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Aggregate / Production Planning

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Chase demand strategy with overtime, part-time workers, and subcontracting. ... of planned production, taking into account desired delivery quantity and timing ... – PowerPoint PPT presentation

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Title: Aggregate / Production Planning


1
Aggregate / Production Planning
Y.-H. Chen, Ph.D. International
College Ming-Chuan University
2
Overview
  • Introduction
  • Demand and Supply/Capacity Options
  • Aggregate/Production Planning Techniques
  • Master Production Schedule

3
Planning
  • Organizations make supply and capacity decisions
    on three levels.

4
Aggregate/Production Planning
  • Why do we need it?
  • Time
  • Level of accuracy
  • What decisions are involved?
  • output rates
  • employment
  • inventory
  • back orders
  • subcontracting

5
Aggregate/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.

6
Aggregate/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.

7
Aggregate 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

8
Aggregate Planning Outputs
  • Total cost of a plan
  • Production/operation plan
  • Projected levels of
  • Inventory
  • Output
  • Employment
  • Subcontracting
  • Backordering

9
Demand 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.

10
Capacity 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.

11
Aggregate 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.

12
Aggregate Planning Strategies
13
Aggregate 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

14
Aggregate Planning Example
15
Aggregate 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.

16
Aggregate Planning Example Case 1
17
Aggregate 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

18
Aggregate Planning Example Case 2
19
Aggregate 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.

20
Aggregate Planning Example Case 3
21
Aggregate Planning Techniques
  • Graphical / Charting
  • Linear Programming
  • Linear Decision Rule
  • Simulation

22
Graphical / Charting
23
Linear 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

24
Linear Programming
25
Linear Programming Example
  • Given the following information, set up the
    problem in a transportation table

26
Linear Programming Formulation
27
Linear 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.

28
Summary of Planning Techniques
29
Aggregate 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.

30
Disaggregation
  • Breaking the aggregate plan into specific product
    requirements in order to determine
  • labor requirements (skills, size of work force),
  • materials, and
  • inventory requirements.

31
Disaggregation Example
32
Disaggregation
  • 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.

33
Master 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)

34
MPS 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.

35
MPS 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.

36
MPS Example Step 2
37
MPS Example Step 2
38
MPS Example Step 3
39
Time Fences in MPS
1 2 3 4 5 6 7 8 9 10 11 12

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