AGGREGATE PRODUCTION PLANNING

AGGREGATE PRODUCTION PLANNING

DETERMINES THE RESOURCE CAPACITY
NEEDED TO MEET DEMAND OVER AN
INTERMEDIATE TIME HORIZON
• NOT FEASIBLE TO INCREASE CAPACITY
WITHIN THIS TIME FRAME.
HIRE OR FIRE
ADD SHIFT, USE OVERTIME OR UNDERTIME
SUBCONTRACT
BUILD UP OR DEPLETE INVENTORY LEVELS
• AGGREGATE
 AGGREGATE PRODUCTION PLANNING

OBJECTIVES OF AGGREGATE PLANNING

• TO ESTABLISH A PLAN FOR

ALLOCATING RESOURCES

• TO DEVELOP A STRATEGY FOR

MEETING DEMAND
 AGGREGATE PRODUCTION PLANNING

CAPACITY STRATEGIC COMPANY

CONSTRAINTS OBJECTIVES POLICIES

DEMAND AGGREGATE PRODUCTION FINANCIAL

FORECASTS PLANNING CONSTRAINTS

SIZE OF PRODUCTION INVENTORY * SUBCONTRACT

WORKFORCE PER MONTH LEVELS (UNITS/RS.)
(UNITS/OR RS.) * LOST SALES
 STRATEGIES FOR MEETING DEMAND
• PRODUCE AT A CONSTANT RATE & USE INVENTORY
(LEVEL PRODUCTION)

• HIRING & FIRING WORKERS TO MATCH DEMAND

(CHASE DEMAND)

• MAINTAINING RESOURCES FOR HIGH DEMAND LEVELS

• INCREASING OR DECREASING WORKING HOURS

(OVERTIME/UNDERTIME)

• SUBCONTRACTING WORK TO OTHER FIRMS

• USING PART-TIME WORKERS

• PROVIDING THE SERVICE OR PRODUCT AT A LATER PERIOD

(BACKORDERING)
 PURE STRATEGY : INVOLVES ONLY ONE
CAPACITY FACTOR
 MIXED STRATEGY : INVOLVES MORE THAN
ONE
 LEVEL PRODUCTION
Units
Demand

Production

Time
 CHASE DEMAND
Units
Demand

Production

Time
 APP By Trial And Error
• Formulating several strategies for meeting
demand- Constructing production plans -
determining the cost and feasibility of each
plan and selecting the lowest cost plan from
feasible alternatives.
 Example 1
Given the following costs and sales forecasts,
determine whether a Level Production or
Chase Demand production strategy would
meet demand for Amul Chocolates:
Period Sales Forecast (Kg.)
Jan-March 75000
April-June 55000
July-September 100000
October-December 150000
Hiring Cost = Rs.2000 per worker
Firing Cost = Rs.5000 per worker
Carrying Cost = Rs.5 per Kg. per period
Production/Employee = 1000 Kg.per period
Beginning workforce = 100 workers

Use EXCEL and Compare the cost-

effectiveness of Level Production and Chase
Demand.
 Solution:
For the level production strategy, calculate the average
quarterly demand:
(75000+55000+100000+150000)/ 4= 95000 Kg.
LEVEL PRODUCTION:
Period Forecast Production Plan Inventory
1 75000 95000 20000
2 55000 95000 60000
3 100000 95000 55000
4 150000 95000 0
Total 380000 380000 135000
COST = Rs. 675000
 Chase Demand:
Period Forecast Prod. Plan Workers Needed Workers
Hired Fired
1 75000 75000 75 0 25
2. 55000 55000 55 0 20
3. 100000 100000 100 45 0
4. 150000 150000 150 50 0

Total 380000 380000 95 45

Cost = Rs. 415000*

 APP
Level Production: Rs. 675000
Chase Demand : Rs. 415000*
 General Linear Programming (LP)
Model
• LP gives an optimal solution, but demand
and costs must be linear
• Let
– Wt = workforce size for period t
– Pt =units produced in period t
– It =units in inventory at the end of period t
– Ft =number of workers fired for period t
– Ht = number of workers hired for period t
 LP MODEL
Minimize Z = $100 (H1 + H2 + H3 + H4)
+ $500 (F1 + F2 + F3 + F4)
+ $0.50 (I1 + I2 + I3 + I4)
Subject to
P 1 - I1 = 80,000 (1)
Demand I1 + P 2 - I2 = 50,000 (2)
constraints I2 + P 3 - I3 = 120,000 (3)
I3 + P 4 - I4 = 150,000 (4)
Production 1000 W1 = P1 (5)
constraints 1000 W2 = P2 (6)
1000 W3 = P3 (7)
1000 W4 = P4 (8)
100 + H1 - F1 = W1 (9)
Work force W1 + H2 - F2 = W2 (10)
constraints W2 + H3 - F3 = W3 (11)
W3 + H4 - F4 = W4 (12)
 Aggregate Production Planning
APP by Tableau Method
Acme uses overtime, inventory and subcontracting to
absorb fluctuations in demand. An APP is devised
annually and updated quarterly. Cost data,
expected demand and available capacities in units
for the next four quarters are given here. Demand
must be satisfied in the period it occurs, that is no
backordering is allowed. Design a production plan
that will satisfy demand at minimum cost.
 Transportation Method

EXPECTED REGULAR OVERTIME SUBCONTRACT

QUARTER DEMAND CAPACITY CAPACITY CAPACITY

1 900 1000 100 500

2 1500 1200 150 500
3 1600 1300 200 500
4 3000 1300 200 500

Regular production cost per unit Rs. 20

Overtime production cost per unit Rs. 25
Subcontracting cost per unit Rs. 28
Inventory holding cost per unit per period Rs. 3
Beginning inventory 300 units
 Burruss’ Production Plan

REGULAR SUB- ENDING

PERIOD DEMAND PRODUCTION OVERTIME CONTRACT INVENTORY

1 900 1000 100 0 500

2 1500 1200 150 250 600
3 1600 1300 200 500 1000
4 3000 1300 200 500 0
Total 7000 4800 650 1250 2100
• Total Cost (4800*20) + (650*25) +
(1250*28) + (2100*$3) = Rs. 153,550