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Aggregate scheduling (or also known as aggregate planning) is an approach to determine the quantity and timing of production for

the intermediate future (usually 3 to 18 months ahead) Objective of Aggregate Scheduling: To meet forecasted demand while minimizing cost over the planning period. Other strategic issues that may be more important than low cost: 1. Smooth employment levels 2. To drive down inventory levels 3. To meet a high level of service. Note: Idle capacity is expensive and inadequate capacity loses customers. Aggregate planning for: MANUFACTURERS-the aggregate schedule ties the firms' strategic goals to production plans.

AGGREGATE PLANNING STRATEGIES "Managers can meet aggregate plans by adjusting either capacity or demand." Optional Strategies for Developing an Aggregate Plan (Eight) Optional strategies is divided into two. 1. Capacity options- options that do not try to change demand but attempt to absorb demand fluctuations. 2. Demand options-firms try to smooth out changes in the demand pattern over the planning period. Five Kinds of Capacity Options 1. Changing inventory levels 2. Varying workforce size by hiring or layoffs 3. Varying production rates through overtime or held time 4. Subcontracting 5. Using part-time workers

SERVICE ORGANIZATIONS- the aggregate schedule ties strategic goals to workforce schedules. Three Kinds of Demand Options Four things needed for aggregate planning are: 1. A logical overall unit for measuring sales and output. 2. A forecast of demand for a reasonable intermediate planning period in these aggregate terms. 3. A method for determining the relevant costs. 4. A model that combines forecasts and costs so that scheduling decisions can be mad for the planning period. PLANNING HORIZONS Managers prefer long-range forecasts. Long-range forecasts help managers deal with capacity and strategic issues and are the responsibility of the top management. Scheduling decisions- plans that match production to change in demand. THE NATURE OF AGGREGATE PLANNING *It is a combination of appropriate resources. *Plan looks at production in aggregate, not as a product-by-product breakdown. Disaggregation- the process of breaking an aggregate plan into greater detail. Master production schedule -a timetable that specifies what is to be made and when. -addresses the purchasing or production of parts or components needed to make final products.

1. Influencing demand 2. Back ordering during high-demand periods 3. Counter seasonal product and service mixing Mixing Options to Develop a Plan 1. Chase strategy-a planning strategy that sets production equal to forecasted demand. 2. Level scheduling-maintaining a constant output rate, production rate, or workforce level over the planning horizon. 3. Mixed strategy-a planning strategy that uses two or more controllable variables to set a feasible production plan. METHODS FOR AGGREGATE PLANNING "Managers must commit to employment levels, material purchases, and inventory levels; aggregate plans help managers do that." 1. Graphical Methods (Techniques) Aggregate planning techniques that work with a few variables at a time to allow planners to compare projected demand with existing capacity. 2. Mathematical Approaches 2.1 The Transportation Method of Linear Programming-a way of solving for the optimal solution to an aggregate planning problem. 2.2 Management Coefficients Model-a formal planning model built around a manager's experience and performance. 2.3 Other Models a.) Linear decision rule (LDR)-attempts to specify an optimum production rate and

workforce level over a specific period. It minimizes the total costs of payroll, hiring, layoffs, overtime, and inventory through a series of quadratic cost curves. b.) Scheduling by simulation (computer model)-uses a search procedure to look for the minimum-cost combination of values for workforce size and production rate. Summary of Four Major Aggregate Planning Methods Solution Approach es Trial and error

reallocation of available labor. 4. Flexibility in rate of output or hours of work to meet changing demand. Yield (or revenue) management -capacity decisions that determine the allocation of resources to maximize profit or yield. Yield management changes the focus of aggregate planning from capacity management to demand management.

Technique s Graphical methods

Important Aspects Simple to understand and easy to use. Many solutions; one chosen may not be optimal. LP software available; permits sensitivity and new constraints; linear functions may not be realistic. Simple, easy to implement; tries to mimic manager's decision process; uses regression. Complex; model may be difficult to build and for managers to understand.

Organizations that have perishable inventory, such as airlines, hotels, car rental agencies, cruise lines, and even electrical utilities, have the following shared characteristics that make yield management of interest. 1. Service or product can be sold in advance of consumption. 2. Demand fluctuates. 3. The resource (capacity) is relatively fixed. 4. Demand can be segmented. 5. Variable costs are low and fixed costs are high. To make yield management work, the company needs to manage three issues:

Transportat ion method of linear programmi ng

Optimizati on

Manageme nt coefficients model


1. Multiple pricing structures: these

structures must be feasible and appear logical (and preferably fair) to the customer. 2. Forecasts of the use and duration of the use 3. Changes in demand: this means managing the increased use as more capacity is sold. It is also means dealing with issues that occur because pricing structure may not seem logical and fair to all customers. Finally, it means new issues, such as overbooking because the forecast was not perfect. Yield Management Matrix


Change parameter s

AGGREGATE PLANNING IN SERVICES "The major variable in capacity management for services in labor." Successful Techniques (for the cost of labor in service firms) 1. Accurate scheduling of labor-hours to assure quick response to customer demand. 2. An on-call labor resource that can be added or deleted to meet unexpected demand. 3. Flexibility of individual worker skills that permits

Industries in quadrant 2 are traditionally associated with revenue management.