Chapter 12

1. Chapter 12 Aggregate Planning

2. Overview of Planning Levels • Long-range plans • Long term capacity • Location/layout • Intermediate plans (General levels) • Employment • Output • Short-range plans (Detailed plans) • Machine loading • Job assignments MTSU Management 362

3. Economic, competitive, and political conditions Corporate strategies and policies Aggregate demand forecasts Establishes production and capacity strategies Business Plan Establishes production capacity Production plan Establishes schedules for specific products Master schedule Figure 12-1 Planning Sequence MTSU Management 362

4. Conditions Favoring the Use of Aggregate Planning • The market demand for the output of the operations system is forecasted to be fluctuating or changing over an intermediate planning horizon (6-18 months) • The firm has some alternatives available to change the intermediate- or short-term capacity of the operations system • The planner can model the relevant relationships and costs MTSU Management 362

5. Description of Aggregate Planning • Management selects the alternative or set of alternatives the firm plans to use to cope with the forecasted changing or fluctuating market demand • The typical objective is to select the plan (a set of alternatives) which minimizes related costs over the planning horizon • The result is the quantity and scheduling of aggregate production over the planning horizon MTSU Management 362

6. Inputs to the Aggregate Planning Process • A forecast of aggregate demand covering an intermediate-term planning horizon (6-18 months) • The alternative means available to adjust short-to medium-term system capacity, the costs of using each alternative and the extent each alternative impacts capacity • The current status of the system in terms of workforce level, inventory level and production rate MTSU Management 362

7. Outputs of theAggregate Planning Process • A production plan: aggregate decisions for each period in the planning horizon about • workforce level • inventory level • production rate • Projected costs of the production plan over the planning horizon MTSU Management 362

8. An Overview of Aggregate Planning Product decisions (Chapter 4) Market Demand Research and Technology Work Force Process planning & capacity decisions (Chapter 5) Raw materials available Demand forecasts, orders (Chapter 3) Inventory on hand Aggregate plan External capacity (subcontractors) Master production schedule & MRP systems (Chapter 14) Detailed Work Schedules (Chapter 17) MTSU Management 362

9. Demand Options in Aggregate Planning • Alternatives that may reduce the forecasted demand fluctuations • pricing • promotion • backordering during high demand periods • new demand, e.g., counter seasonal product mixing MTSU Management 362

10. Capacity Options in Aggregate Planning • Alternatives that may be available to change intermediate- or short-term capacity • varying work force size by hiring or layoffs • varying capacity through the use of overtime or idle time • using part-time workers • using contract workers • changing inventory levels • subcontracting MTSU Management 362

11. Summary of Planning Techniques MTSU Management 362

12. Graphic or Informal Approach • Provides a framework for evaluating an aggregate plan • Easy to use and understand • Graphs of forecasted demand may assist planner in generating a plan • Model is flexible • No optimization • Static - relies on the planner to generate a plan MTSU Management 362

13. Average of Forecast Demand Production Rate/Working Day Forecast Demand Forecast and Average Forecast Demand MTSU Management 362

14. Cumulative Demand Forecast Demand Cumulative Forecast MTSU Management 362

15. Cumulative Demand Forecast Demand Cumulative Forecast Production Plan Cumulative Forecasted Demand MTSU Management 362

16. Cumulative Demand Forecast Demand Cumulative Forecast Production Plan Cumulative Forecasted Demand MTSU Management 362

17. Basic Strategies for Meeting Uneven Demand • Maintain a level workforce • Maintain a steady output rate • Match demand period by period • Use a combination of decision variables MTSU Management 362

18. Basic Strategies Examined • Level output or capacity: • Maintaining a steady rate of regular-time output while meeting variations in demand by a combination of options. • Chase demand: • Matching capacity to demand; the planned output for a period is the expected demand for that period. MTSU Management 362

19. Basic Relationships • Period-ending inventories or backlogs are determined using the inventory balance equation • A shortfall between the amount available to the market [output during the period plus beginning inventory] and the market demand is made up (buffered) by inventory, backlog, overtime, part-time labor and/or subcontracting MTSU Management 362

20. Output Regular Overtime Subcontract Hire/Layoff Hire Layoff Inventory Back orders regular cost/unit x regular output quantity overtime cost/unit x overtime quantity subcontract cost/unit x subcontract quantity cost/hire x number hired cost/ layoff x number laid off carrying cost/unit x average inventory back order cost/ unit x number of backorder units Cost Calculations MTSU Management 362

21. Output cost + Hire/Lay off cost + Inventory cost + Back-order cost Regular + Overtime + subcontract Total Cost for a Period MTSU Management 362

22. Aggregate Planning in Services • Services occur when they are rendered • Demand for service can be difficult to predict • Capacity available can be difficult to predict • Labor flexibility can be an advantage in services MTSU Management 362

23. Disaggregating the Aggregate Plan • Breaking down the aggregate plan into specific product requirements in order to determine labor requirements, materials, and inventory requirements • The result is a master schedule • quantity and timing of specific end items for a scheduled horizon • used to do rough-cut capacity planning MTSU Management 362

24. Figure 12-5 Master Scheduling Process Inputs Outputs Beginning inventory Projected inventory Master scheduling Forecast Master production schedule Customer orders Uncommitted inventory MTSU Management 362

25. Figure 12-8 Projected On-hand Inventory Beginning Inventory Customer orders are larger than forecast in week 1; projected on-hand is 64-33 = 31 Forecast is larger than customer orders in week 3; projected on-hand inventory is 1-30 = -29 Forecast is larger than customer orders in week 2; projected on-hand inventory is 31-30 = 1 MTSU Management 362

26. Figure 12-10 Projected On-hand Inventory with MPS MTSU Management 362

27. Figure 12-11 Available-to-Promise Inventory MTSU Management 362