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POM Lecture (38)

POM Lecture (38)

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Published by: muneerpp on Aug 14, 2009
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Unit 3Scheduling OperationsChapter 12: Aggregate PlanningLesson 37 -
Learning ObjectivesAfter reading this lesson you will be able to understand
Concept of aggregation
Goals of aggregate planning
Strategies for aggregate planning
Capacity planning
My dear friends, let us straight away focus on the issue at hand:-AGGREGATE PLANNING PROCESS
The process consists of four basic considerations as follows:1.
Concept of Aggregation
starts with a meaningful measure of output. In asingle product output organization there is no problem with the output measure.Many organizations have multiple products and it is difficult to find a commonfactor of measure of output.For e.g. steel producer can plan in terms of tons of steel, gallons of paint in caseof paint industry. Service organizations such as transport system may use passenger miles as a common measure, health care facilities may use patientvisits, and educational institutes may use student to faculty contact ratio in termsof hours as a reasonable measure.You may recall that a group of products or services that have similar demandrequirements and common processing, labour and materials requirements is calleda Product Family. Therefore a firm can aggregate its products or services into aset of relatively broad families, avoiding too much detail at the planning stage.For example consider the Bicycle manufacture that has aggregated all productsinto two families: mountain bikes and road bikes. This approach aids production planning for the assembly lines in the plants.
Let us now turn our attention to:-
2. Goals for aggregate planning 
there are number of goals to be satisfied
It has to provide the overall levels of output, inventory and backlogs
dictated by the business plan
Proper utilization of the plant capacity. It should not be under utilized because it is waste of resources.. It is better to operate at a near fullcapacity.
The aggregate plan should be consistent with the company’s goals and policies regarding its employees.. A firm may like to have employeestability or hire and layoff strategy. Other firms change employees freelyas the output level is varied throughout the aggregate planning horizon.
Moving over to:-
3. Aggregate Demand Forecasts
The benefits of aggregate planning depends onthe accurate forecasting. The forecasting models presented in Chapter 3 can beused to forecast demand for product groups as well as individual products.
 4. Interrelationships among decisions
Here the managers must consider the futureconsequences of current decisions. This is important mainly due to the fact thatoutput plans are developed for a long period of time.
  My dear students, let us now concentrate on:-
Let us consider the strategies with the help of an example:Table 1Quarter 1 2 3 4Forecast salesfor all productgroup ( in $ )1,080,000 2,640,000 1,960,000 1,160,000Wagons in units 27,000 66,000 49,000 29,000Labor in hours 21,600 52,800 39,200 23,200Table 2Month Jan Feb Mar Apr May June July Aug Sept Oct Nov DecUnits / day 182 527 619 1000 1143 952 682 1454 857 637 499 286ProductiveDays22 19 21 22 21 21 22 11 21 22 18 21Forecast (in000 units4 10 13 22 24 20 15 16 18 14 9 6The first step in the analysis is to determine the production requirements the forecasteddemand places on the facility. At first glance May , appears to be the peak month with24,000 units demanded. The number of Productive days actually available must also beconsidered for e.g. August has 11 productive days only Because of annual vacation.
Shutdown. The output rates, output per available productive day, are shown in figure.Let’s examine three “ pure strategies” that the planner could use to cope with these wideswings in monthly demands.Strategy 1.
Vary the number of Productive employees in Response toVarying output Requirements ( also known as Chase 1 plan)
.Here, first the average productivity per employee is first calculated which determines thenumber of employees needed to meet the monthly required output demand. Theemployees are laid off when the output demand falls. As a result there is always Hiringand laying of employees. In our example, productivity per employee is 10 wagons / day.Therefore about 16 employees are needed in January, 53 in February, 62 in March and soon.This strategy has disadvantages. The hiring and layoff costs are going to be high, indirectcosts of training new employees are going to be there, employee morale low, requiredwork skills may not be readily available when they are needed, lead times necessary tohire and train the new employees must be accounted for in the planning process, societyreaction negative. Finally this strategy is not feasible for the companies constrained byguaranteed wage and also hiring and layoff agreements.
 Strategy 2
 Maintain a Constant Work Force Size but Vary the Utilization of the Work Force
( also known as Level # 1
Suppose, for example, we chose the strategy of employing 70 workers per monththroughout the year. On an average, this work force would be capable of producing 700wagons each day. During the lean months (January, February, March, July, October, November, December), the work force would be scheduled to produce only the amountforecasted, resulting in some idle working hours. During high-demand months (April,May, June, August, September), overtime operations would be needed to meet demand.The work force would therefore be intensely utilized during some months andunderutilized in other months.A big advantage of this strategy is that it avoids the hiring and layoff costsassociated with strategy 1. But other costs are incurred instead. Overtime, for example,can be very expensive, commonly at least 50 percent higher than regular-time wages.Furthermore, there are both legal and behavioral limits on overtime. When employeeswork a lot of overtime, they tend to become inefficient, and job-related accidents happenmore often.Idle time also has some subtle drawbacks. During slack periods, employee moralecan diminish, especially if the idle time is perceived to be a precursor of layoffs.Opportunity costs also result from idle time. When employees are forced to be idle, thecompany foregoes the opportunity of additional output. While wages are still paid, some potential output has been lost forever.
Vary the Size of Inventory in Response to Varying Demand also known as Chase #2 plan )
Finished goods inventories in make-to-stock companies can be used as a cushion againstfluctuating demand. A fixed number of employees, selected so that little or no overtimeor idle time is incurred, can be maintained throughout the planning horizon. Producing ata constant rate, output will exceed demand during slack demand periods, and finishedgoods inventories will accumulate. During peak periods, when demand is greater than

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