This document discusses capacity planning and aggregate production planning. It describes aggregate planning as intermediate-range planning that typically covers 2 to 18 months and aims to effectively utilize resources to match expected demand. The document outlines various aggregate planning strategies such as altering demand or capacity to match each other. It also discusses techniques for aggregate planning like graphical and mathematical models. Finally, it covers operations scheduling and sequencing, including priority rules.

1. 5-1 Capacity Planning
CHAPTER
4
OPERATIONS PLANNING AND
CONTROL (507)
4.1. Aggregate Production Planning

2. 5-2 Capacity Planning
1. Concept of Aggregate Production Planning
 The term aggregate indicates that the plans are
developed for product lines or product
families, rather than individual products.
Aggregate planning is intermediate-range of
capacity planning that typically covers a time
horizon of 2 to 12 months, although in some
companies it may extend to as much as 18 months.
 Aggregate planning is essentially a “big-picture”
approach to planning. Planners usually try to
avoid focusing on individual products or
services unless the organization has only one
major product or service.

3. 5-3 Capacity Planning
Con….
The goal of aggregate planning is to achieve a
production plan that will effectively utilize the
organization’s resources to match expected
demand.
 A key objective in business planning is to
coordinate the intermediate plans of various
organization functions, such as
Marketing,
Operations, and
Finance.

4. 5-4 Capacity Planning
Con…..
 There are two objectives to aggregate planning:
1. To establish a company-wide game plan for
allocating resources.
 The long-standing battle between the sales
and operations functions within a firm.
 Since, sales and operations planning is defined as
making intermediate-range decisions to balance
supply and demand, integrating financial and
operations planning
2. To develop an economic strategy for meeting demand.
 Matching forecasted demand with available
capacity.

5. 5-5 Capacity Planning
2. Aggregate Planning Strategies (APS)
Proactive
Alter demand to match capacity
Reactive
Alter capacity to match demand
Mixed
Some of each

6. 5-6 Capacity Planning
APS: Demand Options
Demand management is proactive strategy.
1. Influencing demand
 Using advertising or promotion to increase
demand in low periods
 Using pricing differentials to shift demand
from peak periods to off-peak periods
 Attempt to shift demand to slow periods
 May not be sufficient to balance demand and
capacity

7. 5-7 Capacity Planning
APS: Demand Options
2. Back ordering (delaying order filling) during high-
demand periods
Requires customers to wait for an order
without loss of goodwill or the order
Orders are taken in one period and deliveries
promised for a later period
The success of this approach depends on
how willing customers are to wait for delivery
Most effective when there are few if any
substitutes for the product or service
Often results in lost sales, disappointed
customers, and perhaps additional paperwork

8. 5-8 Capacity Planning
APS: Demand Options
3. Counter seasonal product and service
mixing/ creating New demand
Develop a product mix of counter
seasonal items
May lead to products or services
outside the company’s areas of
expertise
E.g. Bus transport (trips by schools,
clubs, and senior citizen groups at free
time)

9. 5-9 Capacity Planning
Capacity/Supply Options
Supply management is Reactive strategy.
1. Changing inventory levels
 Increase inventory in low demand
periods to meet high demand in the future
 Increases costs associated with storage,
insurance, handling, obsolescence, and
capital investment 15% to 40%
 Shortages can mean lost sales due to long
lead times and poor customer service

10. 5-10 Capacity Planning
Capacity/Supply Options
2. Varying workforce size by hiring or
layoffs
 Match production rate to demand
 Training and separation costs for hiring and
laying off workers
 New workers may have lower productivity
 Laying off workers may lower morale and
productivity

11. 5-11 Capacity Planning
Capacity/Supply Options
3. Varying production rate through overtime or idle
time
Allows constant workforce
May be difficult to meet large increases in demand
Overtime can be costly and may drive down
productivity
Absorbing idle time may be difficult
The use of slack when demand is less than
capacity can be an important consideration.
Some organizations use slack time for training. It
also can give workers time for problem solving and
process improvement, while retraining skilled
workers.

12. 5-12 Capacity Planning
Capacity/Supply Options
4. Subcontracting
 Temporary measure during periods of peak
demand
 May be costly
 Assuring quality and timely delivery may be
difficult
 Exposes your customers to a possible
competitor
5. Using part-time workers
 Useful for filling unskilled or low skilled
positions, especially in services

13. 5-13 Capacity Planning
General procedure:
1. Determine demand for each period
2. Determine capacities (regular time, overtime,
subcontracting) for each period
3. Identify company or departmental policies that are
pertinent/relevant
4. Determine units costs
5. Develop alternative plans and costs
6. Select the best plan that satisfies objectives. Otherwise
return to step 5.
3. Techniques for Aggregate Planning

14. 5-14 Capacity Planning
Techniques for Aggregate Planning
Techniques for Aggregate Planning:
1. Graphical Techniques/Trial-and-Error Techniques
It consist of developing simple tables or graphs that
enable planners to visually compare projected
demand requirements with existing capacity.
 Alternatives are usually evaluated in terms of their
overall costs.
The chief disadvantage of such techniques is that
they do not necessarily result in the optimal
aggregate plan.

15. 5-15 Capacity Planning
2. Mathematical Techniques-linear programming
A number of mathematical techniques have been
developed to handle aggregate planning. They range
from mathematical programming models to heuristic
and computer search models.
Linear Programming (LP). (LP) models are methods
for obtaining optimal solutions to problems involving
the allocation of scarce resources in terms of cost
minimization or profit maximization.
With aggregate planning, the goal is usually to
minimize the sum of costs related to regular labour
time, overtime, subcontracting, carrying inventory, and
costs associated with changing the size of the
workforce.

16. 5-16 Capacity Planning
 Simulation Models. A number of simulation
models have been developed for aggregate
planning.
 Simulation models: Computerized models that
can be tested under different scenarios to identify
acceptable solutions to problems.
 The essence of simulation is the development of
computerized models that can be tested under a
variety of conditions in an attempt to identify
reasonably acceptable (although not always
optimal) solutions to problems.

17. 5-17 Capacity Planning
CHAPTER
4
OPERATIONS PLANNING AND
CONTROL
4.2. Operations Scheduling (735)

18. 5-18 Capacity Planning
 Scheduling: Establishing the timing of the use of
equipment, facilities and human activities in an
organization
 Scheduling is the processes of determining the
starting and completion times to jobs.
 Scheduling is a time table for performing
activities, using resources, or allocating facilities.
 Effective scheduling can yield
 Cost savings
 Increases in productivity
1. Operations Scheduling

19. 5-19 Capacity Planning
Scheduling Criteria
1. Minimize completion time
2. Maximize utilization of facilities
3. Minimize work-in-process (WIP)
inventory
4. Minimize customer waiting time
5. Optimize the use of resources so that
production objectives are met

20. 5-20 Capacity Planning
There are two general approaches to scheduling:
Forward and Backward Scheduling
 Forward scheduling means scheduling ahead
from a point in time;
 Forward scheduling starts as soon as the
requirements are known
 Produces a feasible schedule though it may
not meet due dates
 Frequently results in buildup of work-in-
process inventory
Due
Date
Now

21. 5-21 Capacity Planning
Forward and Backward Scheduling
 Backward scheduling begins with the due
date and schedules the final operation first
 Schedule is produced by working backwards
though the processes
 Resources may not be available to
accomplish the schedule
 Often these approaches are combined to
develop a trade-off between a feasible
schedule and customer due dates
Due
Date
Now

22. 5-22 Capacity Planning
2. Approach that can be used to assign jobs to resources
A. Loading:- assignment of jobs to process centers
 When making assignments, managers often seek an
arrangement that will minimize processing and
setup costs, minimize idle time among work
centers, or minimize job completion time,
depending on the situation
 Infinite loading: Refers to jobs are assigned to
work centers without regard to the capacity of the
work centers.
 Finite loading: Refers to jobs are assigned to work
centers taking into account the work center capacity
and job processing times.

23. 5-23 Capacity Planning
B. Assignment Method/model
 A linear programming model for finds optimal
assignment of tasks and resources
 Commonly used criteria include costs, profits,
efficiency, and performance
 Only one job (or worker) is assigned to one
machine (or project)
 Objective is to minimize cost or time
 A much simpler approach is to use a procedure
called the Hungarian method to identify the
lowest-cost solution

24. 5-24 Capacity Planning
Assignment Model: Hungarian Method
 Method of assigning jobs by a one-for one matching to identify the
lowest-cost solution.
 Once the relevant cost information has been acquired and
arranged in tabular form, the basic procedure of the Hungarian
method is as follows:
1. Row reduction: subtract the smallest number in each row from every
number in the row
a. Enter the result in a new table
2. Column reduction: subtract the smallest number in each column from
every number in the column
a. Enter the result in a new table
3. Test whether an optimum assignment can be made
a. Determine the minimum number of lines needed to cross out (cover)
all zeros
b. If the number of lines equals the number of rows, an optimum
assignment is possible. Go to step 6. Else, go to step 4

25. 5-25 Capacity Planning
Hungarian Method (Cont’d)
4. If the number of lines is less than the number of rows, modify the
table:
a. Subtract the smallest number from every uncovered number in
the table
b. Add the smallest uncovered number to the numbers at
intersections of cross-out lines
c. Numbers crossed out but not at intersections of cross-out lines
carry over unchanged to the next table
5. Repeat steps 3 and 4 until an optimal table is obtained
6. Make the assignments
a. Begin with rows or columns with only one zero
b. Match items that have zeros, using only one match for each row
and each column
c. Eliminate both the row and the column after the match

26. 5-26 Capacity Planning
Example: Hungarian Method
 Determine the optimum assignment of jobs to
workers for the following data:
Worker
A B C D
Job
1 8 6 2 4
2 6 7 11 10
3 3 5 7 6
4 5 10 12 9

27. 5-27 Capacity Planning
Example: Hungarian Method (contd.)
Worker Row
minimum
A B C D
Job
1 8 6 2 4 2
2 6 7 11 10 6
3 3 5 7 6 3
4 5 10 12 9 5
Worker
A B C D
Job
1 6 4 0 2
2 0 1 5 4
3 0 2 4 3
4 0 5 7 4
Subtract the smallest
number in each row from
every number in the row

28. 5-28 Capacity Planning
Example: Hungarian Method (contd.)
Worker
A B C D
Job
1 6 4 0 2
2 0 1 5 4
3 0 2 4 3
4 0 5 7 4
Column min. 0 1 0 2
Worker
A B C D
Job
1 6 3 0 0
2 0 0 5 2
3 0 1 4 1
4 0 4 7 2
Subtract the smallest
number in each column
from every number in the
column

29. 5-29 Capacity Planning
Example: Hungarian Method (cont’d)
Worker
A B C D
Job
1 6 3 0 0
2 0 0 5 2
3 0 1 4 1
4 0 4 7 2
Determine the minimum
number of lines needed to
cross out (cover) all zeros.
(Try to cross out as many
zeros as possible when
drawing lines
Since only three lines are needed to cross out all zeros and the table
has four rows, this is not the optimum. Note: the smallest uncovered
value is 1

30. 5-30 Capacity Planning
Example: Hungarian Method (cont’d)
Worker
A B C D
Job
1 6 3 0 0
2 0 0 5 2
3 0 1 4 1
4 0 4 7 2
Subtract the smallest uncovered
value from every uncovered
number, and add it to the values
at the intersection of covering
lines.
Worker
A B C D
Job
1 7 3 0 0
2 1 0 5 2
3 0 0 3 0
4 0 3 6 1

31. 5-31 Capacity Planning
Example: Hungarian Method (cont’d)
Worker
A B C D
Job
1 7 3 0 0
2 1 0 5 2
3 0 0 3 0
4 0 3 6 1
Determine the minimum
number of lines needed to
cross out all zeros. (Try to
cross out as many zeros as
possible when drawing lines
Since four lines are needed to cross out
all zeros and the table has four rows,
this an optimal assignment can be made

32. 5-32 Capacity Planning
Example: Hungarian Method (cont’d)
Worker
A B C D
Job
1 7 3 0 0
2 1 0 5 2
3 0 0 3 0
4 0 3 6 1
Make assignments: Start
with rows and columns with
only one zero. Match jobs
with machines that have a
zero cost. Eliminate both the
row and the column after the
match.

33. 5-33 Capacity Planning
3. Sequencing
 Sequencing: Determine the order in which
jobs at a work center will be processed.
 Workstation: An area where one person
works, usually with special equipment, on a
specialized job.
 Priority rules: Simple heuristics/ used to
select the order in which jobs will be
processed.
 Job time: Time needed for setup and
processing of a job.

34. 5-34 Capacity Planning
Priority Rules
 FCFS - first come, first served
 SPT - shortest processing time
 EDD - earliest due date
 CR - critical ratio: Jobs are processed according to smallest
ratio of time remaining until due date to processing time
remaining.
 S/O - slack per operation: Jobs are processed according to
average slack time (time until due date minus remaining
time to process). Compute by dividing slack time by
number of remaining operations, including the current one.
 Rush – emergency or preferred customers first.
 LPT- Longest Processing Time