Operations Management

BBA
Academic Year 2021-22

Dr. Hasanuzzaman
Assistant Professor
Operations & Information Technology
ICFAI Business School Hyderabad

■ Planning – Act of developing a guide
Short Range Plans
Detailed Plans:
■ Machine Loading
■ Job Assignments
■ Job Sequencing
■ Production lot size
■ Order Quantities
■ Work Schedules
Intermediate
Short Range
Now 2 months
Planning – Horizon
Intermediate Plans Long-Range Plans
General Levels of: ■ Long-term capacity
■ Employment ■ Location
■ Output ■ Layout
■ Finished-goods inventories ■ Product Design
■ Subcontracting ■ Work System Design
■ Backorders
Long Range
1 Year Planning Horizon
 Planning – Sequence

Economic,
Corporate competitive, Aggregate
strategies and political demand
and policies conditions forecasts

Establishes operations
Business Plan
and capacity strategies

Establishes
Aggregate plan
operations capacity

Master schedule Establishes schedules

for specific products
 Aggregate Planning
■ Aggregate planning is essentially a “big-picture” approach to planning
■ Aggregate planning decisions are strategic decisions that define the framework within
which operating decisions will be made.
– They are the starting point for scheduling and production control systems.
■ Intermediate-range capacity planning, usually covering 2 to 12 months.
■ They provide input for
– Financial plans
– Involve forecasting input and
– Demand management
■ They may require changes in employment levels.
■ If the organization is involved in time-based competition, it will be important to
incorporate some flexibility in the aggregate plan to be able to handle changing
requirements promptly.
 Aggregate Planning – Goal
■ Achieve a production plan that will effectively utilize the organization’s resources to
satisfy demand
– Useful for organizations that experience seasonal, or other variations in demand
 Aggregate Planning – Why?
■ Planning
– It takes time to implement plans
■ Strategic
– Aggregation is important because it is not possible to predict with accuracy the
timing and volume of demand for individual items
■ It is connected to the budgeting process
■ It can help synchronize flow throughout the supply chain
– It affects costs
– Equipment utilization
– Employment levels and
– Customer satisfaction
Dealing with Variation
■ Maintain certain amount of excess
capacity to handle increase in demand
– Safety stock
■ Degree of flexibility in dealing with
changes
– Seasonal demand
■ Delay in differentiation
■ Modular design
 Aggregate Planning
Input Input Output
Resources Cost ■ Total cost of a plan

■ Workforce ■ Inventory carrying Projected levels of

■ Facilities ■ Back orders ■ Inventory

Demand forecast ■ Hiring/firing ■ Output

■ Employment
Policies ■ Overtime
■ Subcontracting
■ Subcontracting ■ Inventory changes
■ Backordering
■ Overtime ■ subcontracting
■ Inventory levels
■ Back orders
 Aggregate Planning – Strategies
■ Proactive
– Proactive strategies are essentially those strategies that are used by companies to
anticipate the future requirements or potential challenges and threats of
a company, and to take steps to cater to these needs and threats before they are
actually experienced.
– Alter demand to match capacity
– Concerned about demand option
■ Reactive
– Alter capacity to match demand
– Concerned about capacity option
■ Mixed
– Some of each
 Aggregate Planning – Demand Options
■ Pricing
■ Promotion
■ Back orders
■ New demand
 Capacity/supply Options
■ Hire and layoff workers
■ Overtime/slack time
■ Part-time workers
■ Inventories
■ Subcontracting
 Strategies for Meeting Uneven Demand

■ Maintain a level workforce

■ Maintain a steady output rate
■ Match demand period by period
■ Use a combination of decision variables
 Strategies for Meeting Uneven Demand
Level Capacity Strategies
– Maintaining a steady rate of regular-time output while meeting variations in
demand by a combination of options.
■ In order to satisfy the changes in customer demand, the firm must raise or lower
inventory level in anticipation of increased or decreased level of forecast demand
■ Variation in demand met by
– inventories, overtime, part-time workers, subcontracting, and back orders
 Strategies for Meeting Uneven Demand
Level Capacity Strategies
■ Advantages
– Investment in inventory is low
– Labor utilization in high
■ Disadvantages
– The cost of adjusting output rates and/or workforce levels
 Strategies for Meeting Uneven Demand
Chase Strategy
■ In this strategy, the production is matched dynamically with demand. This could result in
considerable amount of hiring, firing, or laying off employees.
■ It impact employee relations
■ There is an erratic utilization of resources.
■ It allows inventory to be held at lowest possible level.
 Strategies for Meeting Uneven Demand
Chase Strategy
■ Advantages
– Stable output rates and workforce
■ Disadvantages
– Greater inventory costs
– Increased overtime and idle time
– Resource utilizations vary over time
Hybrid Strategy
– It combines and looks for balance between level strategy and chase strategy.
 Aggregating Planning – Steps
Determine demand for each period

Determine capacities for each period

Identify company or departmental policies that are pertinent

Determine unit costs

Develop alternative plans and costs

Select the plan that best satisfies objectives. Otherwise return to the previous step
 Aggregate Planning – Trial and Error Techniques
■ Using Graphs and Spreadsheets
– Trial-and-error approaches consist of developing simple tables or graphs that enable
planners to visually compare projected demand requirements with existing capacity.
Assumptions
■ The regular output capacity is the same in all periods. No allowance is made for holidays,
different numbers of workdays in different months, and so on.
■ Cost (back order, inventory, subcontracting, etc.) is a linear function composed of unit cost
and number of units. This often has a reasonable approximation to reality, although there
may be only narrow ranges over which this is true.
■ Plans are feasible; that is, sufficient inventory capacity exists to accommodate a plan,
subcontractors with appropriate quality and capacity are standing by, and changes in out- put
can be made as needed.
■ All costs associated with a decision option can be represented by a lump sum or by unit costs
that are independent of the quantity involved.
■ Cost figures can be reasonably estimated and are constant for the planning horizon.
■ Inventories are built up and drawn down at a uniform rate and output occurs at a uniform rate
throughout each period
Aggregate Planning – Trial and Error Techniques
■ To determine the number of workers
■ 𝑁𝑜 𝑜𝑓 𝑊𝑜𝑟𝑘𝑒𝑟 𝑖𝑛 𝑎 𝑝𝑒𝑟𝑖𝑜𝑑 =
𝑁𝑜 𝑜𝑓 𝑤𝑜𝑟𝑘𝑒𝑟 𝑎𝑡 𝑡ℎ𝑒 𝑒𝑛𝑑 𝑜𝑓 𝑡ℎ𝑒 𝑝𝑟𝑒𝑣𝑖𝑜𝑢𝑠 𝑝𝑒𝑟𝑖𝑜𝑑 +
𝑁𝑜 𝑜𝑓 𝑛𝑒𝑤 𝑤𝑜𝑟𝑘𝑒𝑟 𝑎𝑡 𝑡ℎ𝑒 𝑠𝑟𝑡𝑎𝑡 𝑜𝑓 𝑡ℎ𝑎𝑡 𝑝𝑒𝑟𝑖𝑜𝑑 −
𝑁𝑜 𝑜𝑓 𝑙𝑎𝑖𝑑 −
𝑜𝑓𝑓 𝑤𝑜𝑟𝑘𝑒𝑟 𝑎𝑡 𝑡ℎ𝑒 𝑏𝑒𝑔𝑖𝑛𝑖𝑛𝑔 𝑜𝑓 𝑡ℎ𝑒 𝑝𝑒𝑟𝑖𝑜𝑑
■ The amount of inventory, and
■ The cost of a particular plan.
𝐶𝑜𝑠𝑡
= 𝑂𝑢𝑡𝑝𝑢𝑡 𝐶𝑜𝑠𝑡 + 𝐻𝑖𝑟𝑒/𝐿𝑎𝑦𝑜𝑓𝑓 𝐶𝑜𝑠𝑡
+ 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 𝐶𝑜𝑠𝑡 + 𝐵𝑎𝑐𝑘 − 𝑜𝑟𝑑𝑒𝑟 𝐶𝑜𝑠𝑡
Output cost = Regular Cost+ Overtime Cost +
Subcontract Cost
Aggregate Planning – Trial and Error Techniques
Aggregate Planning – Example
Aggregate Planning – Example
 Aggregate Planning – Example

■ The reduced regular-time output is 280 units per period. The maximum amount of
overtime output per period is 40 units
Aggregate Planning – Mathematical Model
Aggregate Planning – Mathematical Model
Aggregate Planning – Mathematical Model
 Aggregate Planning in Service
■ Hospitals:
– Aggregate planning used to allocate funds, staff, and supplies to meet the
demands of patients for their medical services
■ Airlines:
– Aggregate planning in this environment is complex due to the number of factors
involved
– Capacity decisions must take into account the percentage of seats to be allocated
to various fare classes in order to maximize profit or yield
■ Restaurants:
– Aggregate planning in high-volume businesses is directed toward smoothing the
service rate, determining workforce size, and managing demand to match a fixed
capacity
– Can use inventory; however, it is perishable
 Aggregate Planning in Manufacturing and Service
■ Services occur when they are rendered
■ Demand for service can be difficult to predict
■ Capacity availability can be difficult to predict
■ Labor flexibility can be an advantage in services
 Disaggregation
■ Breaking down the aggregate plan into specific
product requirements in order to determine labor Aggregate
requirements (skills, size of work- force), Planning
materials, and inventory requirements.
■ Master schedule
– The result of disaggregating an aggregate
plan; shows quantity and timing of specific Disaggregation
end items for a scheduled horizon.

Master
Schedule
 Master Production Scheduling
■ The heart of production planning and control
■ It determines the quantities needed to meet demand from all sources, and that governs
key decisions and activities throughout the organization.
 The Master Scheduler
■ The central person in the master scheduling process is the master scheduler
The duties of the master scheduler generally include
■ Evaluating the impact of new orders.
■ Providing delivery dates for orders.
■ Dealing with problems
– Evaluating the impact of production delays or late deliveries of purchased goods.
– Revising the master schedule when necessary because of insufficient supplies or
capacity.
– Bringing instances of insufficient capacity to the attention of production and
marketing personnel so that they can participate in resolving conflicts.
 Master Scheduling Process
■ A master schedule indicates the quantity and timing (i.e., delivery times) for a product, or
a group of products, but it does not show planned production.

■ Rough-cut capacity planning (RCCP)

– Approximate balancing of capacity and demand to test the feasibility of a master
schedule.
 Master Scheduling Process – Time Fences
■ Points in time that separate phases of a master schedule planning horizon.
 Master Scheduling Process – Example
■ A company that makes industrial pumps wants to prepare a master production schedule
for June and July. Marketing has forecasted demand of 120 pumps for June and 160
pumps for July.
 Master Scheduling Process – Example
■ suppose that there are currently 64 pumps in inventory (i.e., beginning inventory is 64
pumps), and that there are customer orders that have been committed (booked) and
must be filled

■ Projected on-hand inventory = Inventory from previous week– current week’s requirement
Master Scheduling Process – Example
 Master Scheduling Process – Example
■ If the production lot size is 70 then what will be master production schedule
Master Scheduling Process – Example