Production Planning (Aggregate Planning)

1. Production Planning(Aggregate Planning)

2. SOM 464: Manufacturing Resource Planning • Study of the efficient allocation of resources (material, equipment, people, money) in manufacturing and some service operations • How many items should be ordered or made at a given time? • Who is assigned which job? • How do jobs flow through the firm? • How is inventory maintained?

3. Manufacturing Resource Planning: Flow of Materials • Raw Materials Flow into Manufacturing/Service Company. • Finished Goods/Services Distributed to End Customers. • Supply Chain Management (SCM) is the Study of this Linked Chain of Activities. • Manufacturing Resource Planning (or Materials Management) is the Study of the Planning and Materials Flow.

4. Manufacturing Resource Planning: Flow of Materials • Supply Chain Diagram: Supplier  Manufacturer  Distribution  Customer System

5. Manufacturing Resource Planning Criteria • High Customer Service (Probability of Meeting Demand) • Minimize Production Costs • Minimize Inventory Holding Costs and Other Inventory Investment Costs – Avoid Shortages • Minimize Distribution Costs These Objectives Often Conflict with Objectives of Marketing and Finance.

6. Production Planning • There are Five Major Levels in Planning and Control • Strategic Business Plan • Production Plan (Example is Tuffy Case) • Master Production Schedule (MPS) • Material Requirements Plan (MRP) – Can Also Include Manufacturing Resource Planning (MRP II) and Enterprise Resource Planning (ERP) • Purchasing and Production Activity Scheduling and Control (Also Known as Shop Floor Control)

7. Production Planning • Also Known as Aggregate Planning • Problem in Tuffy Case: Set Production Every Period, Allocate Resources, Meet Demand • Set Pt = Production for t Wt = Workforce for t

8. Production Planning • Inputs: Resources (Rough-Cut Capacity Planning), Forecast, Inventory, Policies, Costs • Demand Options: Pricing, Promotion, Markets for New Demand, Allowing Back Orders (Shortages) • Supply (Capacity) Options: Hiring/Layoff, Overtime, Temporary Workers, Inventories, Subcontracting, Expediting

9. Relevant Costs 1. Change in Production (E.g. Hire/Layoff) Costs 2. Inventory Holding Costs 3. Shortage Costs 4. Payroll Costs 5. Subcontracting Costs 6. Expediting Costs

10. Scheduling Strategies • Chase (Demand Matching) • Production Leveling • Level Workforce • Subcontracting (Outsourcing) • Hybrid or Mixed (Probably Used in Game) Given:Beginning Inv. – Demand + Pt = End Inv.

11. Scheduling Techniques: (1) Heuristics • Informal Rules that Appear to Work. • Rules are Developed (Often by Trial and Error) and Tested in Real World or Computer Simulation. • Advantage: Rules Can Be Realistic. Disadvantage: Not Optimum.

12. Scheduling Techniques: (2) Linear Decision Rule • Economic Order Quantity (Remember EOQ from SOM 306?) Type of Approach • TRC = Payroll + Holding + Shortage + Change in Pt = f(Pt, Wt) • Calculus Used to Find Best Pt and Wt E.g. Pt = .2Ft + .1Ft+1 + .05Ft+2 -.1It +.1Wt-1 • Advantage: Optimum Given that Equations “Fit”. Disadvantage: Cost

13. Scheduling Techniques: (3) Search Rules • Used with Simulation • Educated, Computer-Driven, Trial & Error • Advantage: Realistic Costs, Not Optimum but Close. Disadvantage: Uses Lots of Computer Time.

14. Master Production Schedule (MPS) • Similar to Production Plan • Time Periods or “Buckets” are Smaller • Multiple Products are Shown: Disaggregating Done by Heuristics or Linear Programming

15. Tuffy Teddy Bear Case • Case Introduced You to Course Material. Case Involved Production Planning, Inventory Control, and Forecasting. • Most Successful Strategies are Hybrid or Mixed: Reduce Production ASAP to Lower Inventories and Increase Production Just After Vacation.

16. 2008 Best Answer: $41,960

17. 2009 Best Answer: $45,731

18. 2010 Best Answer: $42,615

19. Another Good Answer: $47,600

20. Another Good Answer: $48,923

21. Another Good Answer: $68,577