Aggregate production planning (APP) is an intermediate-range capacity planning process that typically covers a time horizon of 2 to 18 months. The goal of APP is to achieve a production plan that will effectively utilize the organization's resources to satisfy demand. APP deals with determining the optimal levels of resources like workforce, production rate, and inventory to balance expected demand. Common APP strategies include maintaining a level workforce/capacity or adjusting workforce/capacity to match demand in each period. Mathematical techniques can be used to evaluate alternative APP plans.

1. OPERATIONS MANAGEMENT
APP, MPS, ATP, QUALITY

2. Chapter 11
Aggregate Production Planning

3. • Aggregate planning
• Intermediate-range capacity planning that typically covers a time horizon of 2
to 18 months
• Useful for organizations that experience seasonal, or other variations in
demand
• Goal:
• Achieve a production plan that will effectively utilize the organization’s resources to
satisfy demand
Aggregate Planning

4. 11-4
The Planning Sequence

5. Planning Overview
Process Planning
Strategic Capacity Planning
Aggregate Planning
Master Production Scheduling
Material Requirements Planning
Order Scheduling Weekly Workforce &
Customer Scheduling
Daily Workforce &
Customer Scheduling
Long
Range
Medium
Range
Short
Range
Manufacturing Services

6. WHY AGGREGATE….
• It generally involves the production plan for a group or a family of
products (aggregation of products).
• It aggregates daily or weekly (short-range) demand and the resulting
production plan (aggregation of time periods).

7. • Why do organizations need to do aggregate planning?
• Planning
• It takes time to implement plans/Hiring new workers
• Strategic
• Aggregation is important because it is not possible to predict with
accuracy the timing and volume of demand for individual items
• It is connected to the budgeting process / plan their financial
requirements annually on a department by department basis
• It can help synchronize flow throughout the supply chain; it affects costs,
equipment utilization; employment levels; and customer satisfaction
• Demand fluctuations
• Capacity fluctuations
• Difficulty level in altering production rates
• Benefits of multi period planning
Why Use Aggregate Planning

8. • The plan must be in units of measurement that can be understood by the firm’s
non-operations personnel
•Aggregate units of output per month
•Dollar value of total monthly output
•Total output by factory
•Measures that relate to capacity such as labor hours
Aggregation

9. 11-9
Dealing with Variation
• Most organizations use rolling 3, 6, 9 and 12 month forecasts
• Forecasts are updated periodically, rather than relying on a once-a-year forecast
• This allows planners to take into account any changes in either expected demand
or expected supply and to develop revised plans

10. • Strategies to counter variation:
• Maintain a certain amount of excess capacity to handle increases in demand
• Maintain a degree of flexibility in dealing with changes
• Hiring temporary workers
• Using overtime
• Wait as long as possible before committing to a certain level of supply capacity
• Schedule products or services with known demands first
• Wait to schedule other products until their demands become less uncertain
Dealing with Variation

11. 11-11
Overview of Aggregate Planning
Forecast of
aggregate
demand for the
intermediate
range
Develop a
general plan to
meet demand
requirements
Update the
aggregate plan
periodically
(e.g., monthly)

12. 11-12
Demand and Supply
• Aggregate planners are concerned with the
• Demand quantity
• If demand exceeds capacity, attempt to achieve balance by altering capacity, demand, or
both
• Timing of demand
• Even if demand and capacity are approximately equal, planners still often have to deal with
uneven demand within the planning period

13. APP DECISIONS/ ROLE
Critical role of translating the business plan and strategic intent to
operational decisions…
• Deals with amount of resources (productivity capacity and labor
hours) to be committed.
• The rate at which G/S need to be produced during a period
• Inventory to be carried forward from one period to the next

14. GOAL
• To achieve a production plan that will effectively utilize the
organization’s resources to satisfy expected demand.
• AP decisions are strategic decisions that define the framework within
which operating decisions will be made.
• They are the starting point for scheduling and production control
systems.

15. • Short-range plans (Detailed plans)
• Machine loading
• Job assignments
• Intermediate plans (General levels)
• Employment
• Output
• Inventory
• Long-range plans
• Long term capacity
• Location / layout
Overview of Planning Levels

16. Purpose
• Decide on the combination of
• Output rates
• Employment levels
• On-hand inventory levels
• Objective
• Minimize cost
• Maintain a desirable level of customer service
• Minimize workforce fluctuations

17. Demand Vs Capacity
• Demand Management
– Vary prices
– change lead time
– encourage/discourage business
• Capacity Management
– adjust staffing
– adjust equipment and processes
– change methods to facilitate production
– redesign the product to facilitate production

18. Aggregate Planning
• Goal: Optimize Total Cost thro’ Aggregation
• Specify the optimal combination of
– Workforce level
– Production rate
– Inventory on hand
– Subcontract
Workforce level
Hire or layoff full-time workers
Hire or layoff part-time workers
Hire or layoff contract workers
Utilization of the work force
Overtime
Idle time
Reduce hours worked
Inventory level
Finished goods inventory
Backorders / Backlog
Subcontract

19. • Resources
• Workforce
• Facilities
• Demand forecast
• Policies on workforce
• Subcontracting
• Overtime
• Inventory
levels/changes
• Back orders
• Costs
• Inventory carrying
• Back orders
• Hiring/firing
• Overtime
• Inventory changes
• Subcontracting
Aggregate Planning Inputs

20. • Total cost of a plan
• Projected levels of inventory
• Inventory
• Output
• Employment
• Subcontracting
• Backordering
Aggregate Planning Outputs

21. Aggregate Planning Strategies
• Proactive
• Alter demand to match capacity
• Reactive
• Alter capacity to match demand
• Mixed
• An element of each approaches

22. Demand Options
• Pricing
• Used to shift demand from peak to off-peak periods
• Price elasticity is important
• Promotion
• Advertising and other forms of promotion
• Back orders
• Orders are taken in one period and deliveries
promised for a later period
• New demand

23. 11-23
Supply Options
• Hire and layoff workers
• Overtime/slack time
• Part-time workers
• Inventories
• Subcontracting

24. Prominent Aggregate Planning Strategies
• Maintain a level workforce
• Maintain a steady output rate PURE
• Match demand period by period
• Use a combination of decision
variables MIXED

25. Basic Strategies
• Cut and Try method (Determining Straight
Labor Costs and Output)
• Level capacity strategy:
• Maintaining a steady rate of regular-time output
while meeting variations in demand by a combination
of options.
• (Surplus and Shortage Allowed)
• Chase demand strategy:
• Matching capacity to demand; the planned output for
a period is set at the expected demand for that
period.
• (Hiring & Firing to meet demand)

26. • Level capacity strategy:
• Maintaining a steady rate of regular-time output while meeting variations in
demand by a combination of options:
• inventories, overtime, part-time workers, subcontracting, and back orders
• Chase demand strategy:
• Matching capacity to demand; the planned output for a period is set at the
expected demand for that period.
Aggregate Planning Pure Strategies

27. 11-27
Chase Approach
• Capacities are adjusted to match demand requirements over the
planning horizon
• Advantages
• Investment in inventory is low
• Labor utilization in high
• Disadvantages
• The cost of adjusting output rates and/or workforce levels

28. • Capacities are kept constant over the planning horizon
• Advantages
• Stable output rates and workforce
• Disadvantages
• Greater inventory costs
• Increased overtime and idle time
• Resource utilizations vary over time
Level Approach

29. 1.Determine demand for each period
2.Determine capacities for each period
3.Identify policies that are pertinent
4.Determine units costs
5.Develop alternative plans and costs
6.Select the best plan that satisfies objectives.
Otherwise return to step 5.
Techniques for Aggregate Planning

30. 11-30
Mathematical Techniques
• Linear programming models
• Simulation models
• Computerized models that can be tested under different scenarios to identify
acceptable solutions to problems

31. In summary…..
• Begin with forecast of aggregate demand
• Forecast intermediate range
• General plan to meet demand by setting
• Output levels
• Employment
• Finished goods inventory level
• Production plan is the output of aggregate planning
• Update plan periodically – rolling planning horizon
always covers the next 12 – 18 months

32. • Services occur when they are rendered
• Demand for service can be difficult to predict
• Capacity availability can be difficult to predict
• Labor flexibility can be an advantage in services
Aggregate Planning in Services

33. 11-33
Aggregate Planning in Services
• Hospitals:
• Aggregate planning used to allocate funds, staff, and supplies to meet the demands of patients for their
medical services
• Airlines:
• Aggregate planning in this environment is complex due to the number of factors involved
• Capacity decisions must take into account the percentage of seats to be allocated to various fare classes in
order to maximize profit or yield
• Restaurants:
• Aggregate planning in high-volume businesses is directed toward smoothing the service rate, determining
workforce size, and managing demand to match a fixed capacity
• Can use inventory; however, it is perishable

34. • The resulting plan in services is a time-phased projection of service staff
requirements
• Aggregate planning in manufacturing and services is similar, but there are some
key differences related to:
1. Demand for service can be difficult to predict
2. Capacity availability can be difficult to predict
3. Labor flexibility can be an advantage in services
4. Services occur when they are rendered
Aggregate Planning in Services

35. Service – Aggregate Planning
• For standardized services, aggregate planning may be
simpler than in systems that produce products
• For customized services,
– there may be difficulty in specifying the nature
and extent of services to be performed for each
customer
– customer may be an integral part of the
production system
• Absence of finished-goods inventories as a buffer
between system capacity and customer demand

36. • Yield management
• An approach to maximizing revenue by using a strategy of variable pricing;
prices are set relative to capacity availability
• During periods of low demand, price discounts are offered
• During periods of peak demand, higher prices are charged
• Users of yield management include
• Airlines, restaurants, hotels, restaurants
Yield Management

37. 11-37
Disaggregation
Aggregate
Plan
Disaggregation
Master
Schedule

38. 11-38
Disaggregating the Aggregate Plan
• Master schedule:
• The result of disaggregating an aggregate plan
• Shows quantity and timing of specific end items for a scheduled horizon

39. • The heart of production planning and control
• It determines the quantity needed to meet demand from all sources
• It interfaces with
• Marketing
• Capacity planning
• Production planning
• Distribution planning
• Provides senior management with the ability to determine whether the business plan and its
strategic objectives will be achieved
Master Scheduling

40. 11-40
Time Fences
Period
“frozen”
(firm or
fixed)
“slushy”
somewhat
firm
“liquid”
(open)
1 2 3 4 5 6 7 8 9

41. 11-41
The Master Scheduling Process
Beginning inventory
Forecast
Customer orders
Inputs Outputs
Projected inventory
Master production schedule
Uncommitted inventory
Master
Scheduling

42. • The master production schedule (MPS) is one of the primary outputs of the
master scheduling process
• Once a tentative MPS has been developed, it must be validated
• Rough cut capacity planning (RCCP) is a tool used in the validation process
• Approximate balancing of capacity and demand to test the feasibility of a master schedule
• Involves checking the capacities of production and warehouse facilities, labor, and vendors to
ensure no gross deficiencies exist that will render the MPS unworkable
Master Scheduling Process

43. QUALITY MANAGEMENT

44. Quality Management
• What does the term quality mean?
• Quality is the ability of a product or service to
consistently meet or exceed customer expectations.

45. What Is Quality?
 Oxford American Dictionary
 a degree or level of excellence
 American Society for Quality
 totality of features and characteristics that satisfy needs
without deficiencies
 Consumer’s and producer’s perspective

46. What Is Quality:
Customer’s Perspective
 Fitness for use
 how well product or service
does what it is supposed to
 Quality of design
 designing quality
characteristics into a product
or service
 A Mercedes and a Ford are
equally “fit for use,” but with
different design dimensions.

47. What Is Quality:
Producer’s Perspective
 Quality of conformance
 making sure product or service is produced according to
design
 if new tires do not conform to specifications, they wobble
 if a hotel room is not clean when a guest checks in, hotel is not
functioning according to specifications of its design

48. Meaning of Quality

49. What Is Quality:
A Final Perspective
 Customer’s and producer’s perspectives
depend on each other
 Producer’s perspective:
 production process and COST
 Customer’s perspective:
 fitness for use and PRICE
 Customer’s view must dominate

50. Dimensions of Quality:
Manufactured Products
 Performance
 basic operating characteristics of a product; how well
a car handles or its gas mileage
 Features
 “extra” items added to basic features, such as a
stereo CD or a leather interior in a car
 Reliability
 probability that a product will operate properly within
an expected time frame; that is, a TV will work
without repair for about seven years

51.  Conformance
 degree to which a product meets pre–established
standards
 Durability
 how long product lasts before replacement; with care,
L.L.Bean boots may last a lifetime
 Serviceability
 ease of getting repairs, speed of repairs, courtesy and
competence of repair person
Dimensions of Quality:
Manufactured Products (cont.)

52.  Aesthetics
 how a product looks, feels, sounds, smells, or
tastes
 Safety
 assurance that customer will not suffer injury
or harm from a product; an especially
important consideration for automobiles
 Perceptions
 subjective perceptions based on brand name,
advertising, and like
Dimensions of Quality:
Manufactured Products (cont.)

53. Dimensions of Quality:
Services
 Time and timeliness
 how long must a customer wait for service, and is it
completed on time?
 is an overnight package delivered overnight?
 Completeness:
 is everything customer asked for provided?
 is a mail order from a catalogue company complete
when delivered?

54. Dimensions of Quality:
Service (cont.)
 Courtesy:
 how are customers treated by employees?
 are catalogue phone operators nice and are their
voices pleasant?
 Consistency
 is same level of service provided to each customer
each time?
 is your newspaper delivered on time every morning?

55.  Accessibility and convenience
 how easy is it to obtain service?
 does service representative answer you calls quickly?
 Accuracy
 is service performed right every time?
 is your bank or credit card statement correct every month?
 Responsiveness
 how well does company react to unusual situations?
 how well is a telephone operator able to respond to a customer’s questions?
Dimensions of Quality:
Service (cont.)

56. Determinants of Quality
Service
Ease of
use
Conforms
to design
Design

57. • Top management
• Design
• Procurement
• Production/operations
• Quality assurance
• Packaging and shipping
• Marketing and sales
• Customer service
Responsibility for Quality

58. The Consequences of Poor Quality
• Loss of business
• Liability
• Productivity
• Costs

59. Cost of Quality
• Cost of Achieving Good Quality
• Prevention costs
• costs incurred during product design
• Appraisal costs
• costs of measuring, testing, and analyzing
• Cost of Poor Quality
• Internal failure costs
• include scrap, rework, process failure, downtime, and
price reductions
• External failure costs
• include complaints, returns, warranty claims, liability,
and lost sales

60. PROBLEM SOLVING
Deming Wheel: PDCA Cycle

61. Additional Tools for Problem solving/ Process
improvement
• Brainstorming – generating free flow of ideas in a group of people
• Affinity diagram – tool used to organize data into logical categories
• Quality circles- group of workers who meet to discuss ways of
improving products or processes
• Interviewing – technique for identifying problems and collecting
information
• Benchmarking – process of measuring performance against the best
in the same or another industry.
• 5W2H : asking questions about a process that include what, why,
where, when , who, how and how much

62. Quality Tools
• Process Flow Chart
• Cause-and-Effect
Diagram
• Check Sheet
• Pareto Analysis
• Histogram
• Scatter Diagram
• Statistical Process
Control Chart

63. Flow Chart

64. 2-64
Cause-and-Effect Diagram
• Cause-and-effect diagram (“fishbone” diagram)
• chart showing different categories of problem causes

65. Check Sheets and Histograms

66. Pareto Analysis
• Pareto analysis
• most quality problems result from a few causes

67. Pareto Chart

68. Scatter Diagram

69. Control Chart

70. 10 SQC/SPC/Cp/Cpk

71. 10-71
Phases of Quality Assurance
Acceptance
sampling
Process
control
Continuous
improvement
Inspection of lots
before/after
production
Inspection and
corrective
action during
production
Quality built
into the
process
The least
progressive
The most
progressive

72. 10-72
Inspection
• How Much/How Often
• Where/When
• Centralized vs. On-site
Inputs Transformation Outputs
Acceptance
sampling
Process
control
Acceptance
sampling

73. 10-73
Where to Inspect in the Process
• Raw materials and purchased parts
• Finished products
• Before a costly operation
• Before an irreversible process
• Before a covering process

74. 10-74
Examples of Inspection Points
Type of
business
Inspection
points
Characteristics
Fast Food Cashier
Counter area
Eating area
Building
Kitchen
Accuracy
Appearance, productivity
Cleanliness
Appearance
Health regulations
Hotel/motel Parking lot
Accounting
Building
Main desk
Safe, well lighted
Accuracy, timeliness
Appearance, safety
Waiting times
Supermarket Cashiers
Deliveries
Accuracy, courtesy
Quality, quantity

75. 10-75
• Statistical Process Control:
Statistical evaluation of the output of a process
during production
• Quality of Conformance:
A product or service conforms to specifications
Statistical Control

76. 10-76
Control Chart
• Control Chart
• Purpose: to monitor process output to see if it is
random
• A time ordered plot representative sample statistics
obtained from an on going process (e.g. sample
means)
• Upper and lower control limits define the range of
acceptable variation

77. 10-77
Control Chart
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
UCL
LCL
Sample number
Mean
Out of
control
Normal variation
due to chance
Abnormal variation
due to assignable sources
Abnormal variation
due to assignable sources

78. 10-78
Statistical Process Control
• The essence of statistical process control is to
assure that the output of a process is random so
that future output will be random.

79. 10-79
Statistical Process Control
• Variations and Control
• Random variation: Natural variations in the output of a
process, created by countless minor factors
• Assignable variation: A variation whose source can be
identified

80. 10-80
Sampling Distribution
Sampling
distribution
Process
distribution
Mean

81. 10-81
Normal Distribution
Mean
   
95.44%
99.74%
Standard deviation

82. 10-82
Control Limits
Sampling
distribution
Process
distribution
Mean
Lower
control
limit
Upper
control
limit

83. 10-83
SPC Errors
• Type I error
• Concluding a process is not in control when it actually
is.
• Type II error
• Concluding a process is in control when it is not.

84. 10-84
Type I and Type II Errors
In control Out of control
In control No Error Type I error
(producers risk)
Out of
control
Type II Error
(consumers risk)
No error

85. 10-85
Type I Error
Mean
LCL UCL
/2 /2
Probability
of Type I error

86. 10-86
Control Charts for Variables
• Mean control charts
• Used to monitor the central tendency of a process.
• X bar charts
• Range control charts
• Used to monitor the process dispersion
• R charts
Variables generate data that are measured.

87. 10-87
Control Chart for Attributes
• p-Chart - Control chart used to monitor the
proportion of defectives in a process
• c-Chart - Control chart used to monitor the number
of defects per unit
Attributes generate data that are counted.

88. 10-88
Use of p-Charts
• When observations can be placed into two
categories.
• Good or bad
• Pass or fail
• Operate or don’t operate
• When the data consists of multiple samples of
several observations each

89. 10-89
Use of c-Charts
• Use only when the number of occurrences per unit
of measure can be counted; non-occurrences cannot
be counted.
• Scratches, chips, dents, or errors per item
• Cracks or faults per unit of distance
• Breaks or Tears per unit of area
• Bacteria or pollutants per unit of volume
• Calls, complaints, failures per unit of time

90. 10-90
Use of Control Charts
• At what point in the process to use control charts
• What size samples to take
• What type of control chart to use
• Variables
• Attributes

91. 10-91
• Tolerances or specifications
• Range of acceptable values established by engineering
design or customer requirements
• Process variability
• Natural variability in a process
• Process capability
• Process variability relative to specification
Process Capability

92. 10-92
Process Capability
Lower
Specification
Upper
Specification
A. Process variability
matches specifications
Lower
Specification
Upper
Specification
B. Process variability
well within specifications
Lower
Specification
Upper
Specification
C. Process variability
exceeds specifications

93. 10-93
Process Capability Ratio
Process capability ratio, Cp =
specification width
process width
Upper specification – lower specification
6
Cp =







 

 3
X
-
UTL
or
3
LTL
X
min
=
Cpk
If the process is centered use Cp
If the process is not centered use Cpk

94. 10-94
Limitations of Capability Indexes
1. Process may not be stable
2. Process output may not be normally distributed
3. Process not centered but Cp is used

95. 10-95
Improving Process Capability
• Simplify
• Standardize
• Mistake-proof
• Upgrade equipment
• Automate