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Ch13 - Aggregate Planning


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Operations Management by R. Dan Reid & Nada R. Sanders
3rd Edition © Wiley 2007

Published in: Business, Technology

Ch13 - Aggregate Planning

  1. 1. Chapter 13 – Aggregate Planning Operations Management by R. Dan Reid & Nada R. Sanders 3 rd Edition © Wiley 2007 PowerPoint Presentation by R.B. Clough – UNH M. E. Henrie - UAA
  2. 2. The Role of Aggregate Planning <ul><li>Integral to part of the business planning process </li></ul><ul><li>Supports the strategic plan </li></ul><ul><li>Also known as the production plan </li></ul><ul><li>Identifies resources required for operations for the next 6 -18 months </li></ul><ul><li>Details the aggregate production rate and size of work force required </li></ul>
  3. 3. The Role of the Aggregate Plan
  4. 4. Planning Links to MPS
  5. 5. Types of Aggregate Plans <ul><li>Level Aggregate Plans </li></ul><ul><ul><li>Maintains a constant workforce </li></ul></ul><ul><ul><li>Sets capacity to accommodate average demand </li></ul></ul><ul><ul><li>Often used for make-to-stock products like appliances </li></ul></ul><ul><ul><li>Disadvantage- builds inventory and/or uses back orders </li></ul></ul><ul><li>Chase Aggregate Plans </li></ul><ul><ul><li>Produces exactly what is needed each period </li></ul></ul><ul><ul><li>Sets labor/equipment capacity to satisfy period demands </li></ul></ul><ul><ul><li>Disadvantage- constantly changing short term capacity </li></ul></ul>
  6. 6. Types of Aggregate Plans (Cont.) <ul><li>Hybrid Aggregate Plans </li></ul><ul><ul><li>Uses a combination of options </li></ul></ul><ul><ul><li>Options should be limited to facilitate execution </li></ul></ul><ul><ul><li>May use a level workforce with overtime & temps </li></ul></ul><ul><ul><li>May allow inventory buildup and some backordering </li></ul></ul><ul><ul><li>May use short term sourcing </li></ul></ul><ul><ul><li>Best way to develop a hybrid plan is by Linear Programming or Integer Linear Programming, see notes given in class and </li></ul></ul><ul><ul><li> </li></ul></ul>
  7. 7. Aggregate Planning Options <ul><li>Demand based options </li></ul><ul><ul><li>Reactive : uses finished goods inventories and </li></ul></ul><ul><ul><li>backorders for fluctuations </li></ul></ul><ul><ul><li>Proactive : shifts the demand patterns to minimize fluctuations e.g. early bird dinner prices at a restaurant </li></ul></ul><ul><li>Capacity based options </li></ul><ul><ul><li>Changes output capacity to meet demand </li></ul></ul><ul><ul><li>Uses overtime, under time, subcontracting, hiring, firing, and part-timers – cost and operational implications </li></ul></ul>
  8. 8. Developing the Aggregate Plan <ul><li>Step 1- Choose strategy: level, chase, or Hybrid </li></ul><ul><li>Step 2- Determine the aggregate production rate </li></ul><ul><li>Step 3- Calculate the size of the workforce </li></ul><ul><li>Step 4- Test the plan as follows: </li></ul><ul><ul><ul><ul><ul><li>Calculate Inventory, expected hiring/firing, overtime needs </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Calculate total cost of plan </li></ul></ul></ul></ul></ul><ul><li>Step 5- Evaluate performance: cost, service, human resources, and operations </li></ul>
  9. 9. Aggregate Planning Bottom Line <ul><li>The Aggregate plan must balance several perspectives </li></ul><ul><li>Costs are important but so are: </li></ul><ul><ul><li>Customer service </li></ul></ul><ul><ul><li>Operational effectiveness </li></ul></ul><ul><ul><li>Workforce morale </li></ul></ul><ul><li>A successful AP considers each of these factors </li></ul>
  10. 10. Master Production Scheduling <ul><li>Master production schedule (MPS) is the anticipated build schedule </li></ul><ul><li>MPS is often stated in produce or service specifications rather than dollars </li></ul><ul><li>MPS is often built, managed, reviewed and maintained by the master scheduler </li></ul>
  11. 11. Planning Links to MPS
  12. 12. Role of the MPS <ul><li>Aggregate plan: </li></ul><ul><ul><li>Specifies the resources available ( e.g .: regular workforce, overtime, subcontracting, allowable inventory levels & shortages) </li></ul></ul><ul><li>Master production schedule: </li></ul><ul><ul><li>Specifies the number & when to produce each end item (the anticipated build schedule) </li></ul></ul><ul><ul><li>Disaggregates the aggregate plan </li></ul></ul>
  13. 13. Objectives of Master Schedule <ul><li>The Master Scheduler must: </li></ul><ul><ul><li>Maintain the desired customer service level </li></ul></ul><ul><ul><li>Utilize resources efficiently </li></ul></ul><ul><ul><li>Maintain desired inventory levels </li></ul></ul><ul><li>The Master Schedule must: </li></ul><ul><ul><li>Satisfy customer demand </li></ul></ul><ul><ul><li>Not exceed Operation’s capacity </li></ul></ul><ul><ul><li>Work within the constraints of the Aggregate Plan </li></ul></ul>
  14. 14. MPS as a Basis of Communication <ul><li>MPS is a basis for communication between operations and other functional areas </li></ul><ul><li>Demand management and master scheduler is communication is ongoing to incorporate </li></ul><ul><ul><li>Forecasts, order-entry, order-promising, and physical distribution activities </li></ul></ul><ul><li>Authorized MPS is critical input to the material requirements planning (MRP) </li></ul>
  15. 15. Developing an MPS <ul><li>The Master Scheduler: </li></ul><ul><ul><li>Develops a proposed MPS </li></ul></ul><ul><ul><li>Checks the schedule for feasibility with available capacity </li></ul></ul><ul><ul><li>Modifies as needed </li></ul></ul><ul><ul><li>Authorizes the MPS </li></ul></ul><ul><li>Consider the following example: </li></ul><ul><ul><li>Make-to-stock environment with fixed orders of 125 units </li></ul></ul><ul><ul><li>There are 110 in inventory to start </li></ul></ul><ul><ul><li>When are new order quantities needed to satisfy the forecasted demand? </li></ul></ul>
  16. 16. The MPS Record <ul><li>Projected Available = beginning inventory + MPS shipments - forecasted demand </li></ul><ul><li>The MPS row shows when replenishment shipments need to arrive to avoid a stock out (negative projected available) </li></ul>
  17. 17. Revised and Completed MPS Record
  18. 18. Evaluating the MPS <ul><li>Rough-cut capacity planning: </li></ul><ul><ul><li>An estimate of the plan’s feasibility </li></ul></ul><ul><ul><li>Given the demonstrated capacity of critical resources (e.g.: direct labor & machine time), have we overloaded the system? </li></ul></ul><ul><li>Customer service issues: </li></ul><ul><ul><li>Does “available-to-promise” inventory satisfy customer orders? If not, can future MPS quantities be pulled in to satisfy new orders? </li></ul></ul>
  19. 19. Stabilizing the MPS
  20. 20. Aggregate Planning Across the Organization <ul><li>Aggregate planning, MPS, and rough-cut capacity affection functional areas throughout the organization </li></ul><ul><ul><li>Accounting is affected because aggregate plan details the resources needed by operations </li></ul></ul><ul><ul><li>Marketing as the aggregate plan supports the marketing plan </li></ul></ul><ul><ul><li>Information systems maintains the databases that support demand forecasts and other such information </li></ul></ul>
  21. 21. Chapter 13 Highlights <ul><li>Planning begins with the development of the strategic business plan that provides your company’s direction and objectives for the next two to ten years. </li></ul><ul><li>Sales and operations planning integrates plans from the other functional areas and regularly evaluates company performance. </li></ul><ul><li>The level aggregate plan maintains the same size workforce and produces the same output each period. Inventories and backorders absorb fluctuations in demand. The chase aggregate plan changes the capacity each period to match the demand </li></ul><ul><li>Demand patterns can be smoothed through pricing incentives, reduced prices for out-of-season purchases, or nonprime service times. </li></ul>
  22. 22. Chapter 13 Highlights (continued) <ul><li>The difference in aggregate planning for companies that do not provide a tangible product is that the option to use inventories is not available </li></ul><ul><li>The MPS shows how the resources authorized by the AP will be used to satisfy the organizational objectives. The MPS specifies the products to be built in each time period. MPS is checked for feasibility using a rough-cut capacity planning technique. </li></ul><ul><li>The objectives of master scheduling are to satisfy customer service objectives, use resources effectively, and minimize costs. An MPS is developed by looking at individual MPS records and calculating when replenishment quantities are needed. The MPS records are summed together to show the total proposed workload. </li></ul>
  23. 23. Chapter 13 Highlights (continued) <ul><li>Available-to-promise logic is used when promising order delivery dates to customers, ATP logic allows the company to make viable delivery promises </li></ul><ul><li>Time fence policies stabilize the MPS. The demand time fence and the planning time fence divide the MPS into three portions: frozen, slushy, and liquid. </li></ul>
  24. 24. The End <ul><li>Copyright © 2007 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United State Copyright Act without the express written permission of the copyright owner is unlawful. Request for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc. The purchaser may make back-up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein. </li></ul>
  25. 25. <ul><li>Parameters: found in or computed from the data </li></ul><ul><li>Decision variables: unknowns to be determined </li></ul><ul><li>Objective function: the bottom line </li></ul><ul><li>Constraints: Satisfy demands and state relationships among variables </li></ul><ul><li>Single Product model here; can be generalized </li></ul>Aggregate Production Planning Extra Credit: Linear Programming Formulation
  26. 26. <ul><li>d t = amount of product demanded in period t </li></ul><ul><li>p t = productivity per worker in period t </li></ul><ul><li>L t = unit labor cost per worker in period t </li></ul><ul><li>h t = unit hiring cost per worker in period t </li></ul><ul><li>f t = unit firing cost per worker in period t </li></ul>Parameters: find these in the data!
  27. 27. <ul><li>c t = inventory holding cost per unit per period in period t </li></ul><ul><li>a t = backorder cost per item per period in period t </li></ul>Parameters: find these in the data!
  28. 28. <ul><li>w t = number of workers employed in period t </li></ul><ul><li>u t = number of workers hired between periods t-1 and t </li></ul><ul><li>v t = number of workers fired between periods t-1 and t </li></ul><ul><li>i t = amount of product in inventory at the end of period t </li></ul><ul><li>b t = amount backordered at the end of period t </li></ul>Decision Variables: find values by solving the model
  29. 29. <ul><li>i o = initial inventory level </li></ul><ul><li>w o = initial workforce level </li></ul><ul><li>b o = initial backorder, i.e., left over from previous period. </li></ul>Initial values: “ fixed variables”; find in data
  30. 30. The LP Model Minimize  t (L t w t + h t u t + f t v t + c t i t + a t b t ) s.t. u t - v t = w t – w t-1 for each period t : workforce change p t w t + i t-1 - i t + b t – b t-1 = d t for each period t: demand balance i T= =0, b T = 0 for last period T; closing out w t , u t , v t , i t , b t  0 for each time period t: nonnegativity
  31. 31. <ul><li>The LP model for the example </li></ul><ul><li>Minimize 1280w 1 +1280w 2 +…+ 500u 1 +500u 2 +…+ 1000v 1 +1000v 2 +…+10 i 1 + 10 i 2 +…+ 100 b 1 + 100 b 2 +… </li></ul><ul><li>s.t. </li></ul><ul><li>u 1 – v 1 = w 1 – 210 (period 1) </li></ul><ul><li>… </li></ul><ul><li>26.67 w 1 + i o – i 1 + b 1 – b o = 6000 (period 1) </li></ul><ul><li>26.67 w 1 + i o – i 1 + b 1 – b o = 4800 (period 2) </li></ul><ul><li>… </li></ul><ul><li>All variables nonnegative </li></ul>
  32. 32. Sec 03: June 5, 2008 <ul><li>Ch 16: Project Management </li></ul><ul><li>Video Case: PM at NASA </li></ul><ul><li>Break </li></ul><ul><li>Aggregate Planning LP Model (extra-credit) </li></ul><ul><li>Review for final exam </li></ul>