BM1913

AGGREGATE PLANNING AND SCHEDULING

The Process Decision
Businesses must ensure enough capacity to meet the anticipated demand. Planning the capacity for a
manufacturing or service business considers three (3) time horizons (Myerson, 2015):
• Long range. This involves decisions covering one (1) to three (3) years, such as adding facilities
and equipment that have a long lead time.
• Medium range. This involves decisions covering two (2) to 12 months, such as adding equipment,
personnel, and shifts. This may also include subcontracting of production. This is also known as
aggregate planning.
• Short range. This involves decisions covering two (2) to three (3) months such as scheduling
production and people and allocating machinery. This is also referred to as production planning.
An organization’s process choices are based on both the volume produced and variety of products. Some
companies that employ low volume production can be considered process-oriented, while others that use
high volume of production are product-focused. The following are the various process decisions for
different types of organizations (Atkin & Brooks, 2015):
• Project. This is used for work that is nonroutine, with a unique set of objectives to be
accomplished in a limited time frame. They are usually customer-specific and too large to be
moved; so people, equipment, and supplies are moved to where they are being constructed or
worked on.
EXAMPLES: Building a bridge and movie making
• Job shop. This usually operates on a relatively small scale. It is used when a low volume of high-
variety goods or services will be needed. It can handle a wide variety of work; however, it is slow,
costly per unit, and requires complex planning and scheduling. This requires a relatively high level
of skill and experience because they must create products based on the customer’s design and
specifications.
EXAMPLES: Repair shop and emergency room
• Batch. This is used when a moderate volume of goods or services is desired, and it can handle a
moderate variety of products and/or services. It is flexible since products or services can be easily
added; however, it is moderately costly per unit and scheduling is moderately complex.
EXAMPLES: Commercial bakery and classroom lecture
• Assembly. This is used when higher volumes of more standardized goods or services are needed,
and monotonous processing is required. It produces high volume with low unit cost but has low
flexibility and costly downtime. Assembly line processes tend to be heavily automated, utilizing
special-purpose equipment, with workers usually performing the same operations for a
production run in a standard flow.
EXAMPLE: Automatic car wash
• Continuous. This is used when a very high volume of non-discrete, highly standardized output is
desired. It is very efficient in producing high volume; however, it is very rigid, costly, and involves
high downtime cost. This requires a continuous flow rather than being divided into individual
steps.
EXAMPLES: Petroleum refining and beverage industries.

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Demand and Supply Options

Demand options refer to a firm’s ability to adjust customer demand to fit that demand to current available
capacity. These options include the following (Myerson, 2015):
1. Influence demand. This can be accomplished through the use of advertising, pricing, promotions,
and price cuts. Examples include using early-bird meals in a restaurant or discounts offered if you
buy before a certain hour or date.
2. Backorders. These occur when an organization gets orders that they cannot fulfill. In many cases,
customers are willing to wait. In others, it can result in lost sales. In some industries such as
grocery stores, backorders are not used. Instead, if an item is out of stock, it is cut from the order
and reordered next time. This is, of course, dangerous if the product is substitutable because it
might not be reordered next time.
3. New or counter-seasonal demand. This can be used to balance demand on particular time
periods. For example, a company that sells summer floral clothes may begin production of cold
fur clothes to cover the demand for clothes during the summer and cold/wet periods.

Supply options refer to the ability of an organization to adjust its available resource capacity to meet
demand. These options include the following (Myerson, 2015):
1. Hire and lay off employees. This involves flexibility in the workforce due to demand peaks and
decline. Although workforce flexibility can prove beneficial to the company, it can also have risks
and costs in terms of unemployment and new-hire training costs.
2. Overtime/idle time. This involves the ability/willingness of the workforce to run some overtime
for periods with very high demand. On the contrary, it also means moving idle workers to other
jobs to some extent, for periods with very low demand. Equipment and workers' efforts, to some
degree, can also be sped up or slowed down.
3. Part-time or temporary workers. This involves hiring people for a specified period of time only,
with no intention of keeping them in the company for good. It is common for contract
manufacturers and in the service industry during the holiday season. There are times when quality
and productivity suffer as a result of this approach.
4. Subcontracting. This is also referred to as contract manufacturing. It is very common in some
industries, such as cosmetics and household and personal-care products, especially when the
demand for a new item is uncertain or a company doesn’t yet have the capability to make the
product. The downside is that costs may be greater because the subcontractor has to make a
profit too, quality may suffer a bit because you have less control, and the fact you may be working
with a future competitor.
5. Vary inventory levels. Inventory may be produced before a peak season when excess capacity
may be limited. However, it can also drive up holding costs, including obsolete or damaged
inventory. An example of this is the ice cream industry, where ice cream can be produced in the
winter and put in a deep freeze until the busy season starts.

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Aggregate Planning Strategies

The following are the commonly used aggregate planning strategies (Myerson, 2015):
• Level plans. This method uses a constant workforce and produces similar quantities each time
period. It uses inventories and backorders to absorb demand peaks and decline. However, it tends
to increase inventory holding costs.
• Chase plans. This method minimizes finished goods inventories by adjusting production and
staffing to keep pace with demand fluctuations. It aims to match demand by varying either
workforce level or output rate. However, it can negatively affect productivity and costs for
instances of inaccurate demand forecasting.
• Mixed strategies. This method is a combination of level and chase plans. In some cases, inventory
is increased ahead of rising demand, and in other cases, backorders are used to level output
during extreme peak periods. There may be layoff of workers during the slower, extended periods,
and companies may subcontract production or hire temporary workers to cover short-term peak
periods. As an alternative to layoffs, workers may be reassigned to other jobs, such as preventive
maintenance, during slow periods.

Production Strategies
Manufacturers usually have one (1) or a combination of the following production strategies (Myerson,
2015):
• Make-to-stock (MTS). Production for finished goods is based on a forecast using predetermined
inventory targets. Customer orders are then filled from existing stock, and those stocks are
replenished through production orders. MTS enables customer orders to be filled immediately
from available stock and allows the manufacturer to organize production in ways that minimize
costly changeovers and other disruptions.
• Make-to-order (MTO). Production is based specifically on particular customer orders. Usually
standardized but low volume of custom items is produced to meet the customer’s specific needs.
MTO environments are slower to fulfill demand than MTS environment because time is required
to make the products from scratch. There also is less risk involved with building a product when
a firm customer order is already in hand.
• Assemble-to-order (ATO). Products are combined from components after the receipt of a
customer order. The customer order initiates assembly of the customized product. This strategy
can prove useful when there are a large number of end products, based on the selection of options
and accessories that can be assembled from common components. For instance, a furniture shop
only assembles the parts of cabinets and display cases after a customer places an order.
• Engineer-to-order (ETO). Production uses customer specifications that require unique
engineering design, significant customization, or newly purchased materials. Each customer order
results in a unique set of part numbers, bills of material (list of items/resources required to make
the product), and routings (steps to manufacture a product). For example, an individual prefers
to have a unique cellphone case dazzled with rare stones and crystals.

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Types of Scheduling
The general types of operations scheduling are as follows (Myerson, 2015):
• Forward scheduling. Plans tasks from the date resources become available to determine the
shipping date or the due date of finished goods or services. It is often used in businesses such as
restaurants and machine shops.
• Backward scheduling. Plans tasks from the due date or required date of finished goods or
services, to determine the manufacturing start date or any changes in capacity required. It is often
used heavily in manufacturing and surgical hospitals.

Priority Rules
The basic priority rules are as follows (Myerson, 2015):
• First come, first served (FCFS). Jobs run in the order they are received. Perhaps the fairest,
although not always most efficient, way of scheduling.
• Earliest due date (EDD). Work on the jobs due the soonest.
• Shortest processing time (SPT). Shortest jobs run earlier to make sure that they are completed
on time. Larger jobs will possibly be late as a result.
• Longest processing time (LPT). Start with the jobs that take the longest to get them done on time.
This may work well for long jobs, but others will suffer as a result.
• Critical ratio (CR). Jobs are processed according to the smallest ratio of time remaining based on
due date.

Waiting Lines
A waiting line system is also known as a queuing system. It is used to estimate the number of potential
customers that can fit into the process of a service system at any given time. For example, if a physician's
waiting room only has five (5) chairs available for patients to sit, one would expect that there would never
be more than five (5) people scheduled for consultation at the same given period. That means the person
scheduling the patients would also need to know how long it takes for the physician to examine each
patient. Optimization also occurs in other service industries by balancing the number of lines or servers,
customer arrival times, and waiting line rules or how people are being serviced (Study, n.d.).

The following are the two (2) main types of waiting lines (Study, n.d.):
• Single line system. It typically works on a first-come, first-served basis. This type of waiting line
presents a view of fairness to the customer which often causes a single line system to work best.
However, in some single line instances, such as a hospital waiting room, the rule about who is
served first is based on the nature of the emergency.
• Multiple line system. It often provides different transaction types by customer type. For instance,
multiple lines at a grocery store are used to allow customers with fewer items to check out more
quickly.

The following are the different types of customer behavior in response to waiting lines (Study, n.d.):
• Balking. It occurs when a customer chooses not to enter the waiting line.
• Reneging. It occurs when a customer enters the line, but leaves.
• Jockeying. It occurs when a customer changes from one line to another.

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ILLUSTRATION: A new shopping mall is considering setting up an information desk manned by one
employee. Based upon information obtained from similar information desks, it is believed that people will
arrive at the desk at a rate of 20 per hour, and it takes an average of two (2) minutes to answer an
individual query.

GIVEN:
o Lamda (𝛌𝛌) - The average number of arrivals per time period
o Mu (µ) - The average number of customers served per time period

PROCEDURE:
o Step 1. Find the probability that the employee is idle using the following formula:
𝛌𝛌 20
𝑷𝑷𝒐𝒐 = 𝟏𝟏 − =1− = 0.33 𝑜𝑜𝑜𝑜 𝟑𝟑𝟑𝟑%
µ 30
KEY POINTS: Based on the given problem, the average number of arrivals per hour is 20, and the
average time it takes to serve a customer is two (2) minutes. This means that the employee can
serve a maximum of 30 customers in 60 minutes or an hour. Moreover, since the problem states
that only 20 people are expected to visit the information desk in an hour, the employee is
expected to be idle 33% of his hourly shift.

o Step 2. Find the proportion of the time that the employee is busy using the following formula:
𝛌𝛌 20
𝑷𝑷 = = = 0.66 𝑜𝑜𝑜𝑜 𝟔𝟔𝟔𝟔%
µ 30
KEY POINTS: The employee is expected to be busy 66% of his hourly shift.

o Step 3. Find the average number of people receiving and waiting to receive some information,
using the following formula:
𝛌𝛌 20 20
𝑳𝑳𝒔𝒔 = = = = 𝟐𝟐 𝒑𝒑𝒑𝒑𝒑𝒑𝒑𝒑𝒑𝒑𝒑𝒑
µ − 𝛌𝛌 30 − 20 10
KEY POINTS: The average number of people receiving and waiting to receive information is two
(2).

o Step 4. Find the average number of people waiting in line to get some information, using the
following formula:
𝛌𝛌𝟐𝟐 202 400 400
𝑳𝑳𝒒𝒒 = = = = = 1.33 𝑜𝑜𝑜𝑜 𝟏𝟏 𝒑𝒑𝒑𝒑𝒑𝒑𝒑𝒑𝒑𝒑𝒑𝒑
µ(µ − 𝛌𝛌) 30(30 − 20) 900 − 600 300
KEY POINTS: The usual number of people on the line is only one (1).

o Step 5. Find the average time a person seeking information spends in the system, using the
following formula:
𝟏𝟏 1 1
𝑾𝑾𝒔𝒔 = = = = 𝟎𝟎. 𝟏𝟏𝟏𝟏 𝒉𝒉𝒉𝒉𝒉𝒉𝒉𝒉𝒉𝒉
µ − 𝛌𝛌 30 − 20 10
KEY POINTS: A person spends 0.10 hours of his time by waiting in line and having his question
answered.

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o Step 6. Find the expected time a person spends just waiting in line to have a question answered
(time in the queue), using the following formula:
𝛌𝛌 20 20 20
𝑾𝑾𝒒𝒒 = = = = = 𝟎𝟎. 𝟎𝟎𝟎𝟎𝟎𝟎𝟎𝟎 𝒉𝒉𝒉𝒉𝒉𝒉𝒉𝒉𝒉𝒉
µ(µ − 𝛌𝛌) 30(30 − 20) 900 − 600 300
KEYPOINTS: A person spends 0.0667 hours of his time just waiting in line.

PROCESSING: From the computed data, the new shopping mall may decide whether or not their current
capacity is enough to serve their customers at a reasonable time period. For the given example, it can be
recommended that one (1) employee in the information desk is already enough to serve the prospective
customers of the mall within an acceptable time spent by the customers.

References
Myerson, P. (2015). Supply chain and logistics management made easy: Methods and applications for
planning, operations, integration, control and improvement, and network design. United States:
Pearson Education, Inc.
Prenhall. (n.d.). Waiting-line models. Retrieved September 12, 2019, from
http://wps.prenhall.com/wps/media/objects/2234/2288589/ModD.pdf
Study. (n.d.). The structure of a waiting-line system & queueing theory in business. Retrieved September
12, 2019, from https://study.com/academy/lesson/the-structure-of-a-waiting-line-system-
queuing-theory-in-business.html

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