Aggregate planning

y Aggregate planning is an operational activity which does an aggregate plan for the production process, in advance of 2 to 18 months, to give an idea to management as to what quantity of materials and other resources are to be procured and when, so that the total cost of operations of the organization is kept to the minimum over that period. y The quantity of outsourcing, y subcontracting of items, y overtime of labor, numbers to be hired and fired y the amount of inventory to be held in stock and to be backlogged for each period are decided.

Long range

Strategic planning Aggregate planning Master production scheduling MRP Detail scheduling

Objectives of A.P
Objective of aggregate planning frequently is to minimize total cost over the planning horizon. maximize customer service minimize inventory investment

minimize changes in workforce levels

minimize changes in production rates

maximize utilization of plant and equipment

Aggregate Planning Strategies

Active Passive or reactive

Aggregate Planning Strategies Active strategy

y Attempts to handle fluctuations in demand by y y y y

focusing on demand management Use pricing strategies and/or advertising and promotion Develop counter-cyclical products Request customers to backorder or advance-order Do not meet demand

Passive strate y (reactive strate y):

y Attempts to handle fluctuations in demand by y y y y y y

focusing on supply and capacity management Vary size work force size by hiring or layoffs Vary utilization of labour and equipment through overtime or idle time Build or draw from inventory Subcontract production Negotiate cooperative arrangements with other firms Allow backlogs, back orders, and/or stockouts

Mixed strategy:
y Combines elements of both an active strategy and a

passive (reactive) strategy y Firms will usually use some combination of the two

What type of strategy is this?

Building and utilizing inventory thro constant work force Varying the size of work force Overtime utilization n Sub-contracting Making changes in dd pattern

Approaches to A.P
Level approach

Co i atio approach

Chase approach

Level Approach
y Capacities (workforce levels, production schedules,

y y y y y y

output rates, etc.) are kept constant over the planning horizon. Advantages: stable output rates and workforce levels Disadvantages: greater inventory investment is required increased overtime and idle time resource utilizations vary over time

Chase approach
y capacities (workforce levels, production schedules, output rates, etc.) are adjusted to match demand requirements over the planning horizon. y y y y y y

Advantages: anticipation inventory is not required, and investment in inventory is low labour utilization is kept high Disadvantages: expense of adjusting output rates and/or workforce levels alienation of workforce

Combination approach

STEPS IN A.P Determine demand for each period. Determine capacity for each period. This capacity should match demand, which means it may require the inclusion of overtime or subcontracting.
Identify company, departmental, or union policies that are pertinent. SAFETY STOCK LEVEL, workforce, backorder policies, overtime policies, inventory level policies, and other less explicit rules such as the nature of employment with the individual industry, the possibility of a bad image, and the loss of goodwill.

Determine unit costs for units produced.

Develop alternative plans and compute the cost for each.

If satisfactory plans emerge, select the one that best satisfies objectives. Frequently, this is the plan with the least cost. Otherwise, return to step 5.

WHAT'S NEW IN AGGREGATE PLANNING?

y Rudy Hung, "Annualized Hours and Aggregate Planning, Annualized Hours

y y y y

(AH). Under AH, employees are contracted to work for a certain number of hours (say 1,800 hours) per year, for a certain sum of money. Employees can be asked to put in more hours during busy periods and fewer hours in slow periods. employees receive equal monthly or weekly payments so that hourly workers in effect have gained salaried status. Overtime is paid only when employees have worked beyond their annual hours. AH is also known as flexi year, as it can be seen as an extension of flextime, in which employees can vary their work hours within limits. gives employers much flexibility. AH serves to cut labor costs by offering employees an annual sum less than their previous annual earnings with overtime. Employees have greater income security with no worries about layoffs. There is also increased morale because blue-collar workers are now salaried.

Postponement
y Another development affecting aggregate planning is

postponement. This refers to delaying the "finish" of a product until the moment of sale. y Firms that rely on the postponement strategy, such as PC-maker Dell Inc. or clothing franchise Benetton Group Sp.A., depend upon the availability of aggregate inventories of components that can be assembled to order shortly after, or even immediately, as an order is taken