Aggregate Planning

12-1 Aggregate Planning

William J. Stevenson

Operations Management

8th edition


CHAPTER12

Aggregate Planning

McGraw-Hill/IrwinOperations Management, Eighth Edition, by William J. StevensonCopyright © 2005 by The McGraw-Hill Companies, Inc. All rights

reserved.


Planning HorizonPlanning Horizon

Aggregate planning: Intermediate-range capacity planning, usually covering 2 to 12 months.

Shortrange

Intermediate range

Long range

Now 2 months 1 Year


Short-range plans (Detailed plans) Machine loading Job assignments

Intermediate plans (General levels) Employment Output

Long-range plans Long term capacity Location / layout

Overview of Planning LevelsOverview of Planning Levels


Planning SequencePlanning Sequence

Business PlanEstablishes operationsand capacity strategiesEstablishes operationsand capacity strategies

Aggregate plan Establishesoperations capacity

Establishesoperations capacity

Master schedule Establishes schedulesfor specific products

Establishes schedulesfor specific products

Corporatestrategies

and policies

Economic,competitive,and political conditions

Aggregatedemand

forecasts

Figure 12.1


Resources Workforce Facilities

Demand forecast Policies

Subcontracting Overtime Inventory levels Back orders

Costs Inventory carrying Back orders Hiring/firing Overtime Inventory changes subcontracting

Aggregate Planning InputsAggregate Planning Inputs


Total cost of a plan Projected levels of inventory

Inventory Output Employment Subcontracting Backordering

Aggregate Planning OutputsAggregate Planning Outputs


Aggregate Planning StrategiesAggregate Planning Strategies

Proactive Alter demand to match capacity

Reactive Alter capacity to match demand

Mixed Some of each


Pricing

Promotion

Back orders

New demand

Demand OptionsDemand Options


Hire and layoff workers Overtime/slack time Part-time workers Inventories Subcontracting

Capacity OptionsCapacity Options


Aggregate Planning StrategiesAggregate Planning Strategies

Maintain a level workforce

Maintain a steady output rate

Match demand period by period

Use a combination of decision variables


Basic StrategiesBasic Strategies

Level capacity strategy:

Maintaining a steady rate of regular-time output while meeting variations in demand by a combination of options.

Chase demand strategy:

Matching capacity to demand; the planned output for a period is set at the expected demand for that period.


Chase ApproachChase Approach

Advantages

Investment in inventory is low

Labor utilization in high

Disadvantages

The cost of adjusting output rates and/or workforce levels


Level ApproachLevel Approach

Advantages

Stable output rates and workforce

Disadvantages

Greater inventory costs

Increased overtime and idle time

Resource utilizations vary over time


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 PlanningTechniques for Aggregate Planning


Cumulative GraphCumulative Graph

1 2 3 4 5 6 7 8 9 10

Cumulativeproduction

CumulativedemandC

um

ula

tive

ou

tpu

t/d

eman

d

Figure 12.3


Average InventoryAverage Inventory

Averageinventory

Beginning Inventory + Ending Inventory2

=


Mathematical TechniquesMathematical Techniques

Linear programming: Methods for obtaining optimal solutions to problems involving allocation of scarce resources in terms of cost minimization.

Linear decision rule: Optimizing technique that seeks to minimize combined costs, using a set of cost-approximating functions to obtain a single quadratic equation.


Summary of Planning TechniquesSummary of Planning Techniques

Technique Solution Characteristics

Graphical/charting Trial and error

Intuitively appealing, easy to understand; solution not necessarily optimal.

Linear programming

Optimizing Computerized; linear assumptions not always valid.

Linear decision rule

Optimizing Complex, requires considerable effort to obtain pertinent cost information and to construct model; cost assumptions not always valid.

Simulation Trial and error

Computerized models can be examined under a variety of conditions.

Table 12.7


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 ServicesAggregate Planning in Services


Aggregate Plan to Master ScheduleAggregate Plan to Master Schedule

AggregatePlanning

Disaggregation

MasterSchedule

Figure 12.4


Master schedule: The result of disaggregating an aggregate plan; shows quantity and timing of specific end items for a scheduled horizon.

Rough-cut capacity planning: Approximate balancing of capacity and demand to test the feasibility of a master schedule.

Disaggregating the Aggregate Plan Disaggregating the Aggregate Plan


Master SchedulingMaster Scheduling

Master schedule Determines quantities needed to meet demand Interfaces with

Marketing Capacity planning Production planning Distribution planning


Master SchedulerMaster Scheduler

Evaluates impact of new orders Provides delivery dates for orders Deals with problems

Production delays Revising master schedule Insufficient capacity


Master Scheduling ProcessMaster Scheduling Process

MasterScheduling

Beginning inventory

Forecast

Customer orders

Inputs Outputs

Projected inventory

Master production schedule

Uncommitted inventory

Figure 12.6


Projected On-hand InventoryProjected On-hand Inventory

Projected on-handinventory

Inventory fromprevious week

Current week’srequirements

-=


Projected On-hand InventoryProjected On-hand Inventory

64 1 2 3 4 5 6 7 8Forecast 30 30 30 30 40 40 40 40

Customer Orders (committed) 33 20 10 4 2

Projected on-hand inventory 31 1 -29

JUNE JULY

Beginning Inventory

Customer orders are larger than forecast in week 1

Forecast is larger than Customer orders in week 2

Forecast is larger than Customer orders in week 3

Figure 12.8


Time Fences in MPSTime Fences in MPS

Period

“frozen”(firm orfixed)

“slushy”somewhat

firm

“liquid”(open)

Figure 12.12

1 2 3 4 5 6 7 8 9


Solved Problems: Problem 1Solved Problems: Problem 1

Aggregate Planning

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