18ME56-OM_ Module 4-Aggregate Planning.pdf

Dept. of ME, JSSATE, Bengaluru
2
Production Planning &
Control
Actual Customer
Demand
Forecast
Demand
Aggregate Planning
Master Production
Schedule
MRP:
Are
materials
sufficient
?
CRP:
Is
capacity
sufficient
?
Production Activity Control or Shop
Floor Control –
Order release; Order scheduling;
Order progress
Yes Yes
No
No
Revise the schedule Revise the schedule

Module – 4:
• Aggregate Planning
• Nature and scope of aggregate planning,
strategies of aggregate planning, techniques for
aggregate planning – graphical and charting
techniques, mathematical techniques.
• Master Scheduling
• The master production schedule, Master
scheduling process, Master scheduling methods.
(8 hours)
3

Module Outcome:
At the end of this module, you will be able to:
CO# Course Outcome
Bloom’s
Level
4
Analyse the aggregate plan and master production
schedule for an organization, given its periodic
demand.
4
4
Forecasting
Learning Objectives:
After completing this module, you should be able to:

5
• Aggregate refers to sales and operations planning for
product lines or families.
• AP determines the quantity and timing of production
of the entire product family of an organization for
the intermediate future (generally 6 - 18 months);
called the “planning horizon.”
• A managerial statement of time-phased:
– production rates,
– work-force levels, and
– inventory investment,
• The statement also takes into account the customer
requirements and capacity limitations.
Aggregate Planning - Introduction

6
• Costs are important but so are:
–Customer service
–Operational effectiveness
– (practices employed to maximize the use of resources by producing products and
services faster than the competitor without sacrificing quality).
–Workforce morale
– (attitude, passion for work, ethics, honesty, satisfaction, motivation, ….).
Aggregate Planning - Factors

7
• Achieving financial goals by reducing overall
variable cost and improving the bottom line.
• Maximum utilization of the available
production facility.
• Provide customer delight by matching
demand and reducing wait time for
customers.
• Reduce investment in inventory stocking.
• Able to meet scheduling goals thereby
creating a happy and satisfied work force.
Aggregate Planning - Importance

8
• One of the main objectives of AP:
• To develop an economic strategy for meeting demand
through:
• Adjusting capacity
– Producing at a constant rate and using inventory to absorb
fluctuations in demand (level production)
– Hiring and firing workers to match demand (chase demand)
– Maintaining resources for high-demand levels
– Increasing or decreasing working hours (overtime and
undertime)
– Subcontracting work to other firms
– Using part-time workers
– Providing the service or product at a later time period
(backordering)
Aggregate Planning - Strategies

9
• Production at a fixed rate
(usually to meet average
demand) and inventory is used
to absorb variations in
demand.
• During periods of low
demand, overproduction is
stored as inventory, which is
depleted in periods of high
demand.
• The cost of this strategy is the
cost of holding inventory,
including the cost of obsolete
or perishable items that may
have to be discarded.
AP Strategy - Level Production
Source: OM by Russel & Taylor

10
• The production plan is
matched to the demand
pattern.
• Variations in demand are
absorbed by ‘hiring and firing’
of workers & other strategies.
• During periods of low demand,
production is cut back and
workers are laid off. During
periods of high demand,
production is increased and
additional workers are hired.
• The cost of this strategy is the
cost of hiring and firing
workers.
AP Strategy – Chase Demand

11
• Maintaining enough resources for meeting peak
demand levels ensures high levels of customer service.
• It is costly in terms of the investment in extra workers
and machines that remain idle during low-demand
periods.
• Used when superior customer service is important or
when customers are willing to pay extra for the
availability of critical staff or equipment.
• Examples: Special professional services, Defence
services, Hospital services, etc.
AP Strategy – Resources for High
Demand Level

12
• A common strategy used when demand fluctuations
are not extreme.
• A competent workforce is maintained, hiring and firing
costs are avoided, and demand is met temporarily
without investing in permanent resources.
• Disadvantages: Extra wages paid for overtime work, a
tired and potentially less efficient workforce, and the
possibility that overtime alone may be insufficient to
meet peak demand periods.
• Undertime can be achieved by working fewer hours
during the day or fewer days per week.
AP Strategy – Overtime & Undertime

13
• Subcontracting lets outside companies complete the
work.
• It is a feasible alternative if a supplier can reliably meet
quality and time requirements.
• It is a common solution for component parts when
demand exceeds expectations for the final product.
• Requires maintaining strong ties with possible
subcontractors and first-hand knowledge of their work.
• Disadvantages: reduced profits, loss of control over
production, long lead times, and the potential that the
subcontractor may become a future competitor.
AP Strategy – Subcontracting

14
• It is feasible for unskilled jobs or in areas with large
temporary labor pools (such as students, homemakers,
or retirees).
• Part-time workers are less costly than full-time
workers—they receive no health-care or retirement
benefits—and are more flexible—their hours usually
vary considerably.
• Part-time workers have been the mainstay of retail,
fast-food, and other services for some time and are
becoming more accepted in manufacturing as well as
service and government jobs.
AP Strategy – Part-time workers

15
• A backorder is an order for a good or service that
cannot be filled at the current time due to a lack of
available supply.
• The item may not be held in the company's available
inventory but could still be in production, or the
company may need to still manufacture more of the
product.
• Allowing to backorder means giving your customers an
option to still purchase your products even when you
don't have enough in stock.
• If the customer is unwilling to wait for the backordered
item, the sale will be lost.
AP Strategy – Backordering, Backlogs

16
• Companies that offer customized products and services
accept customer orders and fill them at a later date.
• The accumulation of these orders creates a backlog
that grows during periods of high demand and is
depleted during periods of low demand.
AP Strategy – Backordering, Backlogs

17
• Procedure for Aggregate Planning (Steps in AP):
• Determine demand for each period.
• Determine capacities (regular time, overtime, subcontracting) for
each period.
• Identify company or departmental policies that are pertinent
(e.g., maintain a safety stock of 5 percent of demand, maintain a
reasonably stable workforce).
• Determine unit costs for regular time, overtime, subcontracting,
holding inventories, back orders, layoffs, and other relevant
costs.
• Develop alternative plans and compute the cost for each.
• If satisfactory plans emerge, select the one that best satisfies
objectives. Otherwise, return to step 5.
Working out Aggregate Plans
Source: OM by W J Stevenson

18
• Problem 1:
• A company has developed forecast for a group of items
that has the following demand pattern:
• Plot the demand as histogram. Determine the
production rate required to meet the average demand
and plot the average demand forecast on the graph.
• Plot the actual cumulative forecast demand over time
and compare them with the average forecast
requirements.
Source: OM by Panneerselvam
Quarter 1 2 3 4 5 6 7 8
Demand 270 220 470 670 450 270 200 370
Cumulative
demand
270 490 960 1630 2080 2350 2550 2920

19
• Solution 1: The production rate = 2920/8 = 365 units

20

21
• Problem 2:
• Given the following costs and quarterly sales forecasts,
determine whether (a) level production, or (b) chase
demand would more economically meet the demand:
Quarter Forecast Demand
(Pounds)
I 80,000
II 50,000
III 120,000
IV 150,000
Cost element Cost, $
Hiring 100 / worker
Firing 500 / worker
Inventory carrying 0.50 /pound /quarter
Regular production 2 / pound
Production per employee = 1000 pounds
per quarter
Beginning workforce = 100 workers

22
• Solution:
• Determine the average production quantity/quarter
• = (80,000 + 50,000 + 120,000 + 150,000)/4
• = 400,000/4 = 100,000 pounds per quarter.
• This is the planned production per quarter.
• Each worker can produce 1000 pounds a quarter (given)
• Hence, 100 workers will be needed each quarter to
meet the production requirements of 100,000 pounds.
• Production in excess of demand is stored in inventory,
where it remains until it is used to meet demand in a
later period.

23
• Production Plan (Level Production Strategy):
Quarter Forecast
Demand
Regular
Production
Inventory, pounds
I 80,000 100,000 100,000 - 80,000 = 20,000
Cost of Level Production Strategy
= 400,000 * $2 + 140,000 * $.5 = $870,000
II 50,000 100,000 20,000 + 100,000 - 50,000 = 70,000
III 120,000 100,000 70,000 +100,000 -120,000 = 50,000
IV 150,000 100,000 50,000 + 100,000 - 150,000 = 0
Total 400,000 400,000 140,000

24
• Production Plan (Chase strategy):
Quarter
I
II
III
IV
Total
Forecast
Demand
80,000
50,000
120,000
150,000
400,000
Regular
Production
80,000
50,000
120,000
150,000
400,000
Workers
needed
80,000/1000
= 80
50,000/1000
= 50
120,000/1000
= 120
150,000/1000
= 150
Workers
Hired
--
--
70
30
100
Workers
Fired
20
30
--
--
50
Cost of Chase Strategy = 400,000 * $2 + 100 * $100 + 50 * $500 =
$835,000

25
• Problem 3:
• A small manufacturing company produces umbrellas.
The company presently is producing executive type of
umbrellas. The demand and other details are shown
below:
Month Forecast Demand
(units)
No. of working days
Jan 4500 22
Feb 5500 19
March 7000 21
April 10000 21
May 8000 22
June 6000 20

26
• Problem 3: The cost details
Cost & Other Information Values
Materials cost $5 / unit
Holding cost $1 / unit / month
Hiring & Training cost $200 / worker
Layoff cost $250 / worker
Straight time labour cost $8 / hour
Labour hours required 0.15 hours / unit
Productive hours 7.25 hours /worker/day
Paid straight hours 8 hours/day
Beginning inventory 250 units
Beginning number of workers 7
Stock out cost $1.25/unit/month

27
• Solution: Level Strategy
Month Forecast Demand
(units)
Regular
production units
Inventory
Jan 4500 6833.33 ≅ 6834 6834 – 4500 = 2334
Feb 5500 6833.33 ≅ 6834 2334 + 6834 – 5500 = 3668
March 7000 6833.33 ≅ 6834 3668 + 6834 – 7000 = 3502
April 10000 6833.33 ≅ 6834 3502 + 6834 – 10000 = 336
May 8000 6833.33 ≅ 6834 336 + 6834 – 8000 = -830
June 6000 6833.33 ≅ 6834 -830 + 6834 – 6000 = 4
Total = 41000 41000 ≅ 41004 9844
Average Production / month = 6833.33 or 6834 units

28
• Solution: Level Strategy
Total material cost = 41004*$5/unit = $205,020
Total inventory carrying cost = 9844*$1/unit/month = $9844
Total stockout cost = 830*$1.25/unit/month = $1037.5
Total labour cost = $56,000
Month No. of days Labour cost, $
Jan 22 $8 /hr * 8 * 22 * 7 = 9856
Feb 19 $8 /hr * 8 * 19 * 7 = 8512
March 21 $8 /hr * 8 * 21 * 7 = 9408
April 21 $8 /hr * 8 * 21 * 7 = 9408
May 22 $8 /hr * 8 * 22 * 7 = 9856
June 20 $8 /hr * 8 * 20 * 7 = 8960
Labour Cost:
Grand
total
cost
of
level
production
strategy
=
$(205020+9844+1037+56000)
=
$271901

29
• Solution: Chase Strategy (Adjust workforce level)
• Calculations for the month of January: Units required = 4500
• Hour available/worker = 159.5 (22 days * 7.25 hours/day)
• Labour hours required / worker /unit = 0.15
• Hence, number of units produced by each worker = 159.5 / 0.15 =
1063.33
• Initial number of units available in inventory = 250
• Net units required = 4500 -250 = 4250
• Number of workers required to meet demand = 4250/1063.33 =
3.99 ≅ 4
• No. of workers fired = 3; Cost of firing = $250 / worker * 3 = $750
• Material cost = $5/unit * 4250 = $21250
• Total labour cost = $8*8*22*4 = $5632
• Grand Total cost = $27632

30
• Calculations for the month of February:
• Units required = 5500
918.33
5.989 ≅ 6
• No. of workers to be hired = 2; Cost of hiring = $200 / worker * 2 =
$400
• Labour cost = $8*8*19*6 = $7296
• Total cost in February = $(27500+7296+400) = $35196

31
• Calculations for the month of March:
1015
• Number of workers required to meet demand = 7000/1015 = 6.89
≅ 7
$200
• Labour cost = $8*8*21*7 = $9408
• Total cost in March = $(35000+9408+200) = $44608

32
• Calculations for the month of April:
1015
• Number of workers required to meet demand = 10000/1015 = 9.85
≅ 10
$600
• Labour cost = $8*8*21*10 = $13440
• Total cost in April = $(50000+13440+600) = $64040

33
• Calculations for the month of May:
1063.33
7.52 ≅ 8
• No. of workers to be fired = 2; Cost of firing = $250 / worker * 2 =
$500
• Labour cost = $8*8*22*8 = $11264
• Total cost in May = $(40000+11264+500) = $51764

34
• Calculations for the month of June:
• Hour available/worker = 145 (20 days * 7.25 hours/day)
• Hence, number of units produced by each worker = 145 / 0.15 =
966.67
6.20 ≅ 6
• No. of workers to be fired = 2; Cost of firing = $250 / worker * 2 =
$500
• Labour cost = $8*8*20*6 = $7680
• Total cost in June = $(30000+7680+500) = $38180

35
• Total cost of Chase Strategy
• = $(27362 +35196 +44608+64040 +51764+38180) = $261,420
Jan Feb Mar April May June
Demand 4500 5500 7000 10000 8000 6000
Beginning inv. 250 0 0 0 0 0
Net reqt. 4250 5500 7000 10000 8000 6000
Beginning # workers 7 4 6 7 10 8
Required workers 4 6 7 10 8 6
Workers hired/fired -3 2 1 3 -2 -2
Prodn. Qty. 4250 5500 7000 10000 8000 6000
Ending inventory 0 0 0 0 0 0

36
• Total cost of Chase Strategy
• = $(27362 +35196 +44608+64040 +51764+38180) = $261,420
Jan Feb Mar April May June
Material cost, $ 21250 27500
Labour cost, $ 5632 7296
Hiring cost, $ - 400
Firing cost, $ 750 -
Total cost, $ 27632 35196 44608 64040 51764 38180

37
• Problem 4:
• A company has developed forecast for a group of items that
has the following demand pattern:
• The company has estimated that it costs Rs. 150/unit to
increase the production rate, Rs. 200/unit to decrease the
production rate, Rs. 50/unit/quarter to carry the inventory
and Rs. 100/unit if subcontracted (Consider regular
production capacity as 200 units/quarter). Compare the total
costs of pure strategies. Shortages are not allowed.
Quarter 1 2 3 4 5 6 7 8
Demand 270 220 470 670 450 270 200 370

38
• Solution: (Chase Strategy)
Quarter Forecast
Demand,
units
Cost of
increasing the
production, Rs.
Cost of decreasing
the production,
Rs.
1 270 -- --
2 220 -- 10,000
3 470 37,500 --
4 670 30,000 --
5 450 -- 44,000
6 270 -- 36,000
7 200 -- 14, 000
8 370 25,500 --
Total cost = Rs. 197,000

39
• Solution: (Inventory or Level Production Strategy)
Quarter Forecast
Demand, units
Regular
production
Inventory
1 270 365 365-270 = 95
2 220 365 95+365-220 = 240
3 470 365 240+365-470 = 135
4 670 365 135+365-670 = -170
5 450 365 -170+365-450 = -255
6 270 365 -255+365-270 = -160
7 200 365 -160+365-200 = 5
8 370 365 5+365-370 = 0
Ave. Production rate = 2920/8 = 365

40
• No shortages are allowed
Quarter Forecast
Demand, units
Regular
production
1 270 365
2 220 365
3 470 365
4 670 365
5 450 365
6 270 365
7 200 365
8 370 365
Ave. Production rate = 2920/8 = 365
Inventory
95
240
135
-170
-255
-160
5
0
Adjusted
Inventory with
255 at the
beginning period
95 + 255 =
350
495
390
85
0
95
260
255

41
• No shortages are allowed
Adjusted Inventory
with 255 at the
beginning period
Cost of holding the
inventory @ Rs.
50/unit/quarter
95 + 255 = 350 350*50 = 17500
495 495*50 = 24,750
390 390*50 = 19,500
85 85*50 = 4250
0 0
95 95*50 = 4750
260 260*50 = 13,000
255 255*50 = 12,750
Total cost of the strategy
= Rs. 96,500

42
• Subcontracting @ Rs. 100 / Unit; Assume regular production as
200 units
Total cost of the strategy = Rs. 132,000

43
• Problem 5:
• The following information is available regarding a product:
• Regular time production capacity = 2500 units / month
• Overtime (OT) capacity = 600 units/months
• Overtime (OT) production cost = Rs. 10/unit
• Inventory carrying cost = Rs. 3/unit/month
• Backlog cost = Rs. 5/unit/month
• Beginning inventory = 400 Units;
• Demand in units for four months is 4000, 3500, 2500, & 2800
respectively. Develop a level output plan that yields zero
inventory at the end of 4th month. Compute also the total
cost of this plan.

44
• Solution 5:
Month Forecast
demand
Average
prodn.
rate
Regular
prodn. units
Ending
inventory
Overtime
units
0 -- -- -- 400 --
1 4000 3100 2500 -500 600
2 3500 3100 2500 -900 600
3 2500 3100 2500 -300 600
4 2800 3100 2500 0 600
Total forecast demand = 12,800 units; Beginning inv. = 400 units
Average production output required considering beginning
inventory of 400 units = (12,800 – 400)/4 = 3100 units.

45
• Solution 5:
Total forecast demand = 12,800 units; Beginning inv. = 400 units
Average production output required considering beginning
inventory of 400 units = (12,800 – 400)/4 = 3100 units.
Total cost (other than RT Cost), in Rs.
= OT cost + IC cost + Backlog cost
= (600 *4*10) + Nil + [(500*1) + (900*1) + (300*1)] * 5
= 24000 + (1700*5)
= Rs. 32,500

46
• Problem 6:
• The following information is available regarding a product:
• Regular time production capacity = 50 units / month
• Regular time production cost = Rs. 20/unit
• Overtime (OT) capacity = 10 units/months
• Overtime (OT) production cost = Rs. 26/unit
• Inventory carrying cost = Rs. 3/unit/month
• Subcontract cost = Rs. 29/unit
• Develop an economic production plan for the following demand
Month 1 2 3 4 5 6 7 8 9 10 11 12
Demand,
Units
10 12 15 40 130 200 100 40 30 20 40 10

47
Month Forecast demand RT Production OT Production SC Production
1 10 10 -- --
2 12 12
3 15 15
4 40 40
5 130 50 10 70
6 200 50 10 140
7 100 50 10 40
8 40 40
9 30 30
10 40 40
11 20 20
12 10 10
Total 647 367 30 250

• Total cost of the Plan:
• Total products produced in RT = 367
• Total RT cost = Rs. (367*20) = Rs. 7340
• Total products produced in OT = 30
• Total OT cost = Rs. (30*26) = Rs. 780
• Total products produced in SC = 250
• Total SC cost = Rs. (250*29) = Rs. 7250
• TOTAL COST = Rs. (7340+780+7250) = Rs.15,370
• Is it optimum (minimum) cost ?
• If not, what is it? How to find it?
Dept. of ME, JSSATE, Bengaluru 48

49
Month Forecast demand RT Production OT Production SC Production
1 10 10 -- --
2 12 12 (2), 35 (5), 3
(6)
3 15 15 (3), 35 (5)
4 40 40 (4), 10 (5)
5 130 50 10 (6)
6 200 50 10 127
7 100 50 10 40
8 40 40
9 30 30
10 40 40
11 20 20
12 10 10

• Total cost (optimum) of the Plan:
• Total products produced in RT = 367
• Total RT cost = Rs. (367*20) = Rs. 7340
• Total products produced in OT = 20
• Total OT cost = Rs. (20*26) = Rs. 520
• Total products produced in SC = 167
• Total SC cost = Rs. (167*29) = Rs. 4843
• Products produced in RT & OT and carried to next months:
• 35 for 3 months; 3 for 4 months; 35 for 2 months; 10 for 1
month; 10 in OT for 1 month
• = (35*20 + 35*3*3) + (3*20 + 3*3*4) + (35*20 + 35*3*2) +
(10*20 + 10*3*1) + (10*26 + 10*3*1) = Rs. 2328
• TOTAL COST = Rs. (7340+520+2328 + 4843) = Rs.15,244/-

51
• Problem 7: A company has forecasted demand for one of its
products for the next six months. The company works on
single shift of 8 hours. Each unit requires 10 labour hours
with a labour cost of Rs.6/hour. It will be Rs. 9/hour/labour
for OT. The subcontracting cost is Rs. 208/unit & the RT cost
is Rs. 200/unit. There are currently 20 workers in the
company. The hiring & firing costs/labour are Rs. 300 & Rs.
400 respectively. The company’s policy is to retain a safety
stock of 20% of monthly forecast and each month’s safety
stock becomes next month’s beginning inventory. The
beginning inventory in January is 50 units. The ICC is Rs.
2/unit/month. Stock out cost is Rs. 20/unit/month. Work out
the best plan out of the following three:

52
• Problem 7 (cont’d):
• Plan 1: Vary the work force size to accommodate the demand
• Plan 2: Maintain a constant workforce of 20 and use OT & IT to
meet the demand.
• Plan 3: Maintain a constant workforce of 20 and build inventory
or incur stock out cost.
Month Jan Feb Mar April May June
Demand, Units 300 500 400 100 200 300
Work days/month 22 19 21 21 22 20

53
• Solution 7:
• Step 1: Compute the net demand or production requirememts
per month considering the beginning inventory & safety stock
Demand, Units (A) 300 500 400 100 200 300
Safety stock @20%
of FD (B)
60 100 80 20 40 60
Beginning inv. (50)
(C)
50 60 100 80 20 40
Production
requirements
(A) + (B) – (C)
310 540 380 40 220 320

54
• Plan 1: Vary the workforce size:
Prodn. required 310 540 380 40 220 320
Prodn. Hours reqd. @
10 hrs/unit
3100 5400 3800 400 2200 3200
No. of days worked 22 19 21 21 22 20
No. of hrs. worked by
each worker/month
176 152 168 168 176 160
No. of workers reqd. 18 36 23 3 13 20
No. of workers hired -- 18 -- -- 10 7
No. of workers fired 2 -- 13 20 -- --
Hiring cost, Rs. -- 5400 -- -- 3000 2100
Firing cost, Rs. 800 -- 5200 8000 -- --
Rs. 24,500

• Plan 2: Maintain a constant workforce of 20 and use OT, IT
Prodn. required 310 540 380 40 220 320
Prodn. Hours reqd. @
10 hrs/unit
3100 5400 3800 400 2200 3200
No. of days worked 22 19 21 21 22 20
each worker/month
176 152 168 168 176 160
Total labour hours
available with 20 workers
176*20
= 3520
3040 3360 3360 3520 3200
No. of OT hours reqd. -- 2360 440 -- -- Nil
No. of IT hours 420 -- -- 2960 1320 --
OT cost @ Rs. 9/hour -- 21240 3960 -- -- --
IT cost @ Rs. 6/hour 2520 -- -- 17760 7920 --
Rs. 53,400

• Plan 3: Maintain a constant workforce of 20, use inv. or SO cost
Prodn. required 310 540 380 40 220 320
No. of days worked 22 19 21 21 22 20
each worker/month
176 152 168 168 176 160
Total labour hours
available with 20 workers
176*20
= 3520
3040 3360 3360 3520 3200
No. of units produced
at 10 hrs/unit
352 304 336 336 352 320
Inv. Surplus/shortage 42 -194 -238 58 190 190
Cost, Rs. 2/unit/month
& Rs. 20/unit/month
84 3880 4760 116 380 380
Rs. 9600

57
• Problem 9: Given the following information, set up the problem in
a transportation table and solve for the minimum-cost plan.
• Costs:
• Regular Time cost/unit = $20; Overtime cost/unit = $25
• Subcontracting cost/unit = $28
• Inventory carrying cost/unit/quarter = $3
• Beginning inventory = 300 units
• No back orders

58
• Production Plan
Quarter Demand,
units
RT
Production
OT
Production
SC
Production
Ending Inv.
1 900 1000 100+300 = 400
2 1500 1200 100
3 1600 1300 -200
4 3000 1300 -1900
Total 7000 4800 -1600
Total cost of the plan is:

59
• Production Plan
Quarter Demand RT
Production
OT
Production
SC
Production
Ending Inv. =
(RT+OT+SC) –
Demand
1 900 1000 100 200+300=500
2 1500 1200 150 1200+500+150 –
1500 = 350
3 1600 1300 200 1300+350+200-
1600 = 250
4 3000 1300 200 1300+250+200-
3000= -1250
Total 7000 4800 650 -1250

60
• Production Plan
Quarter Demand RT
Production
OT
Production
SC
Production
Ending Inv. =
(RT+OT+SC) –
Demand
1 900 1000 100 0 1000+300+100 -
900 = 500
2 1500 1200 150 250 1200+500+150+2
50 -1500=600
3 1600 1300 200 500 1300+600+200
+500 -1600 =
1000
4 3000 1300 200 500 1300+1000+200+
500-3000 = 0
Total 7000 4800 650 1250 2100
4800 * $20 + 650 * $25 + 1250 * $28 + 2100 * $3 = $153,550

61
• Problem 10: Given the following information, set up the problem
in a transportation table and solve for the minimum-cost plan.

62
• Production Plan
Period Demand RT
Production
OT
Production
SC
Production
Ending Inv. =
(RT+OT+SC) –
Demand
1 550 500 50 30 130
2 700 500 50 120 100
3 750 500 50 100 0
Total 2000 1500 150 250 230
1500 * $60 + 150 * $80 + 250 * $90 + 230 * $1 = $124,730

63
Working out Aggregate Plans – Transportation
Table Method
Source of
supply

64
• Problem 10: Given the following information, set up the problem
in a transportation table and solve for the minimum-cost plan.

65
Table Method

66
Table Method
Total Cost of the plan = Rs. {(0x100) + (60x450) + (61x50) + (81x50) +
(91x30) + (60x500) + (80x50) + (90x20) + (91x100) + (60x500) + (80x50) +
(90x100)
= Rs.{27000 + 3050 + 4050 + 2730 + 30000+ 4000 + 1800 + 9100 + 30000
+ 4000 + 9000} = Rs. 124,730

Part – II
Master Production Schedule
(Master Schedule)

Month Jan Feb March April May June
Electric Motors 80 50 110 60 60 100
Month Jan Feb March April May June
Induction, 3Ph Motors, AC,
10 Hp
30 15 65 10 10 35
DC Motors, 24V 10 5 20 20 20 15
Stepper Motors, 200 steps 10 5 10 10 10 15
AC Motors, 0.5 Hp 25 20 10 10 10 25
Servo Motors, 1 Micron
resolution
05 05 05 10 10 10
Total 80 50 110 60 60 100
Aggregate Plan

• The master production schedule (MPS), also called the
master schedule, specifies which end items or finished
products a firm is to produce, how many are needed, and
when they are needed.
• The master production schedule works within the
constraints of the aggregate production plan but produces a
more specific schedule by individual products.
• The time frame is more specific, usually expressed in days or
weeks and may extend over several months to cover the
complete manufacture of the items.
• One of the inputs to Material Requirements Planning (MRP).
• MPS coordinates with marketing, capacity, production &
distribution planning.

Master Production Schedule - Objectives
• To schedule specific end items to be completed
promptly and when promised to customers.
• To avoid overloading or underloading of production
facility so that the production capacity (RT, OT) is
efficiently utilized and low production costs result.

Master Production Schedule - Functions
• Translating aggregate plans:
– From product families to specific end items in specific
time periods.
• Evaluating alternative master schedule
– MPS is done on trial-and-error basis, initially. Material &
capacity requirements are verified.
• Generating material & capacity requirements
• Facilitating information processing – when deliveries
are to be made..finance, marketing, other sections.
• Effectively utilizing the capacity - load and utilization
requirements for machines and equipment.

Master Production Schedule – Time fences
• Changes to MPS at its early stage can be disruptive.
• High-performance organizations have an effective
master scheduling process.
• Time fence is a time period for effective scheduling by
facilitating order promising and the entry of orders into
the system.
• Time fences divide a scheduling time horizon into three
sections or phases, referred to as frozen, slushy, and
liquid, in reference to the firmness of the schedule.

Master Production Schedule – Time fences

Master Production Schedule - Process
Master
Scheduling
Beginning
Inventory
Forecasts
Customer orders
Inputs
Projected
inventory of
finished goods
Master
Production
Schedule
Uncommitted
inventory (ATP)
Outputs

• Inputs
• The beginning inventory is the actual quantity on hand
from the preceding period
• Forecasts are for each period of the schedule
• Customer orders are the quantities already committed
to customers
• Other factors include:
• Hiring or firing restrictions imposed by HR, skill levels,
limits on inventory such as available space, whether
items are perishable, and whether there are some
market lifetime (e.g., seasonal or obsolescence)
considerations.

• Outputs
• The projected on-hand inventory is calculated as follows:
• Projected on-hand inventory = (Inventory from previous
period) – (Current period’s requirements)
• Available-To-Promise (ATP) is a minimum amount of a
given product available in the warehouse so that the
inventory space is used efficiently.
• ATP number can change unlike SS where the number is
fixed.
• A positive value of ATP - inventory available to sell
• A negative value of ATP - inventory is below safety stock
quantity.

Master Production Schedule - Problems
• Problem: A company has certain demand for a specific
type of electric motor. The details of various demands
are shown in the table below. There are presently 60
motors in stock and the lot size is 90 units. Develop a
tentative MPS.
Sources of
demand
Electric Motor
Week
1 2 3 4 5 6 7 8 9 10
Customer forecast - 5 30 40 50 40 50 50 50 50
Interplant forecast - - 5 - - 5 - - 5 50
Customer orders 40 40 30 10 10 5 - - - -
Warehouse orders 15 10 - 5 - - - - - -

• Tentative MPS:
Order Quantity =
90
Beg. Inv. = 60
Electric Motor
Week
1 2 3 4 5 6 7 8 9 10
Gross
requirements
55 55 65 55 60 50 50 50 55 100
Beg. Inventory (60) 60 5 40 65 10 40 80 30 70 15
Prodn. Required
(MPS)
- 90 90 - 90 90 - 90 - 90
Ending inv.
(available on hand)
5 40 65 10 40 80 30 70 15 5

• Problem: A company produces tow products P & Q on
MTS basis. The demand for the products comes from
various sources. The estimated demand for the
products for the next 5 weeks is given below:
Sources of
demand
Product P Product Q
Week Week
1 2 3 4 5 1 2 3 4 5
Intra company
orders
-- -- 20 10 10 -- -- 10 -- 10
Branch
warehouse orders
-- 20 -- -- -- -- -- -- 20 --
R & D orders -- 10 10 -- -- -- -- -- 10 10
Customer demand
(forecast + inv.)
25 25 20 25 20 30 30 25 25 20

• Solution:
MPS for Products P & Q
Product Data Week
1 2 3 4 5
Product - P:
(Beginning Inv. =
50, Lot Size = 60,
Safety Stock = 25)
Total demand 25 55 50 35 30
Beginning inventory 50 25 30 40 65
Required production -- 60 60 60 --
Ending inventory 25 30 40 65 35
Product - Q:
(Beginning Inv. =
60, Lot Size = 70,
Safety Stock = 30)
Total demand 30 30 35 55 40
Beginning inventory 60 30 70 35 50
Required production -- 70 -- 70 70
Ending inventory 30 70 35 50 80

18ME56-OM_ Module 4-Aggregate Planning.pdf

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18ME56-OM_ Module 4-Aggregate Planning.pdf