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Ch14 aggt.sales & op.planning
- 1. 1 Aggregate Sales andOperations Planning
- 2. 2 OBJECTIVES Sales and OperationsPlanning The Aggregate Operations Plan Examples: Chase and Level strategies
- 3. 3 Process planning Long range Strategic capacityplanning Intermediate Forecasting & demand range management Manufacturing Sales and operations (aggregate) planning Sales plan Aggregate operations plan Services Master scheduling Material requirements planning Short range Order scheduling Weekly workforce and customer scheduling Daily workforce and customer scheduling
- 4. 4 Sales and OperationsPlanning Activities Long-range planning – – Medium-range planning – – Greater than one year planning horizon Usually performed in annual increments Six to eighteen months Usually with weekly, monthly or quarterly increments Short-range planning – – One day to less than six months Usually with weekly or daily increments
- 5. The Aggregate Operations Plan •Main purpose: Specify the optimal combination of • production rate (units completed per unit of time) • • workforce level (number of workers) inventory on hand (inventory carried from previous period) • Product group or broad category (Aggregation) • This planning is done over an intermediaterange planning period of 3 to18 months 5
- 6. Balancing Aggregate Demand andAggregate Production Capacity Suppose the figure to Suppose the figure to the right represents the right represents forecast demand in forecast demand in units units Now suppose this Now suppose this lower figure represents lower figure represents the aggregate capacity the aggregate capacity of the company to of the company to meet demand meet demand 10000 10000 8000 8000 6000 7000 6000 5500 4500 4000 2000 0 Jan Feb Mar 9000 10000 Apr May Jun 8000 8000 What we want to do is What we want to do is balance out the balance out the production rate, production rate, workforce levels, and workforce levels, and inventory to make inventory to make these figures match up these figures match up 6000 6000 4500 4000 Jan Feb 4000 4000 2000 0 Mar Apr May Jun 6
- 7. 7 Required Inputs tothe Production Planning System Competitors’ behavior External capacity Current physical capacity Raw material availability Planning for production Current workforce Inventory levels Market demand External to firm Economic conditions Activities required for production Internal to firm
- 8. Key Strategies forMeeting Demand (Production Planning Strategies) • Chase Strategy • Stable workforce – variable work hours • Level Strategy 8
- 9. Key Strategies forMeeting Demand (Production Planning Strategies) • Pure Strategy – only one of the 9 variables used to absorb demand fluctuations • Mixed Strategy – two or more variables used in combination constitute this strategy
- 10. 10 AGGREGATE PLANNING TECHNIQUES (cut-and-try) ProdnPlan 1 - Exact Production / Vary workforce Prodn Plan 2 – Constant workforce / Vary Inventory & permit stockouts Prodn Plan 3 – Constant workforce / Subcontract Prodn Plan 4 – Vary wrkforce/Subcont.
- 11. Aggregate Planning Examples:Unit Demand and Cost Data Suppose we have the following unit Suppose we have the following unit demand and cost information: demand and cost information: Demand/mo Jan Feb Mar Apr May Jun 4500 5500 7000 10000 8000 6000 Materials Holding costs Marginal cost of stockout Hiring and training cost Layoff costs Labor hours required Straight time labor cost Beginning inventory Productive hours/worker/day Paid straight hrs/day Rs5/unit Rs1/unit per mo. Rs1.25/unit per mo. Rs200/worker Rs250/worker .15 hrs/unit Rs8/hour 250 units 7.25 8 11
- 12. 12 Cut-and-Try Example: Determining StraightLabor Costs and Output Given the demand and cost information below, what Given the demand and cost information below, what are the aggregate hours/worker/month, units/worker, and are the aggregate hours/worker/month, units/worker, and Ruppees/worker? Ruppees/worker? Demand/mo Jun Jan Feb 4500 5500 Productive hours/worker/day 6000 straight hrs/day Paid 22x8hrsxRs8=Rs1 Jan 408 Days/mo Hrs/worker/mo Units/worker Rs/worker 22 159.5 1063.33 1,408 Feb 19 137.75 918.33 1,216 Mar Apr May 7000 7.25 10000 7.25x 22 8000 8 Mar 21 152.25 1015 1,344 7.25/0.15=48.33 & 48.33x22=1063.33 Apr 21 152.25 1015 1,344 May 22 159.5 1063.33 1,408 Jun 20 145 966.67 1,280
- 13. 13 Chase Strategy (Hiring &Firing to meet demand) Days/mo Hrs/worker/mo Units/worker Rs/worker Demand Beg. inv. Net req. Req. workers Hired Fired Workforce Ending inventory Jan 22 159.5 1,063.33 1,408 Jan 4,500 250 4,250 3.997 3 4 0 Lets assume our current workforce is 7 Lets assume our current workforce is 7 workers. workers. First, calculate net requirements for production, or 4500-250=4250 units Then, calculate number of workers needed to produce the net requirements, or 4250/1063.33=3.997 or 4 workers Finally, determine the number of workers to hire/fire. In this case we only need 4 workers, we have 7, so 3 can be fired.
- 14. 14 Below are thecomplete calculations for the remaining Below are the complete calculations for the remaining months in the six month planning horizon months in the six month planning horizon Days/mo Hrs/worker/mo Units/worker Rs/worker Demand Beg. inv. Net req. Req. workers Hired Fired Workforce Ending inventory Jan 22 159.5 1,063 1,408 Feb 19 137.75 918 1,216 Mar 21 152.25 1,015 1,344 Apr 21 152.25 1,015 1,344 May 22 159.5 1,063 1,408 Jun 20 145 967 1,280 Jan 4,500 250 4,250 3.997 Feb 5,500 Mar 7,000 Apr 10,000 May 8,000 Jun 6,000 5,500 5.989 2 7,000 6.897 1 10,000 9.852 3 8,000 7.524 6,000 6.207 2 8 0 1 7 0 3 4 0 6 0 7 0 10 0
- 15. 15 Below are thecomplete calculations for the remaining months in the six month planning horizon with the other costs included Demand Beg. inv. Net req. Req. workers Hired Fired Workforce Ending inventory Material Labor Hiring cost Firing cost Jan 4,500 250 4,250 3.997 3 4 0 Jan 21,250.00 5,627.59 750.00 Feb 5,500 Mar 7,000 Apr 10,000 May 8,000 Jun 6,000 5,500 5.989 2 7,000 6.897 1 10,000 9.852 3 8,000 7.524 6,000 6.207 2 8 0 1 7 0 6 0 7 0 10 0 Feb 27,500.00 7,282.76 400.00 Mar 35,000.00 9,268.97 200.00 Apr 50,000.00 13,241.38 600.00 May Jun 40,000.00 30,000.00 10,593.10 7,944.83 500.00 250.00 Costs 203,750.00 53,958.62 1,200.00 1,500.00 260,408.62
- 16. 16 Level Workforce Strategy (Surplusand Shortage Allowed) Lets take the same problem as Lets take the same problem as before but this time use the before but this time use the Level Workforce strategy Level Workforce strategy This time we will seek to use This time we will seek to use a workforce level of 6 workers a workforce level of 6 workers Demand Beg. inv. Net req. Workers Production Ending inventory Surplus Shortage Jan 4,500 250 4,250 6 6,380 2,130 2,130
- 17. 17 Below are thecomplete calculations for the remaining Below are the complete calculations for the remaining months in the six month planning horizon months in the six month planning horizon Demand Beg. inv. Net req. Workers Production Ending inventory Surplus Shortage Jan 4,500 250 4,250 6 6,380 2,130 2,130 Feb 5,500 2,130 3,370 6 5,510 2,140 2,140 Mar 7,000 2,140 4,860 6 6,090 1,230 1,230 Apr 10,000 1,230 8,770 6 6,090 -2,680 May 8,000 -2,680 10,680 6 6,380 -1,300 Jun 6,000 -1,300 7,300 6 5,800 -1,500 2,680 1,300 1,500 Note, if we recalculate this sheet with 7 workers Note, if we recalculate this sheet with 7 workers we would have a surplus we would have a surplus
- 18. 18 Below are thecomplete calculations for the remaining Below are the complete calculations for the remaining months in the six month planning horizon with the months in the six month planning horizon with the other costs included other costs included Jan 4,500 250 4,250 6 6,380 2,130 2,130 Apr 10,000 -910 8,770 6 6,090 -2,680 May 8,000 -3,910 10,680 6 6,380 -1,300 2,680 Jan 8,448.00 31,900.00 2,130.00 Feb 5,500 2,130 3,370 6 5,510 2,140 2,140 Mar 7,000 10 4,860 6 6,090 1,230 1,230 Jun 6,000 Note, total Note, total -1,620 costs under 7,300 costs under this strategy 6 this strategy 5,800 are less than are less than -1,500 1,300 Feb Mar Apr 7,296.00 8,064.00 8,064.00 27,550.00 30,450.00 30,450.00 2,140.00 1,230.00 3,350.00 May 8,448.00 31,900.00 Jun 7,680.00 29,000.00 1,625.00 1,875.00 Chase at Chase at Rs260.408.62 1,500 Rs260.408.62 48,000.00 Labor 181,250.00 Material 5,500.00 Storage 6,850.00 Stockout 241,600.00
- 19. 19 Question Bowl a. b. c. d. e. Sales andOperations Planning activities are usually conducted during which planning time horizon? Long-range Intermediate-range Short-range Really short-range None of the above Answer: b. Intermediate-range (i.e., 6 to 18 months)
- 20. 20 Question Bowl a. b. c. d. e. Which ofthe following are Production Planning Strategies can involve trade-offs among the workforce size, work hours, inventory, and backlogs? Chase strategy Stable workforce-variable work hours Level strategy All of the above None of the above Answer: d. All of the above
- 21. 21 Question Bowl Which ofthe following are considered “relevant a. b. c. d. e. costs” in the Aggregate Production Plan? Costs associated with changes in the production rate Inventory holding costs Backordering costs Basic production costs All of the above Answer: e. All of the above
- 22. 22 Question Bowl Which ofthe following Aggregate Planning Techniques can be performed using simple a. b. c. d. e. spreadsheets? Cut-and-try Linear programming Transportation method All of the above None of the above Answer: a. Cut-and-try (The other two involve more complex computational effort than simple spreadsheets.)
- 23. 23 Question Bowl a. b. c. d. e. Which ofthe following methods can be used to allocate the right type of capacity to the right type of customer at the right price and in time to maximize revenue? Cut-and-try Yield management Transportation method All of the above None of the above Answer: b. Yield management
- 24. 24 Question Bowl From anoperational perspective Yield Management is most effective as a capacity technique, then which of the following happens? a. Demand can not be segmented by customer b. Variable costs are high c. Fixed costs are low d. Demand is highly variable e. All of the above Answer: d. Demand is highly variable