Aggregate Planning

Time Unit: 1 month) Capacity and Aggregate Production Plans End Item (SKU) Demand Master Production Scheduling (Plan. Time Unit: 1 week) SKU-level Production Plans Manufacturing and Procurement lead times Part process plans Materials Requirement Planning (Plan.: 1 year.Dealing with the Problem Complexity through Decomposition Corporate Strategy Aggregate Unit Demand Aggregate Planning (Plan.: a day or a shift. Hor. Time Unit: 1 week) Component Production lots and due dates Shop floor-level Production Control (Plan.: a few months. Hor. Hor.: a few months. Hor. Time Unit: real-time) .

Unit Production Reqs Corporate Strategy Aggregate Unit Demand Aggregate Production Plan Aggregate Unit Availability (Current Inventory Position) Aggregate Planning Required Production Capacity Aggregate Production Plan: ‡Aggregate Production levels ‡Aggregate Inventory levels ‡Aggregate Backorder levels Production Capacity Plan: ‡Workforce level(s) ‡Overtime level(s) ‡Subcontracted Quantities .Aggregate Planning Problem Aggr.

. the demand for the aggregate unit is a more robust estimate than its constituent components. ‡Aggregate Unit: A fictitious item representing an entire product family. they have similar production requirements. Remark: Being the cumulate of a number of independent demand series. ‡Aggregate Unit Production Requirements: The amount of (labor) time required for the production of one aggregate unit.Product Aggregation Schemes ‡Items (or Stock Keeping Units . .e.SKU¶s): The final products delivered to the (downstream) customers ‡Families: Group of items that share a common manufacturing setup cost. i. ‡Aggregate Unit Demand: The cumulative demand for the entire set of items represented by the aggregate unit. This is computed by appropriately averaging the (labor) time requirements over the entire set of items represented by the aggregate unit.

2)+ (.8 Item demand as % of aggregate demand 32 21 17 14 10 06 Aggregate unit labor time = (.10)(5.Computing the Aggregate Unit Production Requirements Washing machine Model Number A5532 K4242 L9898 3800 M2624 M3880 Required labor time (hrs) 4.856 hrs .14)(5.2 4.8) = 4.4)+(.2)+(.9 5.9)+(.17)(5.4 5.1 5.21)(4.06)(5.1)+(.2 5.32)(4.

training ‡FC: Firing costs: e.. etc. Demand Chasing: Vary the Workforce Level PC WC HC FC D(t) P(t) = D(t) W(t) ‡D(t): Aggregate demand series ‡P(t): Aggregate production levels ‡W(t): Required Workforce levels ‡Costs Involved: ‡PC: Production Costs ‡fixed (setup. consumables.Pure Aggregate Planning Strategies 1.. overhead) ‡variable (materials. social cost .g. compensation. advertising. interviewing.g.) ‡WC: Regular labor costs ‡HC: Hiring costs: e.

purchasing. quality. ‡OC: overtime costs: incremental cost of producing one unit in overtime ‡(UC: undertime costs: this is hidden in WC) .g.. WC: as before ‡SC: subcontracting costs: e. etc. Varying Production Capacity with Constant Workforce: PC SC WC OC UC D(t) P(t) S(t) O(t) U(t) W = constant ‡S(t): Subcontracted quantities ‡O(t): Overtime levels ‡U(t): Undertime levels ‡Costs involved: ‡PC. transport.Pure Aggregate Planning Strategies 2.

g. storage space. WC: as before ‡IC: inventory holding costs: e. O(t). Accumulating (Seasonal) Inventories: PC WC IC D(t) P(t) I(t) W(t). pilferage. S(t) = constant ‡I(t): Accumulated Inventory levels ‡Costs involved: ‡PC..Pure Aggregate Planning Strategies 3. U(t). obsolescence. . etc. interest lost.

. expediting costs.g. O(t). U(t). Backlogging: PC WC BC D(t) P(t) B(t) W(t). penalties. S(t) = constant ‡B(t): Accumulated Backlog levels ‡Costs involved: ‡PC. WC: as before ‡BC: backlog (handling) costs: e. customer dissatisfaction .Pure Aggregate Planning Strategies 4. lost sales (eventually).

‡maximal allowed subcontracting ‡maximal allowed workforce variation in two consecutive periods ‡maximal allowed overtime ‡safety stocks ‡etc.Typical Aggregate Planning Strategy A ³mixture´ of the previously discussed pure options: PC WC HC FC OC UC SC IC BC P W H F O U S I B D Io Wo Additional constraints arising from the company strategy..g. + . e.

Solution Approaches ‡ Graphical Approaches: Spreadsheet-based simulation ‡ Analytical Approaches: Mathematical (mainly linear programming) Programming formulations .

Prod. Capacity: t.t. (u_l_r)*Pt e .Analytical Approach: A Linear Programming Formulation min TC = 7t ( PCt*Pt+WCt*Wt+OCt*Ot+HCt*Ht+FCt*Ft+ SCt*St+ICt*It+BCt*Bt ) s.


Ot. Pt. It. St. Ft. /shift_duration (in hours) / (working_days) for month t . Wt. Wt = Wt-1+Ht-Ft ( Any additional policy constraints ) Var. Pt+It-1+St = (Dt-Bt)+Bt-1+It Workforce Balance: t. Bt u 0 Time unit: month / unit_labor_req. sign restrictions: t. Ht.w_d)t*Wt+Ot Material Balance: t.

± (e. Capacity) Options or Proactive Approaches to Aggregate Planning ‡ Influencing demand variation so that it aligns to available production capacity: ± advertising ± promotional plans ± pricing (e. lawn mowers and snow blowers) ‡ => The outcome of this type of planning is communicated to the overall aggregate planning procedure as (expected) changes in the demand forecast. telecommunication companies¶ weekend rates) ‡ ³Counter-seasonal´ product (and service) mixing: Develop a product mix with antithetic (seasonal) trends that level the cumulative required production capacity..g..g.Demand (vs. . airline and hotel weekend discounts.

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