Operations Management

Aggregate Planning Chapter 13
Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e

13-1

♦ AGG RE GATE P LANNI NG S TR ATE GI ES
Cap acit y Option s ♦ Dem and Opt ions ♦ Mixing O ptions to Dev elop a Plan

Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e

13-2

♦ ME THO DS FOR A GGR EG ATE PLAN NI NG
Gra phic al a nd Cha rt ing M eth od s ♦ Mat hem at ic al Ap pro ac hes to Pl anning

♦ AGG RE GA TE P LANN ING I N S ERV ICE S
Re st aur an ts ♦ Ho sp ital ♦ Miscellan eou s Se rv ice s ♦ Na tion al Cha ins of S ma ll Se rv ice F irms ♦ Airli ne I nd ust ry

Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e

13-3

An heuser- Bu sch
♦ Anheuser-Busch produces nearly 40% of the beer consumed in the U.S. ♦ Matches fluctuating demand by brand to specific plant, labor, and inventory capacity ♦ High facility utilization requires
meticulous cleaning between batches ♦ effective maintenance ♦ efficient employees ♦ efficient facility scheduling

Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e

13-4

Ag gregate Pl anning Re quir es
♦ Logical overall unit for measuring sales and outputs ♦ Forecast of demand for intermediate planning period in these aggregate units ♦ Method for determining costs ♦ Model that combines forecasts and costs so that planning decisions can be made
Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e

13-5

Pl anning
♦ Setting goals & objectives

Example: Meet demand within the limits of available resources at the least cost Example: Hire more workers Example: Begin hiring in Jan.; finish, Mar.

♦ Determining steps to achieve goals

♦ Setting start & completion dates

♦ Assigning responsibility
Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e

13-6

Pl anning Tasks and Re sponsib ilitie s

Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e

13-7

Pl an ning Hori zon s
Short- ran ge p la ns e: Job a ssign ments Ope ratio ns Order in g man ag ers In te rmed ia te -range p la ns Job s che dul in g Sale s p la nn in g Dispatc hi ng Prod ucti on p la nnin g an d bu dge tin g Re spo nsib le Sett in g e mpl oy ment , in vento ry, : O pe rat ions sub con tr actin g le vels man age rs , Ana ly zin g o per ati ng p la ns superv isors ,
foremen Re sponsib l

Lo ng- ran ge p la ns R&D New p rodu ct pl ans Capi ta l e xpens es Fa cil ity l oc at io n, ex pan sio n

Re sponsib le: Top executives

Tod ay

3 Mon th s

1 ye ar

5 ye ar s

Plan ning Hor iz on
Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e

13-8

Rela tio nships of the Agg re gate Plan
Marketplace and Demand Product Decisions Process Planning & Capacity Decisions Agg re gat e Pla n fo r Pro du ctio n Master Production Schedule, and MRP systems Research and Technology

Demand Forecasts, orders

Work Force

Raw Materials Available External Capacity Subcontractors

Inventory On Hand

Detailed Work Schedules
Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e

13-9

Wha t’s Nee de d f or Aggr eg ate Pla nnin g
A mathematically based aggregate planning model requires considerable: ♦ time
♦ problem definition ♦ model development ♦ model verification ♦ model application

expertise

♦ people who understand the problem ♦ people who understand both the modeling process, and the

money

specific model

♦ money to pay for all of the above ♦ often requires funding for several people for several months!
13-10

Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e

Ag gregate Pl anning
♦ Provides the quantity and timing of production for intermediate future

Usually 3 to 18 months into future Often expressed in common units

♦ Combines (‘aggregates’) production

Example: Hours, dollars, equivalents (e.g., FTE students)

♦ Involves capacity and demand variables
Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e

13-11

Ag gre gate Pl anning G oals
♦ Meet demand ♦ Use capacity efficiently ♦ Meet inventory policy ♦ Minimize cost

Labor ♦ Inventory ♦ Plant & equipment ♦ Subcontract

Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e

13-12

The Ex tre me s

Le vel St ra teg y Production rate is constant

Cha se St rat eg y Production equals demand

Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e

13-13

Ag gregate Pl anning St rategie s Pu re St ra tegies
♦ Capacity Options — change capacity:
♦ ♦ ♦ ♦ ♦

changing inventory levels varying work force size by hiring or layoffs varying production capacity through overtime or idle time subcontracting using part-time workers

Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e

13-14

Ag gregate Pl anning St rategie s Pu re St ra tegies
♦ Demand Options — change demand:
♦ ♦ ♦

influencing demand backordering during high demand periods counterseasonal product mixing

Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e

13-15

Ag gregate Sc heduli ng Optio ns - Ad vantages and Dis advantages
Option
Changing inventory levels

Advantage
Changes in human resources are gradual, not abrupt production changes

Disadvantage
Inventory holding costs; Shortages may result in lost sales

Some Comments
Applies mainly to production, not service, operations

Varying workforce size by hiring or layoffs

Avoids use of Hiring, layoff, other alternatives and training costs

Used where size of labor pool is large

Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e

13-16

Ad vanta ges/Di sadvantages Co ntinued
Option
Varying production rates through overtime or idle time Subcontracting

Advantage
Matches seasonal fluctuations without hiring/training costs Permits flexibility and smoothing of the firm's output

Disadvantage Some Comments
Overtime premiums, tired workers, may not meet demand Loss of quality control; reduced profits; loss of future business Allows flexibility within the aggregate plan Applies mainly in production settings

Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e

13-17

Ad vanta ges/Di sadvantages Co ntinued
Option
Using part-time workers

Advantage
Less costly and more flexible than full-time workers Tries to use excess capacity. Discounts draw new customers.

Disadvantage
High turnover/training costs; quality suffers; scheduling difficult Uncertainty in demand. Hard to match demand to supply exactly.

Some Comments
Good for unskilled jobs in areas with large temporary labor pools Creates marketing ideas. Overbooking used in some businesses.

Influencing demand

Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e

13-18

Ad vantage/Di sadvantage Co ntinued
Option
Back ordering during highdemand periods

Advantage

Disadvantage

Some Comments
Many companies backorder.

May avoid Customer must overtime. Keeps be willing to capacity constant wait, but goodwill is lost.

Counterseasonal Fully utilizes May require products and resources; allows skills or service mixing stable workforce. equipment outside a firm's areas of expertise.

Risky finding products or services with opposite demand patterns.

Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e

13-19

Ag gregate Pl anning Str ategies
♦ Mixed strategy
♦ Combines 2 or more aggregate scheduling options

♦ Level scheduling strategy

Produce same amount every day ♦ Keep work force level constant ♦ Vary non-work force capacity or demand options ♦ Often results in lowest production costs

Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e

13-20

Ag gregate Pla nning Me thods
♦ Graphical & charting techniques

Popular & easy-to-understand ♦ Trial & error approach

♦ Mathematical approaches

Transportation method ♦ Linear decision rule ♦ Management coefficients model ♦ Simulation

Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e

13-21

The Graphical Ap proach to Ag gregate Pl anning
♦ Forecast the demand for each period ♦ Determine the capacity for regular time, overtime, and subcontracting, for each period ♦ Determine the labor costs, hiring and firing costs, and inventory holding costs ♦ Consider company policies which may apply to the workers or to stock levels ♦ Develop alternative plans, and examine their total costs
Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e

13-22

Production rate per working day

Forecast and Av erage Forecast De ma nd
70 60 50 40 30 20 10 0
Jan Feb Mar Apr May Jun

Level production using average monthly forecast demand

Forecast Demand

22 20

18

21
13-23

21

22

Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e

Cu mu lativ e De ma nd Graph for Pl an 1
7,000 Cumulative Demand (Units) 6,000 5,000 4,000 3,000 2,000 1,000
Cumulative level production using average monthly forecast requirements Reduction of inventory

Cumulative forecast requirements Excess inventory

Jan Feb Mar Apr May Jun
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13-24

Co mp arison o f Thre e Major Ag gregate Pl anning Me thods
Tech niq ue s As pec ts Charting/graphical
methods Transportation method Optimization

Ap pr oa che s
Trial and error Simple to understand, easy to use. Many solutions; one chosen may not be optimal LP software available;permits sensitivity analysis and constraints. Linear function may not be realistic Simple, easy to implement; tries to mimic manager’s decision process; uses regression
13-25

Management coefficient model

Heuristic

Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e

Co ntroll ing the Cost of Labor in Se rvic e F irms
Seek:
Close control of labor hours to ensure quick response to customer demand ♦ On-call labor resource that can be added or deleted to meet unexpected demand ♦ Flexibility of individual worker skills to permit reallocation of available labor ♦ Flexibility of individual worker in rate of output or hours of work to meet demand

Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e

13-26

Ho tel: Si ngle Pr ice Level
Sales

Demand Curve
Potential customers exist who are willing to pay more than the $15 variable cost Passed up Some customers who profit paid $150 for the room contributions were actually willing to pay more
Money left on the table $15 variable cost of room
Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e

$sales = Net price * 50 rooms =150*50 =$7500

$150 Price charged for room
13-27

Price

Ho te l: Two Pr ice Levels
Sales Demand
Total sales = 1st net price *30 + 2nd net price *30 = $8100

Net prices are: Price #1 => $85 Price #2 => $175

$15 variable cost of room
Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e

$100 Price #1
13-28

$200 Price #2

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