Title: Aggregate / Production Planning
1Aggregate / Production Planning
Y.-H. Chen, Ph.D. International
College Ming-Chuan University
2Overview
- Introduction
- Demand and Supply/Capacity Options
- Aggregate/Production Planning Techniques
- Master Production Schedule
3Planning
- Organizations make supply and capacity decisions
on three levels.
4Aggregate/Production Planning
- Why do we need it?
- Time
- Level of accuracy
- What decisions are involved?
- output rates
- employment
- inventory
- back orders
- subcontracting
5Aggregate/Production Planning
- A big picture approach to planning.
- Balance supply and demand by minimizing the
production cost, adjustment cost, and opportunity
cost of a system. - Concerned with the quantity and the timing of
both the supply and demand.
6Aggregate/Production Planning
- A rolling planning horizon covers a time horizon
of 2 to 18 months. - Special challenge comes from uneven demand within
the planning horizon. - Example Department store space allocation.
7Aggregate Planning Inputs
- Resources
- Workforce
- Facilities
- Demand forecast
- Policy statements
- Subcontracting
- Overtime
- Inventory levels
- Back orders
- Costs
- Inventory carrying
- Back orders
- Hiring/firing
- Overtime
- Inventory changes
- subcontracting
8Aggregate Planning Outputs
- Total cost of a plan
- Production/operation plan
- Projected levels of
- Inventory
- Output
- Employment
- Subcontracting
- Backordering
9Demand Options
- Pricing Influence demand pattern.
- Problems insufficient capacity and missing
demand. - Examples discount rates on hotels, airlines,
movies, etc. - Promotion Influence demand quantity.
- Problems worse than initial intention.
- Back orders Take orders in a period but deliver
them later. - Problems lost sales, disappointed customers, and
paperwork. - New demand Develop demand for a complementary
product. - Examples trips of schools, clubs, and seniors
fast food breakfast landscaping during snow
season.
10Capacity Options
- Hire and layoff workers union contracts, worker
availability, worker morale, quality, and cost. - Recruitment, screening, training, severance pay,
workforce realignment. - Overtime/slack time
- Overtime Seasonal demand, crew overtime,
productivity, quality, accident, payroll. - Slack time training, process improvement,
problem solving. - Inventories carrying, holding, insurance,
obsolescence, deterioration, spoilage, breakage. - Part-time workers skill set, union, benefit.
- Subcontracting / outsourcing skill set,
availability, quality, cost, demand stability,
confidentiality.
11Aggregate Planning Strategies
- Level capacity strategy with inventories,
overtime, part-time workers, subcontracting, and
back orders. - Chase demand strategy with overtime, part-time
workers, and subcontracting. - Use a combination of both strategies.
12Aggregate Planning Strategies
13Aggregate Planning Procedures
- Determine demand for each period
- Determine capacities for each period
- Identify policies that are pertinent
- Determine units costs
- regular time, overtime, subcontracting, holding
inventories, back orders, layoffs, and other
relevant costs. - Develop alternative plans and compute costs
- Select the best plan that satisfies objectives
14Aggregate Planning Example
15Aggregate Planning Example Case 1
- Case 1 Use a steady rate of output and use
inventory to absorb the uneven demand but
allowing some backlog. Assume there are 15
workers. Each worker has an output rate of 20
units per period. Start with zero inventory and
determine an aggregate plan and its cost.
16Aggregate Planning Example Case 1
17Aggregate Planning Example Case 2
- Case 2 After Case 1, planners learned that one
worker is about to retire from the company.
Rather than replacing that person, they would
like to stay with the smaller workforce and use
overtime to make up for the lost output. With the
maximum amount of overtime output per period to
be 40 units, develop a plan and compare it to
Case 1
18Aggregate Planning Example Case 2
19Aggregate Planning Example Case 3
- Case 3 Another option for Case 2 is to use
temporary workers to fill in during months of
high demand. Suppose that it costs an additional
100 to hire and train a temporary worker, and
that a temporary worker can produce at the rate
of 15 units per period (compared to 20 units per
period for regular workers). Develop a plan and
compare it to Case 1 and Case 2.
20Aggregate Planning Example Case 3
21Aggregate Planning Techniques
- Graphical / Charting
- Linear Programming
- Linear Decision Rule
- Simulation
22Graphical / Charting
23Linear Programming
- Goal minimize the sum of costs related to
regular labor time, overtime, subcontracting,
inventory holding costs, and costs associated
with changing the size of the workforce. - Constraints capacities of the workforce,
inventories, and subcontracting. - Limitations
- linear relationships among variables
- inability to continuously adjust output rates
- single objective
24Linear Programming
25Linear Programming Example
- Given the following information, set up the
problem in a transportation table
26Linear Programming Formulation
27Linear Decision Rule and Simulation
- Linear Decision Rule
- Minimized combined costs using a set of
cost-approximating functions to obtain a single
quadratic equation. - Limitations
- A specific type of cost function is assumed.
- Considerable effort needed to obtain relevant
cost data and develop cost functions for each
organization. - Solutions may be unfeasible.
- Simulation Models
- Develop and test computer models under different
scenarios to identify acceptable solutions to
problems. Examples grocery checkouts, banking.
28Summary of Planning Techniques
29Aggregate Planning in Services
- Services occur when they are rendered.
- Inventory may not apply to services.
- Demand for service can be difficult to predict.
- Some customers request prompt service or go
elsewhere, if there is a waiting line. - Capacity availability can be difficult to
predict. - Depend on skills details required.
- Labor flexibility can be an advantage in
services. - Can handle wide variety of service requirements.
30Disaggregation
- Breaking the aggregate plan into specific product
requirements in order to determine - labor requirements (skills, size of work force),
- materials, and
- inventory requirements.
31Disaggregation Example
32Disaggregation
- Master schedule
- Result of disaggregating an aggregate plan
- Show quantity, timing, and orders of specific end
items for a scheduled horizon. - Shorter time horizon.
- Planned unit may be different.
- Rough-cut capacity planning Approximate
balancing of capacity and demand to test the
feasibility of a master schedule. - Production, warehouse facilities, labor, vendors,
and raw materials.
33Master Production Schedule (MPS)
- Indicate the quantity and timing of planned
production, taking into account desired delivery
quantity and timing as well as on-hand inventory.
(what, when, how much)
34MPS Example
- A company that makes industrial pumps wants to
prepare a master production schedule for June and
July. - Marketing has forecasted demand of 120 pumps for
June and 160 pumps for July. - By evenly distributing over the four weeks in
each month, we have 30 per week in June and 40
per week in July. - Now, suppose that there are currently 64 pumps in
inventory and there are customer orders that have
been committed and must be filled. These inputs
result in the following table. - Production batch size is 70 units.
35MPS Example Step 1
- If no production is planed, projected inventory
becomes negative from week 3. This is a signal
that production is needed to replenish inventory.
36MPS Example Step 2
37MPS Example Step 2
38MPS Example Step 3
39Time Fences in MPS
1 2 3 4 5 6 7 8 9 10 11 12