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I. Introduction
A. Intermediate Planning
B. The Concept of Aggregation
II. The Purpose and Scope of Aggregate Planning
A. Demand and Capacity
B. Inputs of Aggregate Planning
C. Demand and Capacity Options
AGGREGATE PLANNING
III. Basic Strategies for Meeting Uneven Demand
IV. Techniques for Aggregate Planning
A. Informal Techniques
B. Mathematical Techniques
V. Aggregate Planning in Services
VI. Disaggregating the Aggregate Plan
VII. Master Scheduling
A. Inputs
B. Outputs
C. Stabilizing the Master Schedule
AGGREGATE PLANNING
AGGREGATE PLANNING
DEFINITION:
• Aggregate planning is intermediate-range capacity planning that typically covers a time horizon of 2 to 12 months.
• It deals with translating annual business and marketing plans into a production plan for all products.
• It is particularly useful for organizations that experience seasonal or other fluctuations in demand or capacity.
GOAL:
The goal of aggregate planning is to achieve a production plan that will effectively utilize the organization’s resources to satisfy expected demand.
3 LEVELS WHICH ORGANIZATIONS MAKE CAPACITY DECISIONS:
1. Long-term decisions - relate to product and service selection, facility size and location, equipment decisions, and layout of facilities.
2. Intermediate decisions - relate to general levels of employment, output and inventories, which in turn define the boundaries within which short-range capacity decisions must be made.
3. Short-term decisions - consists of deciding the best way to achieve desired results within the constraints resulting from long-term and intermediate-term decisions.
Short-range plans
Detailed Plans: Machine LoadingJob assignmentsJob sequencingProduction lot sizeOrder quantitiesWork Schedules
Intermediate Plans
General levels of:EmploymentOutputFinished-goodsInventoriesSubcontractingBackorders
Long-range plans
Long-term capacityLocationLayoutProduct designWork system design
Long-range
Intermediate
Short-range
OVERVIEW OF PLANNING LEVELS
New 2 months
1 year Planning Horizon
MANUFACTURING PLANNING ACTIVITIES
Long-Range Planning -- begins with a statement of organization objectives and goals to be achieved over the next two to ten years. Corporate Strategic Planning -- articulates how these
objectives and goals are to be achieved in light of the company’s capabilities and its economic and political environment.
Product and Market Planning -- translates these into individual market and product line objectives.
Financial Planning -- analyzes the financial feasibility of these objectives relative to capital requirements and return on investment goals.
Resource planning -- identifies the equipment, facilities, and personnel needs to accomplish long-range production plan.
Medium-Range Planning Aggregate Production Planning -- specifies output
requirements by major product groups either in labor hours required or in units of production for monthly periods up to 18 months in the future.
Item Forecasting -- provides an estimate of specific products, which when integrated with aggregate production plan, become the output requirement for the m,aster production schedule.
Master Production Scheduling -- (MPS), generates the amounts and need dates for the manufacture of specific end products.
Rough-cut Capacity Planning -- reviews the MPS to make sure that there are no obvious capacity constraints that would require the schedule to be changed.
Short-range Planning–Materials Planning -- (MRP), takes the end product requirements from MPS and breaks it into component parts or subassemblies.– Capacity Requirements Planning -- (CRP), provides detailed schedule of when each operation is to be run on each work center.–Final Assembly Scheduling -- provides operations required to put the product in its final form.–Input/Output Planning and Control – refers to a variety of reports and procedures focusing on schedule demands and capacity constraints deriving from the materials plan.–Production Activity Control – (PAC), describes scheduling and shop floor control activities.–Purchase Planning and Control – deals with the acquisition and control of purchased items specified by the materials plan.
.
BUSINESS PLAN· The Business Plan establishes guidelines for the organization, taking into account the organization’s strategies and policies; forecasts of demand for the organization’s products or services, and economic, competitive and political conditions.
OBJECTIVE OF THE BUSINESS PLAN
· To coordinate the intermediate plans of various organizational functions, such as marketing, operations, and finance.
Corporate
strategies and
policies
Aggregate demand forecasts
PLANNING SEQUENCE
BUSINESS PLAN
PRODUCTION PLAN
MASTER SCHEDULE
Economic competitive, & political conditions
THE CONCEPT OF AGGREGATION
• Aggregate planning is essentially a “big picture” approach to planning
• For purposes of Aggregate planning, it is often convenient to think of capacity in terms of labor hours or machine hours per period, or output rates, without worrying about how much of a particular item will actually be involved.
WHY DO ORGANIZATIONS NEED TO DO AGGREGATE
PLANNING?
• Planning - it takes time to implement plans.
• Aggregation - is important because it is not possible to predict with any degree of accuracy, the timing and volume of demand for individual items.
THE PURPOSE AND SCOPE OF AGGREGATE PLANNING
1. Demand and Capacity
2. Inputs to Aggregate Planning
3. Demand and Capacity Options
Demand Options
The basic demand options are the following:
a. Pricing
b. Promotion
c. Back Orders
d. New demand
CAPACITY OPTIONS
The basic capacity options are the following:
a. Hire and lay off workers
b. Overtime/Slack time
c. Part-time workers
d. Inventories
e. Subcontracting
INFORMAL TECHNIQUE
Informal approaches consist of developing simple tables or graphs that enable planners to visually compare projected demand requirements with existing capacity.
Commonly used
They do not necessarily result in the optimum aggregate plan
1. The regular output capacity is the same in all periods.
2. Cost is a linear function composed of unit cost and number of units.
3. Plans are feasible; that is’ sufficient inventory capacity exists to accommodate a plan, subcontractors with appropriate quality and capacity are standing by, and changes in output can be made as needed.
ASSUMPTIONS IN AGGREGATE PLANNING
4. All costs associated with a decision option can be represented by a lump sum or by unit cost that are independent of the quantity involved.
5. Cost figures can be reasonably estimated and are constant for the planning horizon.
6. Inventories are built up and drawn down at a uniform rate and output occurs at a uniform rate throughout each period
TYPE OF COST HOW TO CALCULATE
Output
Regular Regular cost/unit X Quantity regular output
Overtime Overtime cost/unit X Quantity overtime
Subcontract Subcontract cost/unit X Subcontract quantity
Hire/lay off
Hire Cost per hire X Number Hired
Lay off Cost per fire X Number Fired
Inventory Carrying cost per unit X Average inventory
Back order Back order cost / unit X Number of backorder
units
APPROPRIATE COSTS CALCULATION
Planners for a company are about to prepare the aggregate plan that will cover six periods. They have assembled the following information
Period 1 2 3 4 5 6 Total
Forecast 200 200 300 400 500 200 1800
Costs
Output
Regular time = $ 2/unit
Overtime = $ 3/ unit
Subcontract = $ 6/ unit
Inventory = $ 1 per unit per period on average inventory
Back orders = $ 5 per unit per period
They now want to evaluate a plan that calls for a steady rate of regular-time output, mainly using inventory to absorb the uneven demand but allowing some backlog. They intend to start with zero inventory on hand in the 1st period. Assume a level output rate of 300 units /period with regular time. Note that the planned ending inventory is zero. There are 15 workers
EXAMPLE
Period 1 2 3 4 5 6 TotalForecast 200 200 300 400 500 200 1,800Output
Regular 300 300 300 300 300 300 1,800Overtime - - - - - -Subcontract - - - - - -
Output - Forecast 100 100 0 (100) (200) 100 0Inventory
Beginning 0 100 200 200 100 0Ending 100 200 200 100 0 0Average 50 150 200 150 50 0 600
Backlog 0 0 0 0 100 0 100Costs
OutputRegular $600 600 600 600 600 600 $3,600Overtime - - - - - -Subcontract - - - - - -Hire/ lay off - - - - - -
Inventory $50 150 200 150 50 0 $600Back orders $0 0 0 0 500 0 $500
Total $650 750 800 750 1,150 600 $4,700
After reviewing the plan developed in the preceding example, planners have decided to develop an alternative plan. They have learned that one person is about to retire from the company. Rather than replace that person, they would like to stay with the smaller workforce and use overtime to make up for lost output. The reduced regular- time output is 280 units per period. The maximum amount of overtime output per period is 40 units. Develop a plan and compare it to the previous one.
Period 1 2 3 4 5 6 TotalForecast 200 200 300 400 500 200 1,800Output
Regular 280 280 280 280 280 280 1,680Overtime 0 0 40 40 40 0 120Subcontract - - - - - -
Output - Forecast 80 80 20 (80) (180) 80 0Inventory
Beginning 0 80 160 180 100 0Ending 80 160 180 100 0 0Average 40 120 170 140 50 0 520
Backlog 0 0 0 0 80 0 80Costs
OutputRegular $560 560 560 560 560 560 $3,360Overtime $0 0 120 120 120 0 $360Subcontract - - - - - -Hire/ lay off - - - - - -
Inventory $40 120 170 140 50 0 $520Back orders $0 0 0 0 400 0 $400
Total $600 $680 $850 $820 $1,130 $560 $4,640
MATHEMATICAL TECHNIQUES
LINEAR PROGRAMMING
LP models are methods for obtaining optimal solutions to problems involving the allocation of of scarce resources in terms of cost minimization or profit maximization.
With AGGREGATE PLANNING, the goal is usually to minimize the sum of costs related to regular labor time, over time, subcontracting, inventory holding costs, and costs associated with changing size of the work force. Contstraints involve the capacities of the workforce, inventories and subcontracting.
E.H. BOWMAN - proposed formulating the problem in terms of transportation type programming model as a way to obtain aggregate plans that would match capacities with demand requirements and minimize cost. In order to use this approach, planners must identify capacity (supply) of regular time, over time, subcontracting and inventory on a period by period basis as well as related costs of each variable.
LINEAR DECISION RULE
It was developed by Charles Holt, Franco Modigliani, John Muth, and Herbert Simon.
It is an optimizing technique that seeks to minimize combined cost using a set of cost approximating functions to obtain single quadratic equation
SIMULATION MODELS
Computerized models that can be tested under different scenarios to identify acceptable solutions to problems.
AGGREGATE PLANNING IN SERVICES
- It is an overall forecast for the planning horizon and ends with the preparation for applying the plans to specific products and services.
> Services occurred when they are rendered.
> Demand for service can be difficult to predict.
> Capacity availability can be difficult to predict.
> Labor flexibility can be advantage in services.
IMPORTANT DIFFERENCES RELATED IN GENERAL TO THE DIFFERENCES BETWEEN MANUFACTURING AND
SERVICES
DISAGGREGATING THE AGGREGATE PLAN
- Involves breaking down the aggregate plan into specific product requirements in order to determine labor requirements such as skills and size of workforce, materials, and inventory requirements. This process is described in Materials Requirements Planning (MRP).
AN OVERVIEW OF MRP
Materials Requirements
Planning (MRP) is a computer
based information system
designed to handle ordering and
scheduling of dependent
demand inventories (e.g. raw
materials, componentparts,and
subassembles) Involves
planning periods (e.g., weeks)
so that ordering, fabrication and
assembly can be scheduled for
timely completion of end items.
Dependent Demand
Amount on Hand
Time
RESULTS OF DISAGGREGATING THE AGGREGATE PLAN
MASTER SCHEDULE
ROUGH-CUT CAPACITY PLANNING
MASTER SCHEDULINGIt indicates the quantity and timing for a product,or a group of products, but it does not show planned production. For example:
AGGREGATE PLAN Month Planned Output (Aggregate Units)
NOKIA CELLPHONES
Month J anuary February March
Planned Output 500,000units 700,000units 800,000units
MASTER SCHEDULE ( Disaggregate Plan )
Month Planned Output (Actual Units)
NOKIA CELLPHONESMonth J anuary February March
M-3210 200,000 300,000 250,000
M-3310 200,000 350,000 500,000
M-8210 100,000 50,000 50,000
TOTAL 500,000 units 700,000 units 800,000 units
ROUGH-CUT CAPACITY PLANNING
This is done to test the feasibility of a proposed master schedule relative to available capacities to assure that no obvious capacity constraints exist. This means checking capacities of production and warehouse facilities, labor, and vendors to ensure that no gross deficiencies exist that will render the master schedule unworkable
Master Schedule
Indicates the quantity and timing for a product, or a group of products
Master production schedule
Uncommitted inventory
MasterScheduling
Beginning inventory
Forecast
Customer order
Inputs Outputs
Projected inventory
Master Scheduling Process
INPUTS
Beginning inventory - actual quantity on hand from the preceding period. Forecast - statement about the future. Customer Orders - quantities already committed to customer.
Projected inventory on hand - Inventory from previous week – Current weeks requirement. Master Production Schedule - indicates the quantity and timing of planned production. Uncommitted Inventory - also known as Available to promise inventory.
OUTPUTS
Weekly forecast requirements for industrial pumps
June July
Forecast
1 2 3 4 5 6 7 8
30 30 30 30 40 40 40 40
June July
64
Forecast
1 2 3 4 5 6 7 8
30 30 30 30 40 40 40 40Customers orders
( committed)33 20 10 4 2
Eight Week schedule showing forecast,customer orders, and beginning inventory
Beginning Inventory
June July
64
Forecast
1 2 3 4 5 6 7 8
30 30 30 30 40 40 40 40Customer orders
(committed) 33 20 10 4 2
Projected on – hand Inventory 31 1 -29
Projected on – hand inventory is computed week by week until it becomes negative
Beginning Inventory
Determining the MPS and projected on – hand inventory
Week
Inventory from previous week
Requirements
Net Inventory before MPS
(70)MPS
Projected Inventory
1 64 33 31 31
2 31 30 1 1
3 1 30 -29 + 70 = 41
4 41 30 11 11
5 11 40 -29 + 70 = 41
6 41 40 1 1
7 1 40 -39 + 70 = 31
8 31 40 -9 + 70 = 61
June July
64
Forecast
1 2 3 4 5 6 7 8
30 30 30 30 40 40 40 40
Customer orders (committed)
33 20 10 4 2
Projected on – hand inventory
31 1 41 11 41 1 31 61
MPS 70 70 70 70
Projected on – hand inventory and MPS are added to the master schedule
June July
64
Forecast
1 2 3 4 5 6 7 8
30 30 30 30 40 40 40 40
Customer orders (committed)
33 20 10 4 2
Projected on – hand inventory
31 1 41 11 41 1 31 61
MPS 70 70 70 70Available to promise inventory (uncommitted)
11 56 68 70 70
The available – to – promise inventory quantities have been added to the master schedule