.50 ( I 1 + I 2 + I 3 + I 4 ) Subject to P 1 - I 1 = 80,000 (1) Demand I 1 + P 2 - I 2 = 50,000 (2) constraints I 2 + P 3 - I 3 = 120,000 (3) I 3 + P 4 - I 4 = 150,000 (4) Production 1000 W 1 = P 1 (5) constraints 1000 W 2 = P 2 (6) 1000 W 3 = P 3 (7) 1000 W 4 = P 4 (8) 100 + H 1 - F 1 = W 1 (9) Work force W 1 + H 2 - F 2 = W 2 (10) constraints W 2 + H 3 - F 3 = W 3 (11) W 3 + H 4 - F 4 = W 4 (12)
  15. 15. Transportation Method 1 900 1000 100 500 2 1500 1200 150 500 3 1600 1300 200 500 4 3000 1300 200 500 Regular production cost per unit $20 Overtime production cost per unit $25 Subcontracting cost per unit $28 Inventory holding cost per unit per period $3 Beginning inventory 300 units EXPECTED REGULAR OVERTIME SUBCONTRACT QUARTER DEMAND CAPACITY CAPACITY CAPACITY
  16. 16. Transportation Tableau Unused PERIOD OF PRODUCTION 1 2 3 4 Capacity Capacity Beginning 0 3 6 9 Inventory 300 — — — 300 Regular 600 300 100 — 1000 Overtime 100 100 Subcontract 500 Regular 1200 — — 1200 Overtime 150 150 Subcontract 250 250 500 Regular 1300 — 1300 Overtime 200 — 200 Subcontract 500 500 Regular 1300 1300 Overtime 200 200 Subcontract 500 500 Demand 900 1500 1600 3000 250 1 2 3 4 PERIOD OF USE 20 23 26 29 25 28 31 34 28 31 34 37 20 23 26 25 28 31 28 31 34 20 23 25 28 28 31 20 25 28
  17. 17. Burruss’ Production Plan 1 900 1000 100 0 500 2 1500 1200 150 250 600 3 1600 1300 200 500 1000 4 3000 1300 200 500 0 Total 7000 4800 650 1250 2100 REGULAR SUB- ENDING PERIOD DEMAND PRODUCTION OVERTIME CONTRACT INVENTORY
  18. 18. Other Quantitative Techniques <ul><li>Linear decision rule (LDR) </li></ul><ul><li>Search decision rule (SDR) </li></ul><ul><li>Management coefficients model </li></ul>
  19. 19. Hierarchical Nature of Planning Items Product lines or families Individual products Components Manufacturing operations Resource Level Plants Individual machines Critical work centers Production Planning Capacity Planning Resource requirements plan Rough-cut capacity plan Capacity requirements plan Input/ output control Aggregate production plan Master production schedule Material requirements plan Shop floor schedule All work centers
  20. 20. Available-to-Promise (ATP) <ul><li>Quantity of items that can be promised to the customer </li></ul><ul><li>Difference between planned production and customer orders already received </li></ul>AT in period 1 = (On-hand quantity + MPS in period 1) – - (CO until the next period of planned production) ATP in period n = (MPS in period n ) – - (CO until the next period of planned production)
  21. 21. ATP: Example
  22. 22. ATP: Example (cont.)
  23. 23. ATP: Example (cont.) ATP in April = (10+100) – 70 = 40 ATP in May = 100 – 110 = -10 ATP in June = 100 – 50 = 50 Take excess units from April = 30 = 0
  24. 24. Rule Based ATP Product Request Is the product available at this location? Is an alternative product available at an alternate location? Is an alternative product available at this location? Is this product available at a different location? Available-to-promise Allocate inventory Capable-to-promise date Is the customer willing to wait for the product? Available-to-promise Allocate inventory Revise master schedule Trigger production Lose sale Yes No Yes No Yes No Yes No Yes No
  25. 25. Aggregate Planning for Services <ul><li>Most services can’t be inventoried </li></ul><ul><li>Demand for services is difficult to predict </li></ul><ul><li>Capacity is also difficult to predict </li></ul><ul><li>Service capacity must be provided at the appropriate place and time </li></ul><ul><li>Labor is usually the most constraining resource for services </li></ul>
  26. 26. Yield Management
  27. 27. Yield Management (cont.)
  28. 28. Yield Management: Example Hotel should be overbooked by two rooms NO-SHOWS PROBABILITY P ( N < X ) 0 .15 .00 1 .25 .15 2 .30 .40 3 .30 .70 Optimal probability of no-shows P( n < x )  = = .517 C u C u + C o 75 75 + 70 .517

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