Long Range Planning - Annual planning with a time horizon greater than one year
Aggregate Planning - Intermediate planning with a time horizon of 6 to 18 months with monthly or quarterly increments
Short Range Planning - Weekly planning with a time horizon of one day to six months
2 Aggregate Planning
Product group or broad category (Aggregation)
Medium-Range 6-18 months
Goal Specify the optimal combination of
inventory on hand
3 (No Transcript) 4 Balancing Aggregate Demand and Aggregate Production Capacity 10000 Suppose the figure to the right represents forecast demand in units 10000 8000 8000 7000 6000 5500 6000 4500 4000 Now suppose this lower figure represents the aggregate capacity of the company to meet demand 2000 0 Jan Feb Mar Apr May Jun 9000 10000 8000 8000 What we want to do is balance out the production rate workforce levels and inventory to make these figures match up 6000 6000 4500 4000 4000 4000 2000 0 Jan Feb Mar Apr May Jun 5 Key Strategies for Meeting Demand
Chase - Match production rate to order rate by hiring and laying off employees
Level - Maintain a stable work force working at a constant output rate shortages and surpluses are absorbed by fluctuating inventory levels backlogs and lost sales
Some combination of the two
6 Required Inputs to the Production Planning System External to firm Planning for production Internal to firm 7 Strategic Capacity Planning
Capacity can be defined as the ability to hold receive store or accommodate a measure of an organizations ability to provide customers with the demanded services or goods in the amount requested and in a timely manner
Strategic capacity planning is an approach for determining the overall capacity level of capital intensive resources including facilities equipment and overall labor force size
8 Estimating Capacity
Must differentiate between theoretical capacity (what can be achieved under ideal conditions in a short period of time) and achievable capacity (considering equipment problems maintenance requirements material problems worker errors)
Must select a yardstick to measure it such as tons per hour (tph) of steel or number of patient days in a hospital
9 Management Decisions That Affect Capacity in the Intermediate Term
Subcontracting or outsourcing production
Changing the mix of products produced
Adding people to the production process
Increasing the motivation of employees
Increasing the operating rate of a machine
Improving quality of raw materials processes etc.
Increasing product yield (quantity of output/quantity of input or the of useful output)
10 Capacity Utilization
Capacity used rate of output actually achieved and
Best operating level capacity for which the process was designed
11 Example of Capacity Utilization
During one week of production a plant produced 83 units of a product. Its historic highest or best utilization recorded was 120 units per week. What is this plants capacity utilization rate
Capacity utilization rate Capacity used .
Best operating level
0.69 or 69
12 Economies Diseconomies of Scale 13 The Experience Curve As plants produce more products they gain experience in the best production methods and reduce their costs per unit 14 Capacity Flexibility
15 Capacity Planning Balance Unbalanced stages of production Units per month 6000 7000 5000
Maintaining System Balance Output of one stage is the exact input requirements for the next stage
Balanced stages of production Units per month 6000 6000 6000 16 Determining Capacity Requirements
Forecast sales within each individual product line
Calculate equipment and labor requirements to meet the forecasts
Project equipment and labor availability over the planning horizon
17 Capacity Utilization Service Quality
The best operating point is between 70 and 90 of capacity over 90 is undesirable
Why do you think that this is so
18 Utilization and Time in System 70 19 Capacity - Summary
Capacity decisions should be made carefully as they can commit significant resources to assets that cannot be changed easily or economically.
Capacity is affected by management decisions regarding the number of hours worked product mix staffing levels machine capabilities level of quality and product yield.
Watch out for the Bermuda Triangle of operational complexity where management difficulty exceeds management ability (management bottleneck!).
20 Enterprise Resource Planning Systems 21 Enterprise Resource Planning (ERP) Systems
Enterprise Resource Planning Systems is a computer system that integrates application programs in accounting sales manufacturing and other functions in the firm
This integration is accomplished through a database shared by all the application programs
22 SAP AGS R/3
SAP AG A German firm is a world leader in ERP software.
-Designed to operate in a three-tier client/server configuration -Applications are fully integrated so that data are shared between all applications 23 R/3 System Functional Components R/3 System Functional Components 24 Financial Accounting
25 Human Resources
Applicant data administration
Personnel development planning
Schedule shift planning
Travel expense accounting
26 Manufacturing Logistics
Production planning control
Project management system
27 Sales and Distribution
Prospect customer management
Sales order management
Shipping and transportation management
Billing invoicing and rebate processing
28 Reasons for Implementing SAP R/3
Desire to standardize and improve processes
To improve the level of systems integration
To improve information quality
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