Aggregate planning


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Aggregate planning

  2. 2. Attempts to match the supply of anddemand for a product or service bydetermining the appropriate quantities andtiming of inputs, transformation, andoutputs. Decisions made on production,staffing, inventory and backorder levels.
  3. 3.  Considers a "planning horizon" from about 3to 18 months, with periodic updating Looks at aggregate product demand, statedin common terms Looks at aggregate resource quantities,stated in common terms Possible to influence both supply anddemand by adjusting production rates,workforce levels, inventory levels, etc., butfacilities cannot be expanded.
  4. 4.  Maximize customer service Minimize inventory investment Minimize changes in workforce levels Minimize changes in production rates Maximize utilization of plant and equipment
  5. 5.  A managerial statement of the period-by-period staff sizes and labor-relatedcapacities, given customer requirements andcapacity limitations.
  6. 6.  Attempts to handle fluctuations in demand byfocusing on demand management Use pricing strategies and/or advertising andpromotion Develop counter-cyclical products Request customers to backorder or advance-order Do not meet demand
  7. 7.  Attempts to handle fluctuations in demand byfocusing on supply and capacity management Vary size work force size by hiring or layoffs Vary utilization of labour and equipmentthrough overtime or idle time Build or draw from inventory Subcontract production Negotiate cooperative arrangements withother firms Allow backlogs, back orders, and/orstockouts
  8. 8.  Combines elements of both an active strategyand a passive (reactive) strategy Firms will usually use some combination ofthe two
  9. 9. Capacities (workforce levels, productionschedules, output rates, etc.) are adjusted tomatch demand requirements over theplanning horizon.
  10. 10. Advantages: Anticipation inventory is not required, andinvestment in inventory is low Labor utilization is kept high Disadvantages:Expense of adjusting output rates and/orworkforce levelsAlienation of workforce
  11. 11.  Capacities (workforce levels, productionschedules, output rates, etc.) are keptconstant over the planning horizon.
  12. 12. Stable output rates and workforcelevelsUnlike the rest of Psychology itfocuses on how we are differentfrom each other rather thangeneralizing findings toeverybody.
  13. 13.  Greater inventory investment is required Increased overtime and idle time Resource utilizations vary over time
  14. 14. Intuitive methods use management intuition,experience, and rules-of-thumb, frequentlyaccompanied by graphical and/or spreadsheetanalysis.
  15. 15.  Easy to use and explain Many solutions are possible, most of whichare not optimal
  16. 16.  Suppose you have the following forecasts fordemand to meet:Month 1 2 3 4 5 6Demand 1000 1200 1500 1900 1800 1600
  17. 17. Regular production cost $35/unitLost sales $100/unitInventory carrying costs $10/unit/monthSubcontracting costs $60/unitHiring costs $1500/workerFiring costs $3000/workerBeginning workforce level 20 workersCapacity per worker 50 units/monthInitial inventory level 700 unitsClosing inventory level 100 units
  18. 18. Find the requirements for the period of theplan and produce the average amount neededper month to meet the plan.
  19. 19. Average Requirements :total requirements - opening inv. + closing inv.number of periods
  20. 20. (9000 - 700 + 100)/6 = 1400 units/periodSteps: Enter the production data Determine hire/fire to get to production leveldesired Update inventory levels Does the inventory run out - If it does recalculateaverage production needed and go to step 1 Calculate totals for each category Calculate costs
  21. 21.  Trial and Error to find a good solution Use Excel to model the problem and test theimpact of different solutions Build the model using proper structure withkey variables at the top and a summary of keyresults immediately below.
  22. 22.  Aggregate planning problems can be solvedoptimally using linear programming (LP). Given the constraints on requirements,production capabilities, allowed workforcechanges, overtime and subcontracting limitsplus all relevant costs LP will find an optimalsolution to the problem which minimizestotal costs. Excels Solver add-in will perform LP
  23. 23. An aggregate plan takes into considerationthe overall level of output and the capacitythat is required to produce it. There are twobasic approaches to estimating the capacitythat will be required to produce anaggregation or grouping of a company’sproducts.
  24. 24. With this approach, the desirable overall plan isdeveloped for the periods in the planninghorizon, with the plan for the first few periodsbeing fairly firm. This approach rests on theassumption that if the proper amount of totalcapacity is available, the right amount of capacityfor all of the parts will be available. With thisapproach, the desirable overall plan is developedfor the periods in the planning horizon, with theplan for the first few periods being fairly firm.This approach rests on the assumption that if theproper amount of total capacity is available, theright amount of capacity for all of the parts willbe available.
  25. 25. This is also called as resource requirementplanning (sometimes called rough-cutcapacity planning) which is usually used inconjunction with material requirementplanning (MRP-1) both capacity and materialsmust be available for products to be madeand hence material plans need to becoordinated with a more detailed productionplan.
  26. 26.  This is done in conjunction with the tentativemater production schedule to test its feasibilityin terms of capacity before the Master ProductionSchedule (MPS) is finalized. This ensures that a proposed MPS does notinadvertently overload any key department, workcentre or machine, making the MPS unworkable.Although the check can be applied to all workcenters, it is typically applied only to the criticalwork centers that are most likely to bebottlenecks. It is a quick and inexpensive way tofind and correct gross discrepancies between thecapacity requirements of the MPS and theavailable capacity.
  27. 27.  For manufacturing firms the luxury of buildingup inventories during periods of slack demandallows coverage of an anticipated time whendemand will exceed capacity. Services cannot bestockpiled or inventoried so they do not have thisoption. Also, since services are considered"perishable," any capacity that goes unused isessentially wasted. An empty hotel room or anempty seat on a flight cannot be held and soldlater, as can a manufactured item held ininventory.
  28. 28.  Service capacity can also be very difficult to measure.When capacity is dictated somewhat by machinecapability, reasonably accurate measures of capacityare not extremely difficult to develop. However,services generally have variable processingrequirements that make it difficult to establish asuitable measure of capacity. Historically, services are much more labor intensivethan manufacturing, where labor averages 10 percent(or less) of total cost. This labor intensity can actuallybe an advantage because of the variety of servicerequirements an individual can handle. This canprovide quite a degree of flexibility that can makeaggregate planning easier for services thanmanufacturing.
  29. 29. Operations management, also called "operationsplanning" or "operations scheduling," is a termassigned to the planning of production in allaspects, from workforce activities to productdelivery. While this type of planning is almostexclusively seen in manufacturing environments,many of the techniques are used by service-oriented businesses. Simple to implement,operations management can be applied usingnothing more than a spreadsheet program.
  30. 30. Operations management is primarilyconcerned with the efficient use of resources.While it is sometimes referred to asproduction planning and employs many ofthe same techniques, the primarydistinguishing characteristic is thatproduction planning is narrowly focused onthe actual production whereas operationsmanagement looks at the operation as awhole.
  31. 31. Operations planning is an important part ofany business. Effective and efficientmanagement of operations is the hallmark ofa successful company. Operationsmanagement is an old concept, but as manyof the techniques of operations managementhave gained attention in the business media,the definition has become somewhat unclear,making effective management of operationsseem more complicated than it really is.
  32. 32. Operations management has a broadfocus: inventory levels must be managed,materials ordered/stored, capacitymaximized, relationships with suppliersmaintained, and the interactions withinthe system monitored.
  33. 33. Capacity planning is focused on maximizingthe capacity of a company to make it moreefficient and more profitable. Capacityplanning at its most basic attempts to matchthe volume the company is able to produce tothe demand to avoid downtime by preventingbottlenecks.
  34. 34. Aggregate planning is a static form of productionplanning. It focuses on satisfying expecteddemand. This may be in relation to production, theworkforce itself or inventory management.Aggregate planning basically ties facility planningin with scheduling decisions and it does soquantitatively, meaning it produces numbers toback up an operations plan.