CHAPTER 9

PRODUCTION-PLANNING
SYSTEMS
Aggregate Planning and
Master Production Scheduling
PRODUCTION-PLANNING SYSTEMS

1. Production-Planning Hierarchy
2. Aggregate Planning
3. Master Production Scheduling
4. Types of Production-Planning and Control
Systems

CHAPTER 9 PRODUCTION-PLANNING SYSTEMS

 Production-Planning Hierarchy

Long-Range
Production Plans

Medium-Range
Aggregate Plans

Short-Range Plans
Master Production Scheduling

CHAPTER 9 PRODUCTION-PLANNING SYSTEMS

 Production-Planning Hierarchy

1) Facilities
Executives as such
President,
2) Major Supplier
V-President
Plans
of
Long-Range operations
3) Processing Plans
Production Plans (years)

1)
Division
Employment
Operations
2)
Managers
Inventories
Medium-Range
3) Material Supply Contract
Aggregate Plans (6-18 months)
4) Facility Modification

Factory Operations
1) Quantity of product
Managers
2) Timing of the
Short-Range Plans (several weeks to a
production of finished
Master Production Scheduling
few months)
goods
CHAPTER 9 PRODUCTION-PLANNING SYSTEMS
 Production-Planning Hierarchy
Long-Range
Long-Range Capacity Planning (years)

Medium-Range
Aggregate Planning (6-18 months)

Master Production Scheduling Short-Range

(weeks)
Production Planning and Control Systems Very-Short-Range
(hours - days)

Pond Draining Push Pull Focusing on

Systems Systems Systems Bottlenecks

CHAPTER 9 PRODUCTION-PLANNING SYSTEMS

 Aggregate Planning
Aggregate
 Refers to product lines
or families 
Aggregate planning 
 6 to 18 months
 Objectives
 Establish a company wide game plan for
allocating resources
 total cost of operations of the organization
is kept to the minimum over that period
CHAPTER 9 PRODUCTION-PLANNING SYSTEMS
 Aggregate Planning
Aggregate Planning is necessary in POM because
it provides for:
 Fully loaded facilities and minimizes overloading and
under-loading, thus reducing production costs
 Adequate production capacity to meet expected
aggregate demand
 A plan for the orderly and systematic change of
production capacity to meet the peaks and valleys of
expected customer demand
 Getting the most output for the amount of resources
available, which is important in times of scarce
production resources

CHAPTER 9 PRODUCTION-PLANNING SYSTEMS

 Aggregate Planning
Steps in Aggregate Planning
1. Begin with a sales forecast for each product that
indicates the quantities to be sold in each time period
2. Total all the individual product or service forecasts
into one aggregate demand
3. Transform the aggregate demand for each time period
into workers, materials, machines and other elements
4. Develop alternative resource schemes for supplying
the necessary production capacity
5. Select the capacity plan from among the alternatives

CHAPTER 9 PRODUCTION-PLANNING SYSTEMS

 Aggregate Planning
Aggregate Demand
In macroeconomics, aggregate demand (AD)
or domestic final demand (DFD) is the total
demand for final goods and services in an
economy at a given time. 

It specifies the amounts of goods and services

that will be purchased at all possible price
levels.

CHAPTER 9 PRODUCTION-PLANNING SYSTEMS

 Aggregate Planning
Example Sherman-Brown Chemical Company
Aggregate Demand

CHAPTER 9 PRODUCTION-PLANNING SYSTEMS

 Aggregate Planning
Dimensions of Production Capacity
1. How much of each production
resource is available?
2. How much capacity is provided by
each type of resource?
3. At what step in production do we
determine capacity?
4. How much does it cost to scale
capacities up or down?
CHAPTER 9 PRODUCTION-PLANNING SYSTEMS
 Aggregate Planning
Sources of Medium-Range Production Capacity
1. Straight-time labor
2. Overtime labor
3. Inventory
4. Subcontracting

CHAPTER 9 PRODUCTION-PLANNING SYSTEMS

 Aggregate Planning
Some Traditional Aggregate Plans
4.1 Matching Demand
Matching demand - production capacity in
each time period is varied to exactly
match the forecasted aggregate
demand in that time period

CHAPTER 9 PRODUCTION-PLANNING SYSTEMS

 Aggregate Planning
Some Traditional Aggregate Plans
4.1 Matching Demand
Workers = Gallons of Paint per Quarter X Labor Standard per Gallon
Working days per Quarter per Worker X Hours per Day

1st quarter = 40000 x 2.311 = 178 workers

65 x 8
2nd quarter = 57500 x 2.311 = 256 workers
65 x 8
3rd quarter = 55000 x 2.311 = 245 workers
65 x 8
4th quarter = 52500 x 2.311 = 234 workers
65 x 8

CHAPTER 9 PRODUCTION-PLANNING SYSTEMS

 Aggregate Planning
Some Traditional Aggregate Plans
4.1 Matching Demand
Advantage:
 No inventories of finished-goods inventory are
needed

Disadvantage:
 Labor and material costs tend to be higher

CHAPTER 9 PRODUCTION-PLANNING SYSTEMS

 Aggregate Planning
Some Traditional Aggregate Plans
4.2 Level Capacity
Level Capacity – production capacity is held
constant over the planning horizon.
The difference between the constant
production rate and the varying
demand rate is made up by inventory,
backlog, overtime, part-time labor or
subcontracting.
CHAPTER 9 PRODUCTION-PLANNING SYSTEMS
 Aggregate Planning
Some Traditional Aggregate Plans
4.2 Level Capacity
BUFFERING with Inventory
EIt = EIt-1 + (Pt – Dt)
EIt = Ending inventory in Quarter t
EIt-1 = Ending inventory in Quarter t-1,
(previous quarter)
Pt = Production in Quarter t
Dt = Demand in Quarter t
Advantage:
 Promotes low production cost
 High and consistent product quality
CHAPTER 9 PRODUCTION-PLANNING SYSTEMS
 Aggregate Planning
Some Traditional Aggregate Plans
4.2 Level Capacity
BUFFERING with Backlog
EBLt = EBLt-1 + (Dt – Pt)
EBLt = Ending inventory in Quarter t
EBLt-1 = Ending inventory in Quarter t-1,
(previous quarter)
Pt = Production in Quarter t
Dt = Demand in Quarter t
Advantage:
 Promotes low production cost
 High and consistent product quality
CHAPTER 9 PRODUCTION-PLANNING SYSTEMS
 Aggregate Planning
Some Traditional Aggregate Plans
4.2 Level Capacity
BUFFERING with Overtime, Part-Time Labor
or Subcontracting

Advantage:
 Low inventory is carrying cost
 Stable employment level
Disadvantage:
 Insufficient to meet demand if demand is too
high
CHAPTER 9 PRODUCTION-PLANNING SYSTEMS
 Aggregate Planning
Aggregate Plans for Services
For standardized services (restaurants, trucking firms,
airlines and banks)
• aggregate planning may be simpler than in systems
that produce products
For customized services (hospitals, computer service
center, automobile body repair shops)
• there may be difficulty in specifying the nature and
extent of services to be performed for each customer
• customer may be an integral part of the production
system

CHAPTER 9 PRODUCTION-PLANNING SYSTEMS

 Aggregate Planning
Mathematical Models for Aggregate Planning
 Linear Programming
A mathematical technique for maximizing or minimizing a
linear function of several variables, such as output or
cost.
 Linear Decision Rules
Develop a quadratic mathematical cost function that includes
these costs-regular payroll, hiring, overtime, inventory
carrying, back order or shortage and set-up.
 Computer Search
This method uses pre-programmed rules that control the way
resources can be combined to select a low cost capacity
plan for each time period.
CHAPTER 9 PRODUCTION-PLANNING SYSTEMS
 Aggregate Planning
Pre-emptive Tactics
There may be ways to manage the
extremes of demand:
• Discount prices during the valleys (low
demands).
• Peak-load pricing during the highs
(high demands). Ex. electric company

CHAPTER 9 PRODUCTION-PLANNING SYSTEMS

 Master Production Scheduling
Master Production Scheduling (MPS),
otherwise known as an over-all
schedule, focuses on a planning horizon,
divided into equal time periods (time
buckets, such a by month).
It includes a plan for the production of
individual commodities such as staffing,
inventory, etc. for the allotted time
period.
CHAPTER 9 PRODUCTION-PLANNING SYSTEMS
 Master Production Scheduling
MPS aids in decision making by generating a set
of output data based on
 forecast demand
 production costs
 inventory money
 customer needs
 production lead time
 capacity

CHAPTER 9 PRODUCTION-PLANNING SYSTEMS

 Master Production Scheduling
Objectives of Master Production Scheduling
1. Timely supply of finished goods.
2. Maximum utilization of material and
human resources.
3. Effective control of production
process.
4. Helps to produce the goods on the
basis of sale.

CHAPTER 9 PRODUCTION-PLANNING SYSTEMS

 Master Production Scheduling
Time Fences in Master Production Schedules
MPS can be divided into four sections, each
section separated by a point of time
called a time fence.

CHAPTER 9 PRODUCTION-PLANNING SYSTEMS

 Master Production Scheduling
Time Fences in Master Production Schedules
6+
The rules for scheduling weeks
4-6
2-4 weeks
1-2 weeks
weeks
+/- 5% +/- 10% +/- 20%
No Change
Change Change Change
Frozen
Firm
Full
Open
CHAPTER 9 PRODUCTION-PLANNING SYSTEMS
 Master Production Scheduling
Time Fences in Master Production Schedules
1. Frozen
 early part of the MPS cannot be changed except
under extraordinary circumstances
 only with authorization from the highest levels in
the organization

2. Firm
 changes can occur in this section of MPS but only
in exceptional situations.

CHAPTER 9 PRODUCTION-PLANNING SYSTEMS

 Master Production Scheduling
Time Fences in Master Production Schedules
3. Full
 all the available production capacity has been
allocated to orders
 production costs will be only slightly affected but
the effect on customer satisfaction is uncertain
4. Open
 not all of the production capacity has been
allocated
 new orders are ordinarily slotted

CHAPTER 9 PRODUCTION-PLANNING SYSTEMS

 Master Production Scheduling
Procedures for Developing Master Production Schedules
 The total demand for the end items (produced)
from all sources is estimated
 Orders are assigned to production slots
 Delivery promises are made to customers
before detailed calculations are made of the
workload on work centers
 Make the detailed calculations for the MPS

CHAPTER 9 PRODUCTION-PLANNING SYSTEMS

 Example: Master Production Scheduling

Arizona Instruments produces bar code scanners

for consumers and other manufacturers on a
produce-to-stock basis. The production
planner is developing an MPS for scanners for
the next 6 weeks.
The minimum lot size is 1,500 scanners, and the
safety stock level is 400 scanners. There are
currently 1,120 scanners in inventory. The
estimates of demand for scanners in the next 6
weeks are shown on the next slide.
CHAPTER 9 PRODUCTION-PLANNING SYSTEMS
 Example: Master Production Scheduling

• Demand Estimates WEEK

1 2 3 4 5 6
CUSTOMERS 500 1000 500 200 700 1000
BRANCH WAREHOUSES 200 300 400 500 300 200
MARKET RESEARCH 0 50 0 0 10 0
PRODUCTION RESEARCH 10 0 0 0 0 0

CHAPTER 9 PRODUCTION-PLANNING SYSTEMS

 Example: Master Production Scheduling
WEEK
• Computations 1 2 3 4 5 6
CUSTOMERS 500 1000 500 200 700 1000
BRANCH WAREHOUSES 200 300 400 500 300 200
MARKET RESEARCH 0 50 0 0 10 0
PRODUCTION RESEARCH 10 0 0 0 0 0

TOTAL DEMAND 710 1350 900 700 1010 1200

BEGINNING INVENTORY 1120 410 560 1160 460 950
REQUIRED PRODUCTION 0 1500 1500 0 1500 1500
ENDING INVENTORY 410 560 1160 460 950 1250

CHAPTER 9 PRODUCTION-PLANNING SYSTEMS

 Master Production Scheduling
Demand Management
 Demand management is a planning methodology
used to forecast
 Review customer orders and promise shipment of
orders as close to request date as possible
 Update MPS at least weekly.... work with Marketing
to understand shifts in demand patterns
 Produce to order..... focus on incoming customer
orders
 Produce to stock ..... focus on maintaining finished
goods levels
CHAPTER 9 PRODUCTION-PLANNING SYSTEMS
 Master Production Scheduling
Weekly Updating of the MPS
The MPS is usually updated weekly, i.e. after one
week has passed, one week is taken off the
front end of the MPS, one week is added on
to the back end and the demands for the
whole MPS are estimated anew.

CHAPTER 9 PRODUCTION-PLANNING SYSTEMS

 Master Production Scheduling
Computerized MPS
The MPS can be prepared with the
assistance of a computing
system.

CHAPTER 9 PRODUCTION-PLANNING SYSTEMS

 Types of Production-Planning
and Control Systems

• Pond-Draining Systems
• Push Systems
• Pull Systems
• Focusing on Bottlenecks

CHAPTER 9 PRODUCTION-PLANNING SYSTEMS

Types of Production-Planning and Control Systems

Pond-Draining Systems
 Emphasis on holding inventories (reservoirs) of
materials to support production
 Little information passes through the system
 As the level of inventory is drawn down, orders
are placed with the supplying operation to
replenish inventory

CHAPTER 9 PRODUCTION-PLANNING SYSTEMS

Types of Production-Planning and Control Systems

Push Systems
 Look only at the next stage of production and
determine what is needed there
 Raw materials and parts are pulled from the back
of the system toward the front where they become
finished goods
 Successful implementation requires much
preparation

CHAPTER 9 PRODUCTION-PLANNING SYSTEMS

Types of Production-Planning and Control Systems

Pull Systems
JIT Manufacturing
It originally referred to the production of goods
to meet customer demand exactly, in time,
quality and quantity, whether the `customer'
is the final purchaser of the product or
another process further along the production
line.

CHAPTER 9 PRODUCTION-PLANNING SYSTEMS

Types of Production-Planning and Control Systems

Focus on Bottlenecks
Bottleneck Operations
1. Impede production because they have less
capacity than upstream or downstream
stages
2. Work arrives faster than it can be
completed

CHAPTER 9 PRODUCTION-PLANNING SYSTEMS

 Wrap-Up: World-Class Practice

 Push systems dominate and can be applied

to almost any type of production
 Pull systems are growing in use. Most often
applied in repetitive manufacturing
 Few companies focusing on bottlenecks to
plan and control production.

CHAPTER 9 PRODUCTION-PLANNING SYSTEMS

Case
AGGREGATE PLANNING at Bell Computers
 Bell computers is developing an aggregate
production plan for two quarters of next year for
producing AB1200 monitors at Los Angeles Plant.
 800 computers are needed for first quarter
 1200 computers are needed for second quarter
 It takes 8 hrs of labor to produce each printer
 8000 hrs of straight time labor are available and
 10% of the straight time labor available for
overtime
 Labor cost $12 per hour at straight time and $18
per hour at over time
 Incurs carrying cost of $150 per printer cost
CHAPTER 9 PRODUCTION-PLANNING SYSTEMS
Case Study
AGGREGATE PLANNING at Bell Computers
 Formulate this aggregate – planning
problem as a linear programming
problem.

CHAPTER 9 PRODUCTION-PLANNING SYSTEMS

Case Study
AGGREGATE PLANNING at Bell Computers
Solution:
X1 = number of printers to be produced on straight –time in the first quarter and shipped
in the first quarter
X2 = number of printers to be produced on over –time in the first quarter and shipped in
the first quarter
X3 = number of printers to be produced on straight –time in the first quarter and shipped
in the second quarter
X4 = number of printers to be produced on over–time in the first quarter and shipped in
the second quarter
X5 = number of printers to be produced on straight –time in the second quarter and
shipped in the second quarter
X6 = number of printers to be produced on over–time in the second quarter and shipped
in the second quarter
X1 = 5 x 12 = $60 X4 = (5 x 18)+150 = $240
X2 = 5 x 18 = $90 X5 = 5 x 12 = $60
X3 = (5 x 12)+150 = $210 X6 = 5 x 18 = $90
CHAPTER 9 PRODUCTION-PLANNING SYSTEMS
Case Study
AGGREGATE PLANNING at Bell Computers
Min Z = 60X1 + 90X2 + 210X3 + 240X4 + 60X5 + 90X6
X1 + X2 = 800
X3 + X4 + X5 + X6 = 1200
5X1 + 5X3 = 8000
5X5 = 8000
5X2 + 5X4 = 800
5X6 = 800

CHAPTER 9 PRODUCTION-PLANNING SYSTEMS

 5X5 = 8000
x5 = 1600

5X6 = 800
x6 = 160

x4 =0

X3 + X4 + X5 + X6 = 1200
x3 + 0+ 1600 + 160 = 1200
x3 = 560

5X1 + 5X3 = 8000

5X1 + 5(560) = 8000
x1 = 400

X1 + X2 = 800
400 + x2 = 800
x2 = 400

CHAPTER 9 PRODUCTION-PLANNING SYSTEMS

Case Study
AGGREGATE PLANNING at Bell Computers
Min Z = 60X1 + 90X2 + 210X3 + 240X4 + 60X5 + 90X6
X1 + X2 = 800
X3 + X4 + X5 + X6 = 1200
5X1 + 5X3 = 8000
5X5 = 8000
5X2 + 5X4 = 800
5X6 = 800
X1 = 400 X1 = 400 60 24000
X2 = X = 90 90 8100
90 2
X3 = 560 210 117600
X3 = 560
X4 = 0 240 0
X4 = 0 X =
5 1600 60 96000
X5 = 1600 X6 = 90 90 8100
X6 = 160 Min Z = 260100
CHAPTER 9 PRODUCTION-PLANNING SYSTEMS
 Thank you po!

CHAPTER 9 PRODUCTION-PLANNING SYSTEMS