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Azminullah Al Ridha Diah Paramitha Hefrandy H M Hadianto Mubarak Renaldi Mukriyanto Teni Krisnaningsih
Aggregate planning determines the quantity and timing of resources that are required to match immediate periodic demand for all products. Objective is to satisfy market demand for products while minimizing cost over the planning period by adjusting
Production rates Labor levels Inventory levels Overtime work Subcontracting Other controllable variables
Required for aggregate planning A logical overall unit for measuring sales and output A forecast of demand for intermediate planning period in these aggregate units A method for determining costs A model that combines forecasts and costs so that scheduling decisions can be made for the planning period
The Planning Process Page 5 .
foremen Responsible: Top executives Long-range plans R&D New product plans Capital expenses Facility location. expansion Today 3 Months 1 year Planning Horizon 5 years Page 6 . inventory.Planning Horizons Short-range plans Job assignments Ordering Job scheduling Dispatching Responsible : Operations managers Intermediate-range plans Sales planning Production planning and budgeting Setting employment. supervisors. subcontracting levels Analyzing operating plans Responsible : Operations managers.
2. should inventories be used to absorb changes in demand during the planning period? should changes be accomodated by varying the size of workforce? should part-timers be used. 4. or should overtime and idle time absorb fluctuation? should subcontractors be used on fluctuating orders so a stable workforce can be maintained? should prices or other factors be changed to influence demand? Page 7 . 3. 5. the operations manager must answer several questions : The Question for Operations Manager 1.AGGREGATE PLANNING STRATEGIES When generating an aggregate plan.
Relationships of the Aggregate Plan Marketplace and Demand Product Decisions Research and Technology Demand Forecasts. and MRP systems Detailed Work Schedules Page 8 . orders Process Planning & Capacity Decisions Work Force Aggregate Plan for Production Raw Materials Available Inventory On Hand External Capacity Subcontractors Master Production Schedule.
AGGREGATE PLANNING STRATEGIES Capacity Options basic capacity A firm can choose from the following (production) options : 1. 3. 4. 5. Changing inventory levels Varying workforce size by hiring or layoffs Varying production rates through overtime or idle time Subcontracting Using part-time workers Page 9 . 2.
Back ordering during high demand periods 3.AGGREGATE PLANNING STRATEGIES The basic demand options are : 1. Influencing demand 2. Counterseasonal product and service mixing Demand Options Page 10 .
AGGREGATE PLANNING STRATEGIES Mixing Options to Develop a Plan Level Strategy Chase Strategy Production rate is constant Production equals demand Page 11 .
service. and Used where size of workforce of other training costs labor pool is large size by hiring alternatives may be or layoffs significant Table 13. layoff. not are gradual or increase. no abrupt Shortages may operations production result in lost changes sales. none.1 Page 12 .Aggregate Planning Options Option Changing inventory levels Advantages Disadvantages Some Comments Changes in Inventory holding Applies mainly to human resources cost may production. Varying Avoids the costs Hiring.
loss of settings future business Table 13. reduced production the firm’s output profits.Aggregate Planning Options Option Advantages Disadvantages Some Comments Varying Matches seasonal Overtime Allows flexibility production fluctuations premiums.1 Page 13 . tired within the rates through without hiring/ workers. may not aggregate plan overtime or training costs meet demand idle time Subcontracting Permits flexibility Loss of quality Applies mainly in and smoothing of control.
workers scheduling difficult Influencing demand Tries to use excess capacity. than full-time quality suffers. Discounts draw new customers. Uncertainty in Creates marketing demand. match demand to Overbooking supply exactly. used in some businesses. Table 13.Aggregate Planning Options Option Advantages Disadvantages Some Comments Good for unskilled jobs in areas with large temporary labor pools Using partIs less costly and High turnover/ time workers more flexible training costs. Hard to ideas.1 Page 14 .
Aggregate Planning Options Option Advantages Disadvantages Some Comments Back ordering May avoid Customer must be Allows flexibility during high. lost. Keeps willing to wait.overtime. within the demand capacity but goodwill is aggregate plan periods constant. allows or equipment products or product and stable workforce outside the firm’s services with service areas of expertise opposite demand mixing patterns Table 13.1 Page 15 . CounterFully utilizes May require skills Risky finding seasonal resources.
METHODS FOR AGGREGATE PLANNING GRAPHICAL METHODS MATHEMATIC AL APPROACHES Comparison of Aggregate Planning Methods Page 16 .
and inventory holding costs 4.Consider company policy that may apply to the workers or to stock levels 5.Develop alternative plan and Exam ple examine their total cost MATHEMATICAL APPROACHES Comparison of Aggregate Planning Methods Page 17 .Determine the demand in each period 2.Find labor costs.Determine capacity for regular time. and subcontracting each period 3. overtime. hiring and layoff costs.METHODS FOR AGGREGATE PLANNING Five steps in the graphical method: 1.
other models (Linear Decision Rule & Simulation) Exam ple Comparison of Aggregate Planning Methods Page 18 .Management Coefficient Model .METHODS FOR AGGREGATE PLANNING Some of the mathematical approaches to aggregate planning: GRAPHICAL METHODS -The Transportation Method of Linear Programming .
METHODS FOR AGGREGATE PLANNING GRAPHICAL METHODS MATHEMATIC AL APPROACHES Comparison of Aggregate Planning Methods Examp le Page 19 .
Example of Graphical Method Page 20 .
Level vs. Chase Strategy Forecast demand Production rate per working day 70 – Level production using average 60 – 50 – 40 – 30 – monthly forecast demand 0 – Jan 22 Feb 18 Mar 21 Apr 21 May 22 June 20 = Month = Number of working days Page 21 .
000 – – Cumulative forecast requirements Excess inventory Jan Feb Mar Apr May June Figure 13.000 – 4.000 – 2.000 – 3.000 – 1.000 – 6.Planning Example 1 7.000 – Reduction of inventory Cumulative level production using average monthly forecast requirements Cumulative demand units 5.4 Page 22 .
Example of Graphical Method – 3 strategies plan information Plan 1 Page 23 .
Example of Graphical Method – 3 strategies plan Plan 2 Plan 3 Page 24 .
Example of Graphical Method – 3 strategies plan Plans Comparison Page 25 .
Example of Transportation Method Information Page 26 .
Farnsworth’s Transportation Table Period 1 Period 2 Period 3 Unused Total Capacity (Mar) (Apr) (May) Capacity (Dummy) Available (Supply) Beginning Inventory Regular Overtime Subcontract Regular Overtime Subcontract Regular Overtime Subcontract Total 0 100 40 700 50 70 X X X X X X 800 2 42 52 50 72 150 40 700 50 50 70 50 X X x 1000 4 44 54 74 42 52 72 40 700 50 50 70 750 0 0 0 0 0 0 100 700 50 150 700 50 0 100150 0 0 0 700 50 130 2302780 Page 27 .
Technique Graphical methods Comparison of 4 Major Aggregate Planning Solution Approaches Methods Important Aspects Trial and error Simple to understand and easy to use. permits sensitivity analysis and new constraints. easy to implement. linear functions may not be realistic Transportation method of linear programming Optimization Management coefficients model Heuristic Simple. tries to mimic manager’s decision process. uses regression Complex. model may be difficult to build Page 28 and for Simulation Change parameters . one chosen may not be optimal LP software available. Many solutions.
in which labor is 4. restaurants and retail stores send personnel home early. Page 29 4.Supermarket stock clerks work cash registers . For meet changing demand. 2.Flexibility of individual worker skills that permits reallocation of available are These options may seem demanding.Accurate scheduling of labor-hours to assure quick response to customer demand 2. Where the emergency is extended.Police and fire departments have provisions for calling in off-duty personnel for major emergencies. the of work instance 1.Flexibility in rate of output or hoursprimary toaggregate planning vehicle. Successful techniques include: 1.An On-call labor resource that can be added or deleted to meet unexpected demand 3. 3. but they labor not unusual in service industries.Excess capacity is used to provide study and planning time by real estate and auto salespersons.Aggregate Planning in Services Controlling the cost of labor in service firms is critical. police or fire personnel may work longer hours and extra shifts.When business is unexpectedly light.
3. 5. 2. 4.Five service scenarios: 1. Restaurants Hospitals National Chains of Small Service Firms Miscellaneous Service Airline Industry Page 30 .
Smoothing the production rate. The general approach usually requires building very modest levels of inventory during slack periods and depleting inventory during peak periods. The necessary labor focus of its aggregate plan has led to the creation of a new floating staff pool serving each nursing pod. Hospitals Face aggregate planning problems in Allocating money. and 2. staff.Finding the optimal size of the workforce. and supplies to meet the demands of patients.Restaurants In a business with a highly variable demand. aggregate scheduling is directed toward: 1. Page 31 . such as a restaurant. but using labor to accommodate most of the changes in demand.
Determining the seats to be allocated to various .Number of flights in and out of each hub.Number of air personnel and ground personnel required at each hub and airport. Airline Industry This planning is considerably more complex than aggregate planning for a single site or even for a number of independent sites. and Page 32 5.Number of flights on all routes. 2. Miscellaneous Services Most “miscellaneous services provide intangible output. 3. This approach to aggregate scheduling is often advantageous because it reduces costs and helps manage cash flow at independent sites. 4. Aggregate planning for these services deals mainly with planning for human resource requirements and managing demand.National Chains of Small Service Firms Both purchases and production capacity may be centrally planned when demand can be influence through special promotions.Number of passengers to be serviced on all flights. The twofold goal is to level demand peaks and to design methods for fully utilizing labor resources during low-demand periods. Aggregate planning consists of tables or schedules for: 1.
Variable costs are low and fixed costs . have the following shared characteristics that make yield management of interest: 1. Organization that have perishable inventory.Demand can be segmented Page 33 5. car rental agencies. and even electrical utilities.Demand fluctuates 3. hotels. cruise lines.YIELD MANAGEMENT Yield (or revenue) management is the aggregate planning process of allocating the company’s scarce resources to customers at price that will maximize yield or revenue.Service or product can be sold in advance of consumption 2. such as airlines.The resource (capacity) is relatively fixed 4.
YIELD MANAGEMENT MATRIX Pic re T n tob F e ed e ix d Q a ra t1 ud n : Mv s o ie S d m/ a n s ta iu s re a C n e tio c n rs o v n n e te H te m e gs a e o l e tin p c T n tob v ria le ed e a b Q a ra t2 ud n : H te o ls A e irlin s R n l c rs e ta a C is lin s ru e e Tend to be uncertain Tend to be predictable Us e Q a ra t 3 ud n : Rs u n e ta ra ts G lf c u e o o rs s In rn ts rv e te e e ic p v e ro id rs Q a ra t 4 ud n : H s ita o p ls C n u gc re o tin in a Page 34 .
the company needs to manage three issues: 1. Page 35 . Such justification may take various forms. Finally. It also means dealing with issues that occur because the pricing structure may not seem logical and fair to all customers.Multiple pricing structures: these structures must be feasible and appear logical (and preferably fair) to the customer. such as overbooking because the forecast was not perfect.To make Yield Management work. for example.Forecasts of the use and duration of the use: How many economy seats should available? How much will customers pay for a room with an ocean view? 3. it means managing new issues.Changes in demand: this means managing the increased use as more capacity is sold. 2. first-class seats on an airline or the preferred starting time at a golf course.
A MANAGERIAL PERSPECTIVE ON AGGREGATE PLANNING “Geoff Buxey” Page 36 .
Page 37 . The evidence presented here indicates that the Aggregate Planning model itself is at fault. However. Furthermore. This paper explores the divergence between theory and practice. Most authors have blamed weaknesses in particular methods for the lack of applications. via an empirical study covering 30 firms. tactical. or operational considerations.Abstract Aggregate Planning first appeared in the literature nearly 40 years ago and has proven a popular topic for research ever since. and that the broad characteristics of real production plans follow from other business. a chase option is generally preferred at the outset. industry seems to have ignored repeated claims that there are algorithms available which would yield significant cost savings.
Aggregate Planning The Aggregate Planning model was developed as a vehicle for minimizing the total marginal costs of manufacturing a range of products with a strong seasonal sales pattern The principal discretionary costs are : •overtime (and undertime) •shift •Subcontract •Premiums •payments related to hiring •firing any additional staff. Page 38 .
flexibility. but all had a recognised seasonal problem. The sample included both large and small companies. Page 39 . shopfloor processes and constraints. capital and labour intensive processes. and. to find out exactly how production planning occurs in practice. and a range of different industries across three states. involving 30 manufacturers.Industrial Practice A study was conducted. The main areas of discussion were the general business environment and objectives. resources and production planning.
The ways that they have gone about this are: • develop complementary products • redesign models according to the season • export to the northern hemisphere • market engineering skills and become subcontractors Page 40 . The priority order to maximise sales revenue and to spread fixed costs thinly via high utilisation of plant and equipment. The latter maximises cash flow and minimises financial risk (unsold production).Business Strategy From a business perspective the ideal situation is "level" aggregate production in conjunction with a "chase" plan by model.
Schedulling Tactics Aggregate Planning is aimed at this stage of the production planning hierarchy where the most cost-effective schedule is defined in broad terms. Simply convinced that these tactics bring superior results. Nowaday industries are focuses on eliminating all forms of waste and nonvalue adding work and has a much greater impact than trying to "optimise" a static production model. Flexibility implies good customer service without sacrificing high productivity Page 41 . The second major reason for choosing chase tactics is to build in flexibility.
beer. hoses. adjusting its provisional numbers for the last nine months of the one year horizon by trial and error. No labour charges are involved so the chase philosophy dominates. colour television sets). petrol. The remainder are each influenced by special characteristics generally related to either the product or the processes. cement. •long training times (marine distress flares. meat pies). •bulky or awkward products (beer. •ownership of retail outlets (gas barbecues). wood heaters. Page 42 . The objective is to balance the costs of holding inventory against the costs of batch changeovers (mainly waste materials). pine landscaping products).Operational Factors Strategic and tactical decisions largely determine the nature of production planning at 23(78%) of the 30 companies surveyed. which can be categorised as follows: •short product shelf life (crumpets. •seasonal raw materials (convenience foods). The actual size of the flexible workforce is determined by running the model in experimental mode every quarter.
Page 43 . • minimise obsolescence. • maximise liquidity.Operations Management The multiple objectives of production planning can be summarised: • maximise sales revenue. • good labour and materials productivity. • provide a high level of customer service. • establish good employee relations. • maintain scheduling flexibility. • spread fixed costs. There is no "hiring and firing" of temporary staff. The most common arrangement is to employ casual workers for several months on mutually agreed terms.
The literature believes that greater sophistication. although the initial forecasts and schedules may be simplified by using family groups to which minor finish or packaging details are added later. is the key to advances in production planning. Two examples from the literature show that linear programming can also be applied successfully to formulate an MPS. This research shows that in real life good guidelines. and operational. although there may be room for computerised decision support systems in developing the former. prudence. The problem is tackled at three levels. strategic. via integration to avoid sub-optimisation. although it cannot as yet come up with a comprehensive model. and flexibility are more important. tactical. There is no product aggregation/disaggregation.Conclusions The investigation reveals that Aggregate Planning is never undertaken in the way promoted by the literature. Page 44 .
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