Operations Management II (ORM2BJ[D]22-3)

Session 15 → Aggregate Production Planning

(APP) + Master Production Schedule (MPS)
Purpose of Aggregate Production
Planning (APP)
◼ Use
◼ Long range forecast → Capacity planning
◼ Medium range forecast → Aggregate production
planning

◼ Pure strategies → To counter demand fluctuation

◼ Changing inventory level
◼ Introducing overtime
◼ Changing workforce level (Hiring and Laying off)
◼ Subcontracting
◼ Influencing demand
◼ Mixed strategies
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Aggregate Planning Inputs

◼ Resources
◼ Workforce/Facilities
◼ Demand forecast of product “family”
◼ Policies
◼ Overtime/ Inventory levels/ Back orders/
Subcontracting
◼ Costs
◼ Inventory carrying/Back orders/Shortage
◼ Hiring-firing/Overtime
◼ Subcontracting

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Costs Trade-offs Associated with
Decisions
◼ Inventory vs. Backorder/Shortage cost

◼ Regular payroll vs. Overtime cost

◼ Regular payroll vs. Hiring and firing cost

◼ Regular payroll vs. Subcontracting cost

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Case – Macpherson Refrigeration

◼ Go through the case exhibits

◼ Exhibit 1
◼ Why production at each month = 8400?
◼ Exhibit 2
◼ Why employee in each month = 199?
◼ Exhibit 3

◼ For a mixed approach

◼ Identify the important constraints

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Aggregate Planning – Variable versus
Fixed workforce – Sasser (1976)
Labor skill level required Low High
Job description Low High
Compensation rate Low High
Training required/employee Low High
Then → Preferred planning Chase Level
If considered → Then Chase Level
Labor turnover High Low
Hire-fire costs High Low
Error rate High Low
Amount of supervision required High Low
Type of budget/forecasting required Short-run Long-run
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Topic: Master Production Schedule
(MPS)

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From APP to MPS

Aggregate Production
Planning (APP)

Disaggregation

Master Production
Schedule (MPS)

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What is Disaggregation?

◼ Output of Aggregate Production Planning

◼ Production Schedule for “family” of products
◼ Plan for medium term

◼ Breaking down the APP in detail

◼ Disaggregation

◼ Need to know → For each “type” of product

◼ What quantities
◼ When

◼ Disaggregation results in Master Production Schedule

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Master Production Scheduling

◼ MPS is a “Statement of Production”

◼ NOT a Forecast
◼ Link between → Production planning and what
manufacturing will ACTUALLY build

◼ Forms the basis for calculating the capacity and resources

needed

◼ It is a priority decision for manufacturing

◼ An agreed upon PLAN between marketing and
manufacturing

◼ Drives the Material Requirements Planning (MRP)

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MPS – Structure

◼ MPS starts with forecast, committed orders and beginning

inventory balance
Product Code
Period 1 2 3 4 5 6 7
Forecast
Customer Orders (committed)
Projected On-hand Inventory
MPS
ATP (uncommitted)
ATP = Available To Promise

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MPS with Order Promise – Formulas

◼ Projected on hand
= Previous period Projected on hand + MPS –
Max(Forecast, Orders)

◼ 1st period ATP

= Previous period Projected on hand + Any 1st period MPS
– SUM(All committed orders until next MPS)

◼ Other period ATP

= MPS in that period – SUM(All committed order in that
and subsequent periods until next MPS)

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MPS – Example

Product Code
Period 1 2 3 4 5 6 7 8
Forecast 30 30 30 30 40 40 40 40
Customer Orders
33 20 10 4 2
(committed)
Projected On-hand
64
Inventory
MPS
Available-to-promise
(uncommitted)

◼ Lot size = 70 units

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 Wish You
Happy Holi and
Happy Women’s Day

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