PRODUCTION PLANNING &

CONTROL

Capacity Planning & Aggregate

Planning
 Capacity

 The throughput, or the number of

units a facility can hold, receive,
store, or produce in a period of
time
 Determines fixed costs
 Determines if demand will be
satisfied
 Three time horizons
 Planning Over a Time Horizon

Long-range Add facilities

planning Add long lead time equipment
*
Intermediate- Subcontract Add personnel
range Add equipment Build or use inventory
planning Add shifts

Schedule jobs
Short-range Schedule personnel
planning
* Allocate machinery

Modify capacity Use capacity

* Limited options exist
Figure S7.1
 Capacity and Strategy

 Capacity decisions impact all

decisions of operations
management as well as other
functional areas of the organization
 Capacity decisions must be
integrated into the organization’s
mission and strategy
 Managing Demand

 Demand exceeds capacity

 Curtail demand by raising prices,
scheduling longer lead time
 Long term solution is to increase
capacity
 Capacity exceeds demand
 Stimulate market
 Product changes
 Adjusting to seasonal demands
 Produce products with complimentary
demand patterns
 Economies and Diseconomies of
Scale
(dollars per room per night)
Average unit cost

25 - Room 75 - Room
Roadside Motel 50 - Room Roadside Motel
Roadside Motel

Economies Diseconomies
of scale of scale
25 50 75
Number of Rooms
Figure S7.2
 Capacity Considerations

 Forecast demand accurately

 Understanding the technology
and capacity increments
 Find the optimal operating level
(volume)
 Build for change
 What is Product Structure?
Hierarchy chart that identifies all sub-assemblies,
components, and raw material that made up a product.
Components that made up a sub-assembly are
differentiated in various levels
Detail information on each components are shown in
the Bill of Material (BOM)
 What is Product Structure?
Product
Level 0

(3) (1)

S1 S2 Level 1

(2) (4) (3)

SS1 SS1 SS3 Level 2

(3)
(1) (1) (4) (1) (1)
(1)
C1 C2 C3 C1 C2 C4 C5

(1)
(1) (1)
(1) (1) (1) (1)

R2 R3 R4 R2 R3 R4 R5 R6 L4
 Product
Level 0

(3) (1)

S1 S2 Level 1

(2) (4) (3)

SS1 SS1 SS3 Level 2

(3)
(1) (1) (4) (1) (1)
(1)
C1 C2 C3 C1 C2 C4 C5

(1)
(1) (1)
(1) (1) (1) (1)

R2 R3 R4 R2 R3 R4 R5 R6 L4

Compute the number of component C1 required to produce 1000

units of finished product
 Product
Level 0

(3) (1)

S1 S2 Level 1

(2) (4) (3)

SS1 SS1 SS3 Level 2

(3)
(1) (1) (4) (1) (1)
(1)
C1 C2 C3 C1 C2 C4 C5

(1)
(1) (1)
(1) (1) (1) (1)

R2 R3 R4 R2 R3 R4 R5 R6 L4

Component C1 required to produce 1000 units of finished product

= ((1x2x3) + (1x4x1)) x 1000 = 10,000 pcs
Determining Number of Machines

Input, IA Machine Output, OA = 17,500 units

A

3% scrap rate

Compute the input quantity required to fulfill the demand.

Determining Number of Machines

Input, IA Machine Output, OA = 17,500 units

A

3% scrap rate

Output OA
Input , IA  
1  scrap rate 1  PA
17,500
  18,042 units
1 - 0.03
 Determining Number of Machines
Output, OB =
Input, IA 10,000 units
Machine Machine
A B

3% scrap rate 2.5% scrap rate

Compute the input quantity IA required to fulfill the demand.

 Output, OB =
Input, IA 10,000 units
Machine Machine
A B

3% scrap rate 2.5% scrap rate

OB 10,000
IB    10,257
1  PB 1  0.025

OA 10,257
IA    10,575
1  PA 1  0.03

or

OB 10,000
IA    10,574
(1  PB )(1  PA) (1  0.025)(1  0.03)
 Solved Problem
Body Assemble Monthly demand for the
Stem and
#
Bushing to
valve is 15,000 units.
1 A- Scrap rate: P1=1%,
Bushing Body
1
# P2=3%, P3=3%,
2
Stem SA- P4=2.5%. Operating
1 P1 time = 20 days per
#
3
month, 8 hrs per day.
Packing
# Calculate
Assemble
4 SA- A- Cap
Cap
2
P2
2
(a) Quantity for parts #1
# and #5.
5 P3
(b) If the processing time
Handle of A-1 and SA-2 are 2
# Assemble min and 3 min per
6 Nut A-
3 Handle product respectively,
#
7 determine the number
of A-1 and SA-2
required to fulfill the
P4 Final demand.
Inspection
 Body Assemble
# Stem and
1 Bushing to
A- Body
Bushing 1
# Demand
2 SA-
I1 
Stem
1
(1  P 4)(1  P 3)(1  P1)
P1
#
3
Packing 15,000
# 
4
Assemble (1  0.025)(1  0.03)(1  0.01)
Cap SA- P2 A- Cap
2 2
#
5 P3  16,021
Handle
# Assemble Demand
6 Nut A- I5 
3 Handle (1  P 4)(1  P 3)(1  P 2)
#
7

15,000

P4 Final (1  0.025)(1  0.03)(1  0.03)
Inspection

 16,351
If the processing time of A-1 and SA-2 are 2 min and 3 min per product respectively,
determine the number of A-1 and SA-2 required to fulfill the demand.

unit
16,021
unit mth  100.13 unit
I 1  16,021 
mth 20 day  8 hr hr
mth day

min
60
Capacity A - 1  hr  30 unit
min hr
2
unit

unit
100.13
Therefore, number of A - 1 required  hr  3.34  4
unit
30
hr
If the processing time of A-1 and SA-2 are 2 min and 3 min per product respectively,
determine the number of A-1 and SA-2 required to fulfill the demand.

unit
16,351
unit mth  102.19 unit
I 5  16,351 
mth 20 day  8 hr hr
mth day

min
60
Capacity SA - 2  hr  20 unit
min hr
3
unit

unit
102.19
Therefore, number of SA - 2 required  hr  5.1  6
unit
20
hr
Aggregate
Planning
Planning Relationships

Business
or annual
plan
Production
or staffing
plan
MPS or
workforce
schedule

Figure 14.1
 The Planning Process
Long-range plans
(over one year)
Research & Development
New product plans
Capital investment
Facility
location/expansion
Top
executives Intermediate-range plans
(3 to 18 months)
Sales planning
Production planning and
budgeting
Operations Setting employment, inventory,
managers subcontracting levels
Analyzing cooperating plans

Short-range plans
(up to 3 months)
Job assignments
Operations Ordering
managers, Job scheduling
supervisors Dispatching
, foremen Overtime
Part-time help
Figure 13.1
Responsibility Planning tasks and horizon
 Aggregate Planning

Determine the quantity and timing of

production for the immediate future
 Objective is to minimize cost over
the planning period by adjusting
 Production rates
 Labor levels
 Inventory levels
 Overtime work
 Subcontracting
 Other controllable variables
Aggregate Planning
Objectives
 Minimize Costs/Maximize Profits
 Maximize Customer Service
 Minimize Inventory Investment
 Minimize Changes in Production
Rates
 Minimize Changes in Workforce
Levels
 Maximize Utilization of Plant and
Equipment
 Aggregate Planning

Quarter 1
Jan Feb Mar
150,000 120,000 110,000

Quarter 2
Apr May Jun
100,000 130,000 150,000

Quarter 3
Jul Aug Sep
180,000 150,000 140,000
Aggregate Planning

Marketplace Product Research

and decisions
and
demand technology

Process
planning and
capacity
Demand decisions
forecasts,
orders
Workforce Raw
materials
Aggregate available
plan for
production Inventory
on
hand
External
capacity
(subcontractors)
Master
production
schedule and
MRP
systems

Detailed
work
schedules Figure 13.2
 Managerial Inputs
Operations Distribution and marketing
Current machine capacities Customer needs
Plans for future capacities Demand forecasts
Workforce capacities Competition behavior
Current staffing level

Materials Accounting and finance

Supplier capabilities Aggregate Cost data
Storage capacity plan Financial condition
Materials availability of firm

Engineering Human resources

New products Labor-market conditions
Product design changes Training capacity
Machine standards
Figure 14.2
Aggregate Planning Strategies
TABLE 14.1 PLANNING STRATEGIES FOR AGGREGATE PLANS

Possible Alternatives Possible Alternatives

Strategy during Slack Season during Peak Season

1. Vary workforce Layoffs Hiring

level to match demand
2. Vary output Layoffs, undertime, Hiring, overtime,
rate to match demand vacations subcontracting

3. Constant No layoffs, building No hiring, depleting

workforce level anticipation inventory, anticipation inventory,
undertime, vacations over-time, subcontract,
backorders, stockouts

4. Constant Layoffs, building antici- Hiring, depleting antici-

output rate pation inventory, pation inventory, over-
undertime, vacations time, subcontracting,
backorders, stockouts