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PRODUCTION AND PRODUCTION AND OPERATIONS OPERATIONS

MANAGEMENTMANAGEMENT

Ch. 14: Aggregate SchedulingCh. 14: Aggregate Scheduling

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Learning ObjectivesLearning Objectives

Describe planningDescribe planning Distinguish the types of plansDistinguish the types of plans Define aggregate schedulingDefine aggregate scheduling Relate aggregate scheduling to the Relate aggregate scheduling to the

overall planning processoverall planning process Explain aggregate scheduling optionsExplain aggregate scheduling options Develop aggregate schedulesDevelop aggregate schedules

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Aggregate Planning RequiresAggregate Planning Requires

Logical overall unit for measuring Logical overall unit for measuring sales and outputssales and outputs

Forecast for intermediate planning Forecast for intermediate planning period in these aggregate unitsperiod in these aggregate units

Method for determining costsMethod for determining costs Model that combines forecasts and Model that combines forecasts and

costs so that scheduling decisions costs so that scheduling decisions can be madecan be made

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Setting goals & objectivesSetting goals & objectives• Example: Meet demand within the limits Example: Meet demand within the limits

of available resources at the least costof available resources at the least cost Determining steps to achieve goalsDetermining steps to achieve goals

• Example: Hire more workersExample: Hire more workers Setting start & completion datesSetting start & completion dates

• Example: Begin hiring in Jan.; finish, Mar.Example: Begin hiring in Jan.; finish, Mar. Assigning responsibility Assigning responsibility

PlanningPlanning

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Planning HorizonsPlanning Horizons

Today 3 Months 1 year 5 years

Planning Horizon

Short-range plansJob assignmentsOrderingJob schedulingDispatching

Intermediate-range plansSales planningProduction planning and budgetingSetting employment, inventory, subcontracting levelsAnalyzing operating plans

Long-range plansR&DNew product plansCapital expensesFacility location, expansion

Responsible: Operations managers, supervisors, foremen

Responsible: Operations managers

Responsible: Top executives

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Management Management LevelLevel

Today 3 months 1 year 5 years

Long-Range Facility location

Intermediate-Range Aggregate plans

Short-Range Dispatching

High

Low

Top Executives

Supervisors

Operations Managers

18 months

Types of PlansTypes of Plans

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Relationships of the Aggregate Relationships of the Aggregate PlanPlan

AggregatePlan for

Production

PriorityPlanning &Scheduling

DemandForecasts,

orders

MasterProductionSchedule

Detailed WorkSchedules

PlantCapacity

ExternalCapacity

Inventory OnHand

Raw MaterialsAvailable

Work Force

Marketplaceand Demand

Research andTechnology

ProductDecisions

ProcessPlanning &Decisions

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A mathematically based aggregate planning model requires A mathematically based aggregate planning model requires considerable:considerable:• timetime

problem definitionproblem definition model developmentmodel development model verificationmodel verification model applicationmodel application

• expertiseexpertise people who understand the problempeople who understand the problem people who understand both the modeling process, and people who understand both the modeling process, and

the specific modelthe specific model• moneymoney

money to pay for all of the abovemoney to pay for all of the above often requires funding for several people for several often requires funding for several people for several

months!months!

What’s Needed for Aggregate What’s Needed for Aggregate PlanningPlanning

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Provides the quantity and timing of Provides the quantity and timing of production for intermediate futureproduction for intermediate future• Usually 3 to 18 months into futureUsually 3 to 18 months into future

Combines (‘aggregates’) productionCombines (‘aggregates’) production• Often expressed in common unitsOften expressed in common units

Example: Hours, dollars, equivalents Example: Hours, dollars, equivalents (e.g., FTE students)(e.g., FTE students)

Involves capacity and demand Involves capacity and demand variablesvariables

Aggregate SchedulingAggregate Scheduling

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Meet demandMeet demand Use capacity Use capacity

efficientlyefficiently Meet inventory Meet inventory

policypolicy Minimize costMinimize cost

• LaborLabor• InventoryInventory• Plant & equipmentPlant & equipment• SubcontractSubcontract

Aggregate Scheduling GoalsAggregate Scheduling Goals

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Aggregate Planning StrategiesAggregate Planning StrategiesPure StrategiesPure Strategies

Capacity Options — change Capacity Options — change capacity:capacity:• changing inventory levelschanging inventory levels• varying work force size by hiring or varying work force size by hiring or

layoffslayoffs• varying production capacity through varying production capacity through

overtime or idle timeovertime or idle time• subcontractingsubcontracting• using part-time workersusing part-time workers

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Aggregate Planning StrategiesAggregate Planning StrategiesPure StrategiesPure Strategies

Demand Options — change Demand Options — change demanddemand::

• influencing demandinfluencing demand• backordering during high demand backordering during high demand

periodsperiods• counterseasonal product mixingcounterseasonal product mixing

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Aggregate Planning Options - Aggregate Planning Options - Advantages and DisadvantagesAdvantages and Disadvantages

Option Advantage DisadvantageSome

Comments

Changing INVENTORY levels

Changes in inventories are gradual, not abrupt production changes

Inventory holding costs; shortages resulting in lost sale may occur if demand increases

Applies mainly to production, not service settings

Varying WORKFORCE SIZE by hiring or layoffs

Avoids use of other alternatives

Hiring, layoff, and training costs

Used where many unskilled people seek extra income

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Advantages/Disadvantages - Advantages/Disadvantages - continuedcontinued

Option Advantage DisadvantageSome

Comments

Varying PRODUCTION RATES through overtime or idle time

Matches seasonal fluctuations without hiring/training costs

Overtime premiums, tired workers, may not meet demand

Allows flexibility within the aggregate plan

SUBCONTRACTINGPermits flexibility and smoothing of the firm's output

Loss of quality control; reduced profits; loss of future business

Applies mainly in production settings

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Advantages/Disadvantages - Advantages/Disadvantages - continuedcontinued

Option Advantage DisadvantageSome

Comments

Using PART-TIME WORKERS

Less costly and more flexible than full-time workers

High turnover/training costs; quality suffers; scheduling difficult

Good for unskilled jobs in areas with large temporary labor pools

Influencing DEMAND

Tries to use excess capacity. Discounts draw new customers.

Uncertainty in demand. Hard to match demand to supply exactly.

Creates marketing ideas. Overbooking used in some businesses.

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Advantage/Disadvantage - Advantage/Disadvantage - continuedcontinued

Option Advantage DisadvantageSome

Comments

BACK ORDERING during high-demand periods

May avoid overtime. Keeps capacity constant

Customer must be willing to wait, but goodwill is lost.

Many companies backlog.

COUNTER SEASONAL products and service mixing

Fully utilizes resources; allows stable workforce.

May require skills or equipment outside a firm's areas of expertise.

Risky finding products or services with opposite demand patterns.

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Mixed strategyMixed strategy• Combines 2 or more aggregate scheduling Combines 2 or more aggregate scheduling

optionsoptions Level scheduling strategyLevel scheduling strategy

• Produce same amount every Produce same amount every dayday• Keep work force level constant Keep work force level constant • Vary non-work force capacity or demand Vary non-work force capacity or demand

optionsoptions• Often results in lowest production costsOften results in lowest production costs

Aggregate Scheduling Aggregate Scheduling StrategiesStrategies

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Graphical & charting techniquesGraphical & charting techniques• Popular & easy-to-understandPopular & easy-to-understand• Trial & error approachTrial & error approach

Mathematical approachesMathematical approaches• Transportation method Transportation method • Linear decision ruleLinear decision rule• Management coefficients modelManagement coefficients model• SimulationSimulation

Aggregate Scheduling MethodsAggregate Scheduling Methods

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The Graphical Approach to The Graphical Approach to Aggregate PlanningAggregate Planning

Forecast the demand for each periodForecast the demand for each period Determine the capacity for regular Determine the capacity for regular

time, overtime, and subcontracting, time, overtime, and subcontracting, for each periodfor each period

Determine the labor costs, hiring and Determine the labor costs, hiring and firing costs, and inventory holding firing costs, and inventory holding costscosts

Consider company policies which may Consider company policies which may apply to the workers or to stock levelsapply to the workers or to stock levels

Develop alternative plans, and Develop alternative plans, and examine their total costsexamine their total costs

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Simple to understand, easy to use. Many solutions; one chosen may not be optimal

LP software available;permits sensitivity analysis and constraints. Linear function may not be realistic

Simple, easy to implement; tries to mimic manager’s decision process; uses regression

Trial and error

Optimization

Heuristic

Comparison of Aggregate Comparison of Aggregate Planning Methods Planning Methods

Charting/graphical Charting/graphical methodsmethods

Transportation Transportation methodmethod

Management Management

coefficient modelcoefficient model

Techniques Approaches Aspects

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Controlling the Cost of Labor in Controlling the Cost of Labor in Service FirmsService Firms

Close control of labor hours to ensure Close control of labor hours to ensure quick response to customer demandquick response to customer demand

Some form of-on-call labor resource that Some form of-on-call labor resource that can be added or deleted to meet can be added or deleted to meet unexpected demandunexpected demand

Flexibility of individual worker skills to Flexibility of individual worker skills to permit reallocation of available laborpermit reallocation of available labor

Individual worker flexibility in rate of Individual worker flexibility in rate of output or hours of work to meet demandoutput or hours of work to meet demand