Aggregate Production Planning

Production Planning and Control (PPC)

 Production Planning
• Production planning is deals with basic concepts of
– What to produce,
– When to produce,
– How to produce,
– How much to produce, etc.
• It ensure
– right quantity and quality of raw material,
– machines,
– equipment and
– human resources
are available during times of production.
 Production Control
• In spite of planning to the minute details, most of
the time it is not possible to achieve production
100 % as per the plan.
• Some times there may be deviation from the
actual plan due to some factor. These factors are:
1. Unavailability of materials (due to shortage, etc.);
2. Plant, equipment and machine breakdown;
3. Due to demand fluctuation;
4. Absentee of workers, Labor dispute; and
5. Lack of coordination and communication between
various functional areas of business.
• Thus, if there is a deviation between actual
production and planned production, the control
function comes into action.
• Hence Production control is the mechanism tries
to take corrective action to match the planned
and actual production.
 Various phases of PPC
• Product development and design
• Forecasting
• Aggregate planning
• Material requirement planning
• Scheduling
• Quality Control
• Dispatching
• Inspection
 Aggregate planning
• Aggregate planning is medium-term capacity
planning that typically covers a period of 3 to 18
months.
• Aggregate planning considers the resources needed
for production such as
– Equipment, Machines
– Raw materials
– Production space
– Time and
– Labour
• Companies use aggregate planning to ensure that
there will be smooth production process and they
have sufficient resources to meet customer demand.
• A company’s aggregate plan typically addresses
the following three specific operational
considerations:
• Employment levels: How much manpower is
needed to meet the set production rates?
• Inventory levels: How much inventory (raw
material and parts) does the company need?
• Production or output rates: How much will the
company produce in the designated time period?
 Steps for developing Aggregate Plan
• Step 1: Determine demand for each time period
covered in the plan.
– You can use forecasting methods to predict demand.
• Step 2: Determine the available capacities for
each time period.
– Calculate capacities for all resources, including labour
and machine capacities.
• Step 3: Identify external factors and constraints
such as regulation and market forces that may
influence the plan.
• Step 4: Determine product cost, based on direct
labour and material costs as well as indirect or
overhead (fixed) manufacturing expenses.
• Step 5: Develop contingency plans to account for
fluctuating in demand pattern.
• Step 6: Test the plan for robustness (its ability to
perform well under varying conditions).
 Aggregate Planning Strategies
• There are two types of Aggregate Planning
Strategies available to the aggregate planner:
1. Level strategy
2. Chase strategy
• Level strategy: Level strategy is approach that
produces the same quantity each time period.
i.e. level strategy seeks to develop an aggregate
plan that maintains a steady production rate.
• Holding inventory and back orders are used to
absorb demand fluctuations.
Level strategy = Constant production rate
• Chase strategy: A chase strategy implies matching
demand and capacity period by period.
• The production rate changes in response to
demand fluctuations.

Production = Demand
 Methods for Aggregate Planning
• Graphical Methods
• Mathematical Approaches
 Graphical Methods
• Popular techniques
• Easy to understand and use
• Based on trial-and-error approaches.
• Require only limited computations.
 Graphical Methods
• Determine the demand for each period.
• Determine capacity for regular time,
overtime, and subcontracting each period.
• Find labour costs, hiring and layoff costs,
and inventory holding costs.
• Consider company policy that may apply to
the workers or to stock levels.
• Develop alternative plans and examine
their total costs.
 Example: 1
• A Juarez, Mexico, manufacturer of roofing
supplies has developed monthly forecasts for a
family of products. Data for the 6-month period
January to June and Cost Information are
presented in Table. The firm would like to begin
development of an aggregate plan using
• Level Strategies
• Chase Strategies
 Level Strategy
• Plan 1: Produce constant product daily, for which
we have to maintain constant workforce daily.
• If demand is higher than production then there
will be stock out, and if demand is below than
constant production then there will be extra
inventory which we have to keep in stock.
• Plan 2: To avoid holding or stock out situation we
can go for subcontract the excess demand.
 Chase Strategy
• Plan: To avoid holding, stock out and
subcontracting, we can produce the quantity
equal to the requirement.
• In this case we have to hire/ layoff the workforce
as required.
 Problem: 2
• The Good and Rich Candy Company makes a
variety of candies in three factories worldwide.
Its line of chocolate candies exhibits a highly
seasonal demand pattern, with peaks during the
winter months (for the holiday season and
Valentine’s Day) and valleys during the summer
months (when chocolate tends to melt and
customers are watching their weight). Given the
following costs and quarterly sales forecasts,
determine whether (a) level strategy, or (b) chase
strategy would more economically meet the
demand for chocolate candies:
 Mathematical Approaches
• The Transportation Method can be used as
mathematical approaches for aggregate planning.
• This method is used when we have to allocate
operating capacity to meet the forecast demand.
• The transportation method is not a trial-and-error
approach like graphical method but it produces an
optimal plan for minimizing costs.
• For cases in which the decision to change the size of
the workforce is prohibited (i.e. hiring and firing is
not an option), the transportation method can be
used to develop an aggregate production plan.
 Problem: 3
• Burruss Manufacturing Company uses overtime,
inventory, and subcontracting to absorb
fluctuations in demand. An aggregate production
plan is devised annually and updated quarterly.
Cost data, expected demand, and available
capacities in units for the next four quarters are
given here. Demand must be satisfied in the
period it occurs; that is, no backordering is
allowed. Design a production plan that will
satisfy demand at minimum cost.
 Steps for Mathematical Approaches
• Step 1: Draw the transportation table (tableau).
Tableau is worksheet that can be completed as
follows:
• Step 2: To set up the tableau, demand
requirements for each quarter are listed on the
bottom row, and capacity constraints for each type
of production (i.e., regular, overtime, or
subcontracting) are placed in the far right column
• Step 3: Next, cost figures are entered into the
small square at the corner of each cell.
• Starting with the beginning inventory row,
inventory on hand in period 1 that is used in
period 1 incurs zero cost.
• Inventory on hand in period 1 that is not used
until period 2 incurs a $3 holding cost.
• Inventory held until period 3, costs $3 more, or $6.
Similarly, inventory held until period 4 costs an
additional $3, or $9.
• Step 4: For regular production, a unit produced in
period 1 and used in period 1, costs $20.
• A unit produced under regular production in
period 1 but not used until period 2, incurs a
production cost of $20 plus an inventory cost of
$3, or $23.
• If the unit is held until period 3, it costs $3 more,
or $26.
• If held until period 4, it costs $29. The cost
calculations continue for overtime and
subcontracting, beginning with production costs of
$25 and $28, respectively.
• Step 5: The costs for production in periods 2, 3,
and 4 are determined in a similar fashion.
• Step 6: Now that the tableau is set up, we can
begin to allocate units to the cells and develop our
production plan.
The Production Plan
 Problem: 4
• Farnsworth Tire Company would like to develop
an aggregate plan via the transportation method.
Data that relate to production, demand, capacity,
and cost at its West Virginia plant are shown in
Table. Help the Tire Company to develop the
aggregate plan that will satisfy demand at
minimum cost.
 Categorization of Inventory
• Based on the demand pattern inventory is
categorized in two parts
– Dependent demand
– Independent demand
• Dependent demand: Dependent demand are the
components, parts or raw materials used in the
process of producing final product.
• Independent demand: Independent demand items are
final or finished products that are not a function of
internal production activity.
• The demand for a finished good tends to be
independent.
 Material requirements planning (MRP)
• MRP refers to the basic calculations used to
determine components required for the
production of final product.
• MRP is a computer-based technique for
determining the quantity and timing for the
acquisition of dependent demand items needed
to produce independent demand items.
• In short you can say MRP is a computer-based
production planning and inventory control
system.
 Objectives of MRP
• Inventory reduction: MRP helps to procure
the raw materials / components when they
needed and thus avoid to hold excess
inventory.
• Reduction in the manufacturing times: MRP
identifies quantity, timing, availabilities of
required materials and component which
helps to avoid delays in production and prior
production activities.
• Realistic delivery commitments: By using
MRP, manufacturer can give information to
their customers about likely delivery times.
• Increased efficiency: MRP provides a close
coordination among various work centres
which help to achieve uninterrupted flow of
materials through the production line.
This increases the efficiency of production
system.
 MRP System
• The inputs to the MRP system are:
– A Master Production Schedule (MPS),
– An Inventory Status File and
– Bill of Materials (BOM)
• Using these three information sources (input), the
MRP processing logic (computer programme)
provides three kinds of information (output) for
each product component:
– Planned orders
– Order release
– Order rescheduling
 Master Production Schedule
• The master production schedule expresses
– how many items (finished product) are to be produced
– when to be produced
• The schedule must be in accordance with an
aggregate plan.
• The Aggregate Plan is the basis for development of
the Master Production Schedule
 Inventory Status File
• Inventory Status File gives complete and up to
date information of
– on-hand quantities,
– gross requirements,
– scheduled receipts, and
– planned order releases
for an item (components and raw materials).
 Bill of Materials (BOM)
• A bill of material (BOM) is a list of quantities of
components, ingredients, and materials required
to make a product.
Bill of Materials Example
 MRP Output
• Planned Orders : These reports contain the supply
orders planned to be released in future.
• Order Release: These reports contain orders are to
be released by the purchase department.
• Order Rescheduling: These notices indicate the
changes in due dates of supply orders.
 Scheduling
• Scheduling involves sequencing and allotting
time, labour, equipment, and facilities to each
operation necessary to manufacture the final
product.
• With the help of scheduling techniques
Operations Manager can decide:
– When the operation will occur.
– How much time that operation take.
– Resource needed for each operation.
• It is the last stage of planning before production
takes place.
 Objectives of scheduling
• The principle aim of scheduling is to plan the
sequence of work so that production can be
systematically arranged.
• Meeting customer demand (finished goods) on time.
• To achieve the required rate of output with a
minimum of delay and disruption in processing.
• To maximum utilization of men, machine by
maintaining a smooth flow of materials along the
production line.
• Minimizing idle time.
• To complete the production at minimum total cost.
 Scheduling Techniques
• Gantt Charts
• Linear programming model
• CPM (for project)
• PERT (for project)
 Gantt Charts
ØGantt chart is graphical representation of all the
operations involved in production of product.
ØEach operation is represented by bar which
shows the sequence and time of the operation.
ØThe position and length of bar reflects the start
date, duration and end date of the operation.
 Example 1

• Consider to manufacturing of a product ‘A’

which have 5 operations. Develop the Gantt
chart
Task Name Start Date Finish Date Duration

Operation 1 (Turning) 16-01-2019 21-01-2019 6 days

Operation 2 (Milling) 22-01-2019 23-01-2019 2 days
Operation 3 (Drilling) 22-01-2019 28-01-2019 7 days
Operation 4 (Welding) 26-01-2019 28-01-2019 3 days
Operation 5 (Assembly) 29-01-2019 05-02-2019 8 days
 Example 2

• There are 5 jobs, 2 machines, each job must first

go to machine 1, and then 2, without changing
order. Draw the Gantt Chart if order jobs are
worked in following sequence (3,2,4,5,1).
Processing times are:

Min Min

Min Min
Min Min

Min Min

Min Min
 Software for Gantt Chart
• Work zone
• Easy project
• Team Gantt
• Ganttpro
• Celoxio
 Job Shop Scheduling
• Job Shop: It is a work location in which a number
of general purpose work stations exist and are
used to perform a variety of jobs (operations).
• Job shop scheduling is also known as shop floor
control (SFC).
• When several jobs need to be done on one
machine(or number of machine), how do you
decide which one to do first?
• Job Shop Scheduling is a short-term plan how
jobs to be arrive at each work-station.
 Priority Rules for Scheduling Jobs
• FCFS (First Come, First Served): Jobs are completed
in the order they arrived.
• SPT (Shortest Processing Time): Jobs with the
shortest processing times are assigned first.
• EDD (Earliest Due Date): Earliest due date jobs are
assigned first.
• LPT (Longest Processing Time): Jobs with the
longest processing time are assigned first. This rule
is the reverse of the SPT rule.
 Example: 1
• Five architectural rendering jobs are waiting
to be assigned at Avanti Sethi Architects.
The order of their arrival at work station is
A,B,C,D,E. Their work (processing) times
and due dates are given in the following
table. The firm wants to determine the
sequence of processing according to (1)
FCFS, (2) SPT, (3) EDD, and (4) LPT rules.
Today is day 1, and work begins today.
Identify which priority is better.
 Critical Ratio
• Critical Ratio (CR) is another priority rule which is
better than all other.
• Critical Ratio (CR) is an index number computed
by dividing the time remaining until due date by
the processing time require on that Job.
 o If CR = 1, then the job is exactly on schedule
o If CR < 1, then the job is behind schedule
o If CR > 1, then the job is ahead of schedule
• Job with lowest CR should have highest priority
 Example: 2
• Today is day 25 on Zyco Medical Testing
Laboratories’ production schedule. Three jobs
are on order, as indicated in Table. Identify which
job should assigned first?

Job Due Date Processing Time

A 30 4
B 28 5
C 27 2
 Sequencing ‘N’ Jobs on Two Machines: Johnson’s Rule

• An approach for sequencing a group of jobs through

two work centres while minimizing total idle time in
the work centres.
• Johnson’s rule involves four steps
• Step 1: All jobs are to be listed, and the time that each
job requires on each machine is to be shown.
• Step 2: Select the job with the shortest activity time.
o If the shortest time lies with the first machine, the job is
scheduled first.
o If the shortest time lies with the second machine, schedule
the job last.
o Ties in activity times can be broken arbitrarily.
• Step 3: Once a job is scheduled, eliminate it.
• Step 4: Apply steps 2 and 3 to the remaining jobs,
working toward the centre of the sequence.
 Example: 3
• Five specialty jobs at tool and die shop must be
processed through two work centres (drill press
and lathe). The time for processing each job
follows:
• Identify the sequence to minimize the total time for
the five jobs. Illustrate the time-phased flow of this
job sequence graphically.
• Identify total idle time for workcentre-1 and
workcentre-2.
 Example: 4
• Use Johnson’s rule to find the optimum sequence
for processing the jobs shown through two work
centres. Times at each centre are in hours.
• Illustrate the throughput time and idle time at the
two work centres