The document discusses aggregate planning, which involves determining production levels over a planning horizon to meet demand while minimizing costs. It describes different aggregate planning strategies such as level output, chase strategy, and a mixed approach. The level strategy maintains a constant production rate, chase strategy varies production to match demand, and mixed uses both approaches. An example problem demonstrates calculating costs for each strategy using data on demand forecast and production parameters. The optimal strategy balances meeting demand with minimizing total costs of inventory, overtime, and production rate changes.

1. Capacity Planning
28th October

2. Capacity Planning (Book: B.
Mahadevan)
• It is a long term strategic decision that
establishes a firm overall level of resources
• It is the process of determining the necessary
people, machines and physical resources to
meet the production objectives of the firm

3. Strategies for capacity expansion
• Capacity lead strategy: capacity expansion in
anticipation of demand growth
• Capacity lag strategy: Capacity is increased
after an increase in demand has been
documented
• Average capacity strategy: Capacity is
expanded to coincide with average expected
demand

4. Capacity planning framework
Identify available
alternatives and
Compute the select the best
available capacity one for capacity
and identify augmentation
Estimate the
capacity quantum of
requirement for capacity to be
the planning augmented
horizon
Example

5. Alternatives for capacity augmentation
• Waste elimination
• Multi skilling of work force
• Sub- contracting / Outsourcing
Decision tree for capacity planning:
• It is a schematic model in which different sequences and
steps involved in the problem and the consequences of the
decision are systematically portrayed
• Decision tree comprised of nodes and branches. Each node
represent the decision point and branches represent the
potential outcome of the decision
Example 9.4, pg.no. 236

6. Aggregate Planning
11th Nov 2010
Production and Operations
Management: Everette E. adam, Jr.
Ronald J. Ebert

7. Operational planning & scheduling systems
Output planning Capacity planning
Aggregate output Aggregate capacity
Aggregation planning planning
Master production Rough-cut capacity
scheduling planning
Material requirements Detailed capacity
planning planning
Disaggregation Loading
Sequencing
Shop floor control
Detailed scheduling

8. Operational planning & scheduling systems Process for testing feasibility of
output plan. Output plan
Monthly output levels Temp capacity converted into input terms
(6- 18 months) for the adjustment (man-hours, machine hours
finished product groups
Output planning strategies
Capacity planning etc)
Aggregate output Aggregate capacity
Aggregation planning planning
Master production Rough-cut capacity
scheduling planning
Material requirements Detailed capacity
planning planning
Disaggregation Loading
Sequencing
Shop floor control
Detailed scheduling

9. The aggregate planning process
Objective of aggregate planning frequently is to minimize total cost over the planning
horizon. Other objectives should be considered:
•maximize customer service
•minimize inventory investment
•minimize changes in workforce levels
•minimize changes in production rates
•maximize utilization of plant and equipment

10. The aggregate planning process
Concept of aggregation : Deciding the unit for aggregation (# of PC, Tons of output etc)
Identify groups/families of products that although different from one another, share common
production process, share common machines e.g.
FMCG (# of powder bottles as one, # of shampoo bottles as another, # of shampoo sachet).
For some others it can be straight forward
• Service Industry : Airlines : # of passengers
• Steel producer : Tons/Kg of steel produced
• Paint company : Kilo liters of paints produced

11. The aggregate planning process
Goals : The goals to be kept in mind while deciding aggregate plan which later on
in planning process becomes input to MPS
• Overall output & inventory norms as per company policy (eg seasonal build up etc)
• Facility capacity utilization as per company policy
(Full capacity utilization for stable products, 10 % free capacity for meeting sudden demand)
• Employee Policy
(Stable employee work force in case of skilled jobs, Hire/Fire for standard jobs : Loading )

12. The aggregate planning process
Forecast of aggregate demand (Input to aggregate planning process)
Aggregate forecast is more accurate compared to individual hence useful for
Long term planning purpose
January January Forecast
Forecast Actual Error % Error
Product A 100 120 -20 -17%
Product B 200 180 20 11%
Aggregate 300 300 0 0

13. The aggregate planning process
Options for adjusting short term capacity to meet overall organization goals.
Following are commonly used strategies
Internal
1. Vary number of productive employees to meet varying output requirement (Chase strategy)
2. Maintain constant workforce but vary utilization of work force (Chase strategy)
3. Vary size of inventory
4. Mix of any of above
External
1. Subcontractor
2. Rent / Lease equipment
Data for exercise
Refer to page 381 & 382 of handout

14. The aggregate planning process
1.Vary number of productive employees to meet varying output requirement
Varying Work Force Size By Hiring Or Layoffs
This is to Hire Or Lay Off Workers To Meet Production Rates.
Limitations
• In this option, often new employees need to be trained will involve training cost.
• High hiring and lay off costs
• Lowered employee morale during layoff
• Skills may not be available when needed
• Negative community reaction
• Cannot do in case of labor laws etc
Can be used for non critical jobs such as loading/unloading etc

15. The aggregate planning process
2. Maintain constant workforce but vary utilization of work force
Results in idle time during lean period/overtime during peak
Can eliminate limitation of Hire & Fire however has following limitation.
Limitations
• Overtime cost can be expensive
• Overtime can result in errors
• During idle time output would be lost forever .
• Idle time may affect employee morale as they may fear layoff

16. The aggregate planning process
3. Vary size of inventory
Fix # of employees such that little or no overtime/idle time
Production at constant rate (Inventory build up in lean, depletion in peak period)
Can eliminate limitation of Hire & Fire however has following limitation.
Limitations
• Money tied up in inventory
• Obsolescence
• Storage space requirement
So every strategy has limitation hence need to use combination

17. The aggregate planning process
3. Combination method (To combine good points of each strategy)
Graphical method can be used
Exercise (Page 384)
Step 1 : Draw graph (X axis : productive days in planning horizon, Y axis : units output
in thousands), plot cumulative forecast on basis of fig 10.2
Step 2 : Select planning strategy level output
• Find out level output rate for no stock out
• How many employees are needed
• Fill the following table (Provided in next slide)
• Find total cost (Assuming inv carrying cost $ 1 / unit/month)

18. The aggregate planning process
Table for level strategy
Month Days Output(units/day) Output (Units) Demand Beginning in Net addition Ending inv Avg Inv (Beg +
(Units) (Units) (Subtraction to Ending)/2
inv)
Jan 22
feb 19
Mar 21
April 22
May 21
Jun 21
Jul 22
Aug 11
Sep 21
Oct 22
Nov 18
Dec 21

19. The aggregate planning process
• Step 3 : Select planning strategy Chase
• Fill the following table (Provided in next slide)
• Find total cost assuming following
– Estimated cost for changing output rate
Change in output rate from prev month (Incr/decr) Estimated cost
1-200 4000
201-400 10,000
401-600 18,000
601-800 28,000
– Max output (1000 wagons/day), OT : $4/unit

20. The aggregate planning process
Table for level strategy
Month Days Change in Output Rates Output Demand Cost
output (units/day) (Units) (Units)
Jan 22 182 0
feb 19 527
Mar 21 619
April 22 1000
May 21 1143
Jun 21 952
Jul 22 682
Aug 11 1454
Sep 21 857
Oct 22 637
Nov 18 499
Dec 21 286

21. The aggregate planning process
Table for mix strtaegy
• Combination method
Month Days Output(units/
day)
Change in
output
Output
(Units)
Demand
(Units)
Beginning
in (Units)
Net
addition
(Subtractio
Ending inv Avg Inv
(Beg +
Ending)/2
Output
rate
change
n to inv) cost
Jan 22 548 0
feb 19 548
Mar 21 548
April 22 1000
May 21 1000
Jun 21 1000
Jul 22 1000
Aug 11 689
Sep 21 689
Oct 22 689
Nov 18 689
Dec 21 689

22. The aggregate planning process
Compare the cost for each strategy
Type of cost Level Output Variable Mixed
Output
Overtime
Inventory
Output
change rate
Total cost