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Aggregate Planning

This document discusses aggregate planning, which involves determining the resource capacity needed to meet demand over an intermediate time horizon. The objectives are to establish a company-wide production plan and economic strategy for allocating resources to meet demand. Strategies for adjusting capacity include changing production levels, overtime/under-time work, subcontracting, and hiring/firing. Strategies for managing demand include shifting demand between time periods through incentives, promotions, and product mix changes. Quantitative techniques used in aggregate planning include linear programming, transportation methods, and other optimization models.

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Bharti Manglani
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624 views26 pages

Aggregate Planning

This document discusses aggregate planning, which involves determining the resource capacity needed to meet demand over an intermediate time horizon. The objectives are to establish a company-wide production plan and economic strategy for allocating resources to meet demand. Strategies for adjusting capacity include changing production levels, overtime/under-time work, subcontracting, and hiring/firing. Strategies for managing demand include shifting demand between time periods through incentives, promotions, and product mix changes. Quantitative techniques used in aggregate planning include linear programming, transportation methods, and other optimization models.

Uploaded by

Bharti Manglani
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
  • Aggregate Planning: Explains how to plan resources to meet demand over an intermediate horizon, including defining objectives for aggregate planning.
  • Aggregate Planning Process: Describes the process involving factors like company policies, demand forecasts, and capacity constraints in aggregate planning.
  • Meeting Demand Strategies: Details strategies for meeting demand by adjusting capacity and managing demand proactively.
  • Strategies for Adjusting Capacity: Explores various strategies such as level production, chase demand, and others for adjusting capacity to meet fluctuating demand.
  • Level Production: Graphical representation of level production strategy in relation to demand over time.
  • Chase Demand: Graphical illustration of chase demand strategy that aligns production closely with demand patterns.
  • Strategies for Managing Demand: Describes strategies like shifting demand into other periods and partnering with suppliers to manage demand more effectively.
  • Quantitative Techniques For APP: Introduces quantitative techniques for aggregate production planning including pure and mixed strategies.
  • Pure Strategies Example: Provides an example of pure strategies with a seasonal sales forecast and cost analysis.
  • Level Production Strategy: Examines the cost and inventory implications of adopting a level production strategy using a numerical example.
  • Chase Demand Strategy: Analyzes the chase demand strategy including workforce adjustments required to align production with demand.
  • Mixed Strategy: Discusses the combination of level production and chase demand strategies in a mixed approach.
  • Transportation Method: Explores the transportation method for planning capacity and managing costs across production quarters.
  • Transportation Tableau: Matrix representation showing the allocation of regular, overtime, and subcontracted production capacities across periods.
  • Burruss’ Production Plan: Outlines a production plan detailing how demand is met through regular, overtime, and subcontract production.
  • Other Quantitative Techniques: Lists additional quantitative techniques like linear decision rule and management coefficients model for production planning.
  • Hierarchical Nature of Planning: Diagram explaining the hierarchical relationship between different levels of production and capacity planning.
  • Available-to-Promise (ATP): Defines available-to-promise as a measure of the available quantity of items at various planning stages.
  • ATP: Example: Example illustrating ATP with an aggregate production plan and master production schedule.
  • ATP: Example (cont.): Continuation of ATP example with emphasis on promises and customer orders over time.
  • Rule Based ATP: Flowchart explaining rule-based approaches to solving available-to-promise problems with inventory allocation.
  • Aggregate Planning for Services: Identifies the unique challenges in aggregate planning for services, distinguishing it from product-based planning.
  • Yield Management: Discusses yield management techniques including overbooking strategies and fare classes for optimizing profit.
  • Yield Management: Example: Example illustrating decision-making in yield management based on probability of no-shows.

Aggregate Planning

Determine the resource capacity needed to meet demand over an intermediate time horizon

Aggregate refers to product lines or families Aggregate planning matches supply and demand Establish a company wide game plan for allocating resources Develop an economic strategy for meeting demand

Objectives

13-1

Aggregate Planning Process

13-2

Meeting Demand Strategies


Adjusting capacity

Resources necessary to meet demand are acquired and maintained over the time horizon of the plan Minor variations in demand are handled with overtime or under-time

Managing demand

Proactive demand management

13-3

Strategies for Adjusting Capacity


Level production

Overtime and under-time

Producing at a constant rate Increasing or decreasing and using inventory to working hours absorb fluctuations in Subcontracting demand Let outside companies Chase demand complete the work Hiring and firing workers to Part-time workers match demand Hiring part time workers to Peak demand complete the work Maintaining resources for Backordering high-demand levels Providing the service or product at a later time period

13-4

Level Production
Demand Production Units

Time
13-5

Chase Demand
Demand Production Units

Time
13-6

Strategies for Managing Demand


Shifting demand into other time periods

Incentives Sales promotions Advertising campaigns

Offering products or services with countercyclical demand patterns Partnering with suppliers to reduce information distortion along the supply chain
13-7

Quantitative Techniques For APP


Pure Strategies Mixed Strategies Linear Programming Transportation Method Other Quantitative Techniques

13-8

Pure Strategies
Example:
QUARTER
Spring Summer Fall Winter

SALES FORECAST (LB)


80,000 50,000 120,000 150,000

Hiring cost = $100 per worker Firing cost = $500 per worker Regular production cost per pound = $2.00 Inventory carrying cost = $0.50 pound per quarter Production per employee = 1,000 pounds per quarter Beginning work force = 100 workers
13-9

Level Production Strategy


Level production (50,000 + 120,000 + 150,000 + 80,000) = 100,000 pounds 4 SALES FORECAST PRODUCTION PLAN INVENTORY

QUARTER Spring Summer Fall Winter

100,000 100,000 100,000 100,000 400,000 Cost of Level Production Strategy (400,000 X $2.00) + (140,00 X $.50) = $870,000

80,000 50,000 120,000 150,000

20,000 70,000 50,000 0 140,000

13-10

Chase Demand Strategy


QUARTER SALES PRODUCTION FORECAST PLAN WORKERS NEEDED WORKERS WORKERS HIRED FIRED

Spring Summer Fall Winter

80,000 50,000 120,000 150,000

80,000 50,000 120,000 150,000

80 50 120 150

0 0 70 30 100

20 30 0 0 50

Cost of Chase Demand Strategy (400,000 X $2.00) + (100 x $100) + (50 x $500) = $835,000

13-11

Mixed Strategy
Combination of Level Production and Chase Demand strategies Examples of management policies

no more than x% of the workforce can be laid off in one quarter inventory levels cannot exceed x dollars

Many industries may simply shut down manufacturing during the low demand season and schedule employee vacations during that time
13-12

Transportation Method
QUARTER EXPECTED DEMAND REGULAR CAPACITY OVERTIME CAPACITY SUBCONTRACT CAPACITY

1 2 3 4

900 1500 1600 3000

1000 1200 1300 1300

100 150 200 200


$20 $25 $28 $3 300 units

500 500 500 500

Regular production cost per unit Overtime production cost per unit Subcontracting cost per unit Inventory holding cost per unit per period Beginning inventory

13-13

Transportation Tableau
PERIOD OF USE Unused Capacity 9 300 PERIOD OF PRODUCTION Beginning Inventory 1 Regular Overtime Subcontract 2 Regular Overtime Subcontract 3 Regular Overtime Subcontract 4 Regular Overtime Subcontract Demand 900 1500 1600 300 600 1 0 2 3 3 6 4 Capacity

20
25 28

300

23
28 31

100

26
31 34

100

29
34 37

1000 100 500 1200 150 250 500 1300 200 500 1300 200 500 250 14

1200

20 25 28

23 28 31

150 250 500 1300 200 500 3000

26 31 34 23 28 31 20 25 28

1300 200

20 25 28

Burruss Production Plan


REGULAR SUBENDING PERIOD DEMAND PRODUCTION OVERTIME CONTRACT INVENTORY

1 2 3 4 Total

900 1500 1600 3000 7000

1000 1200 1300 1300 4800

100 150 200 200 650

0 250 500 500 1250

500 600 1000 0 2100

13-15

Other Quantitative Techniques


Linear decision rule (LDR) Search decision rule (SDR) Management coefficients model

13-16

Hierarchical Nature of Planning


Items
Product lines or families

Production Planning
Aggregate production plan

Capacity Planning
Resource requirements plan

Resource Level
Plants

Individual products

Master production schedule

Rough-cut capacity plan

Critical work centers

Components

Material requirements plan

Capacity requirements plan

All work centers

Manufacturing operations

Shop floor schedule

Input/ output control

Individual machines

13-17

Available-to-Promise (ATP)
Quantity of items that can be promised to the customer Difference between planned production and customer orders already received
AT in period 1 = (On-hand quantity + MPS in period 1) - (CO until the next period of planned production) ATP in period n = (MPS in period n) - (CO until the next period of planned production)

13-18

ATP: Example

13-19

ATP: Example (cont.)

13-20

ATP: Example (cont.)

Take excess units from April

ATP in April = (10+100) 70 = 40 = 30 ATP in May = 100 110 = -10 =0 ATP in June = 100 50 = 50

13-21

Rule Based ATP


Product Request

Yes

Is the product available at this location?

Is an alternative product available at an alternate location? No Capable-topromise date

Yes

Availableto-promise

No

Allocate inventory

Availableto-promise

Yes

Is an alternative product available at this location?

Allocate inventory Yes

No

Is the customer willing to wait for the product?

Yes

Revise master schedule

Is this product available at a different location? No

No

Trigger production

Lose sale

13-22

Aggregate Planning for Services


Most services cant be inventoried Demand for services is difficult to predict Capacity is also difficult to predict Service capacity must be provided at the appropriate place and time 5. Labor is usually the most constraining resource for services 1. 2. 3. 4.

13-23

Yield Management

13-24

Yield Management (cont.)

13-25

Yield Management: Example


NO-SHOWS 0 1 2 3 PROBABILITY .15 .25 .30 .30 P(N < X) .00 .15 .40 .70

.517

Optimal probability of no-shows Cu 75 P(n < x) = = .517 Cu + Co 75 + 70

Hotel should be overbooked by two rooms


13-26

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