Dire Dawa University

Dire Dawa Institute of Technology

School of Mechanical and Industrial Engineering
POM
By: Kassu Jilcha (PhD)
Assignment Six -One: Aggregate Planning

Part I: Essay Type Questions

1. . Explain the importance of the strategic business plan.
2. Define the aggregate plan.
3. Explain why we use an aggregate or a composite product when developing the aggregate
plan.
4. Compare and contrast the level and the chase aggregate plans.
5. Explain what the hybrid/mixed aggregate plan is and why it is used.
6. Describe the factors to consider before developing an aggregate plan.
7. Explain how aggregate planning is different when the company does not provide a
tangible product.
8. Describe the inputs needed to do master production scheduling.
9. Describe the different sources of demand
10. Discuss the difference and similarity between operation management and production
management
11. What are Advantages of an effective production planning and scheduling?
12. What are the aggregate planning:
a. Inputs
b. Outputs
13. List out the production planning strategies to adjust capacity and resources of an
organization.
14. Explain the benefits of capacity planning. Considering the planning time horizon, discuss
explicitly the relationship between capacity planning and production planning.
15. How can capacity planning and business planning be related?
16. What are the basic Strategies for Adjusting Capacity?
Part II: Work out questions
1. Last week employees at BM metal and wood work produced 46 chairs after working a total
of 200 hours. Of the 46 chairs produced, 12 were damaged due to a problem with the new
sanding machine. The damaged chairs can be discounted and sold for birr 125 each. The
undamaged chairs are sold to a department store retail chain for birr 170 each. What was the
labor productivity ratio for last week? If labor productivity was birr 50 in sales per hour the
previous week, what was the change in labor productivity?
2. A firm produces two products, A and B, on a produce-to-stock basis. The demands for the
products come from many sources. The demand estimates for the two products over the next
six weeks are given in Table.
weeks 1 2 3 4 5 6
Demand for A 30 30 60 50 40 40
Demand for B 30 30 40 40 40 30
In this case company, the safety stock is the minimum level of planned inventory. The safety
stock for A is 40 and for B is 50. The fixed lot size for A is 30 and for B it is 40. The
beginning inventory for A is 40 and for B it is 20. Prepare an MPS for these two products.
3. GM furniture produces a product that has a 6-month demand cycle, as shown in Table 1.1.
Each unit requires 10 worker-hours to produce, at a labour cost of birr 6 per hour regular rate
(or birr 9 per hour overtime). The total cost per unit is estimated at birr 200, but units can be
subcontracted at a cost of birr 220 per unit. There are currently 40 workers employed in the
subject department, and hiring and training costs for additional workers are birr 300 per
person, whereas layoff costs are birr 400 per person. Company policy is to retain a safety
stock equal to 10 per cent of the monthly forecast, and each month's safety stock becomes the
beginning inventory for the next month. There are currently 30 units in stock carried at a cost
of birr 2 per unit-month. Unit shortage, or stock outs, has been assigned a cost of birr 10 per
unit month.
Four aggregate plans are proposed as.
a. Plan 1: Vary work force size to accommodate demand.
b. Plan 2: Maintain constant work force of 30, and use overtime and idle time to meet demand.
c. Plan 3: Maintain constant work force of 30, and build inventory or incur Stockout cost.
d. plan 4: Zero inventory/chase demand
e. Plan 5: constant production (average production plan)
f. plan 6: Mixed strategy
The firm must begin September with the 30-unit inventory on hand. Compare the costs of the
four methods in table form and determine which plan should be recommended to the
management.
September October November December January February
Forecast demand 400 450 500 200 300 450
Workdays 22 19 21 21 22 20
Work hr at 8 per day 176 152 168 168 176 160

4. Engines producer owner which is a producer of heavy-duty snow blower engines, needs to

develop an aggregate plan for the coming year. The company currently uses 20 workers

individuals working 160 regular-time hours each month. Each worker is capable of
 producing 10 heavy-duty snow blowers per month. Employees are paid $12 per hour.

Overtime is limited to a maximum of 40 hours per month per employee. Holding costs are

$5 per unit per period. Back-order cost is $10 per unit per period. The beginning inventory is

40 units. Monthly demand projections are:

a) Develop a hybrid aggregate plan using the initial work force supplemented by overtime. If
demand in any period exceeds regular-time production plus overtime production plus any
beginning inventory, the company will use back orders. Calculate the cost of this plan.
b) Another alternative is to try a level plan that uses inventory and back orders to absorb
fluctuation. Calculate the cost of this plan.
c) A third alternative being considered is to use a hybrid plan but also to close down the facility
for the entire month of July. Overtime, inventory, and back orders can be used. Calculate the
cost of this plan.
d) Compare the three plans in terms of cost, customer service, operations, and human resources.

Submission Date:
Five Weeks after submission of
the assignment