1
The McGraw-Hill Companies, Inc.,
Chapter 13
Aggregate Planning
The McGraw-Hill Companies, Inc.,
OBJECTIVES
Sales and Operations Planning
The Aggregate Operations Plan
Examples: Chase and Level strategies
The McGraw-Hill Companies, Inc.,
Exhibit
Exhibit13.1
13.1
Process planning
Long
range
Strategic capacity planning
Intermediate Forecasting
& demand
range
management
Manufacturing
Sales and operations (aggregate) planning
Sales plan
Aggregate operations plan
Services
Master scheduling
Material requirements planning
Short
range
Order scheduling
Weekly workforce and
customer scheduling
Daily workforce and customer scheduling
The McGraw-Hill Companies, Inc.,
Sales and Operations Planning Activities
Long-range planning
Greater than one year planning horizon
Usually performed in annual increments
Medium-range planning
Six to eighteen months
Usually with monthly or quarterly increments
Short-range planning
One day to less than six months
Usually with weekly increments
The McGraw-Hill Companies, Inc.,
The Aggregate Operations Plan
Main purpose: Specify the optimal combination of
production rate (units completed per unit of time)
workforce level (number of workers)
inventory on hand (inventory carried from
previous period)
Product group or broad category (Aggregation)
This planning is done over an intermediate-range
planning period of 6 to18 months
The McGraw-Hill Companies, Inc.,
Balancing Aggregate Demand
and Aggregate Production Capacity
Suppose
Supposethe
thefigure
figureto
to
the
theright
rightrepresents
represents
forecast
forecastdemand
demandin
in
units
units
Now
Nowsuppose
supposethis
this
lower
lowerfigure
figurerepresents
represents
the
theaggregate
aggregatecapacity
capacity
of
ofthe
thecompany
companyto
to
meet
meetdemand
demand
10000
10000
8000
8000
6000
7000
6000
5500
4500
4000
2000
0
Jan
Feb
Mar
9000
10000
Apr
May
Jun
8000
8000
What
Whatwe
wewant
wantto
todo
doisis
balance
balanceout
outthe
the
production
productionrate,
rate,
workforce
workforcelevels,
levels,and
and
inventory
inventoryto
tomake
make
these
figures
these figuresmatch
matchup
up
6000
6000
4500
4000
Jan
Feb
4000
4000
2000
0
Mar
Apr
May
Jun
The McGraw-Hill Companies, Inc.,
Required Inputs to the Production
Planning System
Competitors
behavior
External
capacity
Current
physical
capacity
Raw material
availability
Planning
for
production
Current
workforce
Inventory
levels
Market
demand
External
to firm
Economic
conditions
Activities
required
for
production
Internal
to firm
The McGraw-Hill Companies, Inc.,
Key Strategies for Meeting Demand
Chase
Level
Some combination of the two
The McGraw-Hill Companies, Inc.,
Aggregate Planning Examples: Unit
Demand and Cost Data
10
Suppose
Supposewe
wehave
havethe
thefollowing
followingunit
unit
demand
demandand
andcost
costinformation:
information:
Demand/mo
Jan
Feb
Mar
Apr
May
Jun
4500
5500
7000
10000
8000
6000
Materials
Holding costs
Marginal cost of stockout
Hiring and training cost
Layoff costs
Labor hours required
Straight time labor cost
Beginning inventory
Productive hours/worker/day
Paid straight hrs/day
$5/unit
$1/unit per mo.
$1.25/unit per mo.
$200/worker
$250/worker
.15 hrs/unit
$8/hour
250 units
7.25
8
The McGraw-Hill Companies, Inc.,
11
Cut-and-Try Example: Determining
Straight Labor Costs and Output
Given
Giventhe
thedemand
demandand
andcost
costinformation
informationbelow,
below,what
what
are
arethe
theaggregate
aggregatehours/worker/month,
hours/worker/month,units/worker,
units/worker,and
and
dollars/worker?
dollars/worker?
Demand/mo
Jun
Jan
Feb
Mar
Apr
4500
5500
7000
Productive hours/worker/day
6000
Paid straight hrs/day
22x8hrsx$8=$140
Jan
8
Days/mo
22
Hrs/worker/mo
159.5
Units/worker
1063.33
$/worker
$1,408
Feb
19
137.75
918.33
1,216
May
7.25x2
2
10000
7.25 8000
Mar
21
152.25
1015
1,344
7.25x0.15=48.33
&
Apr
May
Jun
84.33x22=1063.33
21
22
20
152.25
159.5
145
1015 1063.33 966.67
1,344
1,408
1,280
The McGraw-Hill Companies, Inc.,
12
Chase Strategy
(Hiring & Firing to meet demand)
Days/mo
Hrs/worker/mo
Units/worker
$/worker
Demand
Beg. inv.
Net req.
Req. workers
Hired
Fired
Workforce
Ending inventory
J an
22
159.5
1,063.33
$1,408
J an
4,500
250
4,250
3.997
3
4
0
Lets
Letsassume
assumeour
ourcurrent
currentworkforce
workforceisis77
workers.
workers.
First, calculate net requirements for
production, or 4500-250=4250 units
Then, calculate number of workers
needed to produce the net
requirements, or
4250/1063.33=3.997 or 4 workers
Finally, determine the number of
workers to hire/fire. In this case we
only need 4 workers, we have 7, so
3 can be fired.
The McGraw-Hill Companies, Inc.,
13
Below
Beloware
arethe
thecomplete
completecalculations
calculationsfor
forthe
theremaining
remaining
months
monthsin
inthe
thesix
sixmonth
monthplanning
planninghorizon
horizon
Days/mo
Hrs/worker/mo
Units/worker
$/worker
Demand
Beg. inv.
Net req.
Req. workers
Hired
Fired
Workforce
Ending inventory
J an
22
159.5
1,063
$1,408
Feb
19
137.75
918
1,216
Mar
21
152.25
1,015
1,344
Apr
21
152.25
1,015
1,344
May
22
159.5
1,063
1,408
J un
20
145
967
1,280
J an
4,500
250
4,250
3.997
Feb
5,500
Mar
7,000
Apr
10,000
May
8,000
J un
6,000
5,500
5.989
2
7,000
6.897
1
10,000
9.852
3
8,000
7.524
6,000
6.207
2
8
0
1
7
0
3
4
0
6
0
7
0
10
0
The McGraw-Hill Companies, Inc.,
14
Below are the complete calculations for the remaining months in
the six month planning horizon with the other costs included
Demand
Beg. inv.
Net req.
Req. workers
Hired
Fired
Workforce
Ending inventory
Material
Labor
Hiring cost
Firing cost
J an
4,500
250
4,250
3.997
3
4
0
Feb
5,500
Mar
7,000
Apr
10,000
May
8,000
Jun
6,000
5,500
5.989
2
7,000
6.897
1
10,000
9.852
3
8,000
7.524
6,000
6.207
2
8
0
1
7
0
6
0
7
0
10
0
J an
Feb
Mar
Apr
May
Jun
$21,250.00 $27,500.00 $35,000.00 $50,000.00 $40,000.00 $30,000.00
5,627.59 7,282.76 9,268.97 13,241.38 10,593.10 7,944.83
400.00
200.00
600.00
750.00
500.00
250.00
Costs
203,750.00
53,958.62
1,200.00
1,500.00
$260,408.62
The McGraw-Hill Companies, Inc.,
15
Level Workforce Strategy (Surplus and
Shortage Allowed)
Lets
Letstake
takethe
thesame
sameproblem
problemas
as
before
beforebut
butthis
thistime
timeuse
usethe
the
Level
LevelWorkforce
Workforcestrategy
strategy
This
Thistime
timewe
wewill
willseek
seekto
touse
use
aaworkforce
workforcelevel
levelof
of66workers
workers
Demand
Beg. inv.
Net req.
Workers
Production
Ending inventory
Surplus
Shortage
J an
4,500
250
4,250
6
6,380
2,130
2,130
The McGraw-Hill Companies, Inc.,
16
Below
Below are
arethe
thecomplete
complete calculations
calculationsfor
for the
the remaining
remaining
months
monthsin
inthe
thesix
sixmonth
monthplanning
planninghorizon
horizon
Demand
Beg. inv.
Net req.
Workers
Production
Ending inventory
Surplus
Shortage
Jan
4,500
250
4,250
6
6,380
2,130
2,130
Feb
5,500
2,130
3,370
6
5,510
2,140
2,140
Mar
7,000
2,140
4,860
6
6,090
1,230
1,230
Apr
10,000
1,230
8,770
6
6,090
-2,680
May
8,000
-2,680
10,680
6
6,380
-1,300
Jun
6,000
-1,300
7,300
6
5,800
-1,500
2,680
1,300
1,500
Note,
Note, ifif we
we recalculate
recalculate this
this sheet
sheet with
with 77 workers
workers
we
we would
would have
have aa surplus
surplus
The McGraw-Hill Companies, Inc.,
Below
Below are
are the
the complete
complete calculations
calculations for
for the
the
remaining
remaining months
months in
in the
the six
six month
month planning
planning
horizon
horizon with
with the
the other
other costs
costs included
included
Jan
4,500
250
4,250
6
6,380
2,130
2,130
Jan
$8,448
31,900
2,130
Feb
5,500
2,130
3,370
6
5,510
2,140
2,140
Feb
$7,296
27,550
2,140
Mar
7,000
10
4,860
6
6,090
1,230
1,230
Mar
$8,064
30,450
1,230
Apr
10,000
-910
8,770
6
6,090
-2,680
May
8,000
-3,910
10,680
6
6,380
-1,300
Jun
6,000
-1,620
7,300
6
5,800
-1,500
2,680
1,300
1,500
Apr
$8,064
30,450
May
$8,448
31,900
Jun
$7,680
29,000
3,350
1,625
1,875
17
Note,
Note,total
total
costs
costs under
under
this
thisstrategy
strategy
are
areless
lessthan
than
Chase
Chaseat
at
$260.408.62
$260.408.62
$48,000.00
181,250.00
5,500.00
6,850.00
Labor
Material
Storage
Stockout
$241,600.00
The McGraw-Hill Companies, Inc.,
18
End of Chapter 13
The McGraw-Hill Companies, Inc.,
