Aggregate Planning and Master Scheduling McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill...

Aggregate Planning and

Master Scheduling

Chapter 11

McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

Chapter 11: Learning ObjectivesYou should be able to:

1. Explain what aggregate planning is and how it is useful2. Identify the variables decision makers have to work

with in aggregate planning and some of the possible strategies they can use

3. Describe some of the graphical and quantitative techniques planners use

4. Prepare aggregate plans and compute their costs5. Describe the master scheduling process and explain its

importance

Instructor Slides 11-2

Aggregate PlanningAggregate planning

Intermediate-range capacity planning that typically covers a time horizon of 2 to 18 months

Useful for organizations that experience seasonal, or other variations in demand

Goal:Achieve a production plan that will effectively

utilize the organization’s resources to satisfy demand


Sales and Operations PlanningSome organizations use the term sales

operations and planning rather than aggregate planningSales and operation planning

Intermediate-range planning decisions to balance supply and demand, integrating financial and operations planning

Since the plan affects functions throughout the organization, it is typically prepared with inputs from sales, finance, and operations


Overview of Planning Levels

Long-Range Plans

Long-term capacity} 5Location} 8Layout} 6Product design} 4Work system design} 7

Intermediate Plans

(This Chapter)General levels of:• Employment• Output•Finished-goods inventories•Subcontracting•Backorders

Short-Range Plans

Detailed plans:• Production lot

size} 13• Order

quantities} 13• Machine

loading} 16• Job

assignments} 16• Job sequencing}

16• Work schedules}

16

Overview of Planning Levels (chapter numbers shown)


The Planning Sequence


Why Use Aggregate PlanningWhy do organizations need to do aggregate

planning? Planning

It takes time to implement plans Strategic

Aggregation is important because it is not possible to predict with accuracy the timing and volume of demand for individual items

It is connected to the budgeting process It can help synchronize flow throughout the supply chain; it

affects costs, equipment utilization; employment levels; and customer satisfaction


AggregationThe plan must be in units of measurement

that can be understood by the firm’s non-operations personnel

• Aggregate units of output per month

• Dollar value of total monthly output

• Total output by factory

• Measures that relate to capacity such as labor hours


Dealing with VariationMost organizations use rolling 3, 6, 9 and

12 month forecastsForecasts are updated periodically, rather than

relying on a once-a-year forecastThis allows planners to take into account any

changes in either expected demand or expected supply and to develop revised plans


Dealing with VariationStrategies to counter variation:

Maintain a certain amount of excess capacity to handle increases in demand

Maintain a degree of flexibility in dealing with changesHiring temporary workersUsing overtime

Wait as long as possible before committing to a certain level of supply capacitySchedule products or services with known demands firstWait to schedule other products until their demands

become less uncertain


Overview of Aggregate Planning

Forecast of aggregate

demand for the

intermediate range

Develop a general plan

to meet demand

requirements

Update the aggregate

plan periodically

(e.g., monthly)


Demand and SupplyAggregate planners are concerned with the

Demand quantityIf demand exceeds capacity, attempt to achieve

balance by altering capacity, demand, or both Timing of demand

Even if demand and capacity are approximately equal, planners still often have to deal with uneven demand within the planning period


Aggregate Planning InputsResources

Workforce/production rates

Facilities and equipment

Demand forecastPolicies

Workforce changes Subcontracting Overtime Inventory levels/changes Back orders

Costs Inventory carrying Back orders Hiring/firing Overtime Inventory changes subcontracting


Aggregate Planning OutputsTotal cost of a planProjected levels of

InventoryOutputEmploymentSubcontractingBackordering


Aggregate Planning StrategiesProactive

Alter demand to match capacityReactive

Alter capacity to match demandMixed

Some of each


Demand Options Pricing

Used to shift demand from peak to off-peak periods

Price elasticity is important

Promotion Advertising and other forms

of promotion

Back orders Orders are taken in one

period and deliveries promised for a later period

New demand


Supply OptionsHire and layoff workersOvertime/slack timePart-time workersInventoriesSubcontracting


Aggregate Planning Pure StrategiesLevel capacity strategy:

Maintaining a steady rate of regular-time output while meeting variations in demand by a combination of options: inventories, overtime, part-time workers,

subcontracting, and back ordersChase demand strategy:

Matching capacity to demand; the planned output for a period is set at the expected demand for that period.


Uneven Demand and Two Strategies:


Chase ApproachCapacities are adjusted to match demand

requirements over the planning horizonAdvantages

Investment in inventory is lowLabor utilization in high

DisadvantagesThe cost of adjusting output rates and/or workforce

levels


Level ApproachCapacities are kept constant over the

planning horizonAdvantages

Stable output rates and workforceDisadvantages

Greater inventory costsIncreased overtime and idle timeResource utilizations vary over time


Techniques for Aggregate PlanningGeneral procedure:

1. Determine demand for each period

2. Determine capacities for each period

3. Identify company or departmental policies that are pertinent

4. Determine unit costs

5. Develop alternative plans and costs

6. Select the plan that best satisfies objectives. Otherwise return to step 5.


Trial-and-Error TechniquesTrial-and-error approaches consist of developing

simple table or graphs that enable planners to visually compare projected demand requirements with existing capacity

Alternatives are compared based on their total costs

Disadvantage of such an approach is that it does not necessarily result in an optimal aggregate plan


Trial-and-Error Technique Assumptions

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

4. All costs are associated with a decision option can be represented by a lump sum

5. Cost figures can be reasonably estimated and are constant for the planning period

6. Inventories are built up and drawn down at a uniform rate throughout each period

7. Backlogs are treated as if they exist the entire period


Cumulative Graph


Mathematical TechniquesLinear programming modelsSimulation models

Computerized models that can be tested under different scenarios to identify acceptable solutions to problems


Aggregate Planning in Services Hospitals:

Aggregate planning used to allocate funds, staff, and supplies to meet the demands of patients for their medical services

Airlines: Aggregate planning in this environment is complex due to the

number of factors involved Capacity decisions must take into account the percentage of

seats to be allocated to various fare classes in order to maximize profit or yield

Restaurants: Aggregate planning in high-volume businesses is directed

toward smoothing the service rate, determining workforce size, and managing demand to match a fixed capacity

Can use inventory; however, it is perishable


Aggregate Planning in ServicesThe resulting plan in services is a time-phased

projection of service staff requirementsAggregate planning in manufacturing and

services is similar, but there are some key differences related to:1. Demand for service can be difficult to predict2. Capacity availability can be difficult to predict3. Labor flexibility can be an advantage in services4. Services occur when they are rendered


Disaggregation

AggregatePlan

Disaggregation

MasterSchedule


Disaggregating the Aggregate Plan

Master schedule: The result of disaggregating an aggregate planShows quantity and timing of specific end

items for a scheduled horizon


Master SchedulingThe heart of production planning and

control It determines the quantity needed to meet demand

from all sources It interfaces with

MarketingCapacity planningProduction planningDistribution planning

Provides senior management with the ability to determine whether the business plan and its strategic objectives will be achieved


The Master SchedulerThe master scheduler’s duties:

Evaluating the impact of new ordersProviding delivery dates for ordersDeals with problems

Evaluating the impact of production or delivery delaysRevising master schedule when necessary because of

insufficient supplies or capacityBring instances of insufficient capacity to the attention

of relevant personnel so they can participate in resolving conflicts


Time Fences

Period

“frozen”(firm orfixed)

“slushy”somewhat

firm

“liquid”(open)

1 2 3 4 5 6 7 8 9


The Master Scheduling Process

Beginning inventory

Forecast

Customer orders

Inputs Outputs

Projected inventory

Master production schedule

Uncommitted inventory

MasterProductionSchedule


Master Scheduling ProcessThe master production schedule (MPS) is one of

the primary outputs of the master scheduling process Once a tentative MPS has been developed, it must be validated

Rough cut capacity planning (RCCP) is a tool used in the validation process Approximate balancing of capacity and demand to test the

feasibility of a master schedule

Involves checking the capacities of production and warehouse facilities, labor, and vendors to ensure no gross deficiencies exist that will render the MPS unworkable


MPS – Forecasts and Customer Orders


MPS – Projected On Hand


Determining MPS and Projected On Hand

Week

Inventory from Previous Week

Requirements

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


Adding MPS and Projected On Hand to the MPS


Available-to-Promise


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