Aggregate Planning

1
Aggregate Planning

• Chapter 13

2
MGMT 326
Facilities Work Design
Quality Assurance
Products Processes
Planning Control
Foundations of Operations
Managing Projects
Managing Quality
Introduction
Linear Program- ming
Strategy
Product Design
Statistical Process Control
Capacity and Location
Process Design
Facility Layout
Just-in-Time Lean Systems
Work System Design
3
Presentation Outline

• Planning for Operations
• What is Aggregate Planning, and why is it
  important
• 3 Levels of planning for manufacturing
• Master Production Schedule and Rough Cut Capacity
  Plan
• Aggregate Planning options
• Work force and capacity management
• Demand management

4
Aggregate Operations Planningfor Services

• Input demand forecast by product line by month
  by facility
• Output Labor requirements by month by facility

5
Aggregate Plan in Manufacturing

• Objective Match supply and demand so that the
  sales plan can be met.
• Input sales forecast by product line by month
  for 6-18 months
• Information in the plan, by product line by month
• Supply production and outsourcing (buying from
  another firm) by product line by month
• Labor force by product line by month
• Ending inventory level by month

6
Why is Aggregate Planning Important?

• Operations and supply chain management
• To ensure that Operations is prepared to meet
  customer needs
• Should make-buy decisions be changed?
• Contracts for raw materials and parts
• Labor requirements
• Inventory levels

7
Why is Aggregate Planning Important? (2)

• Marketing
• To ensure that the company's capacity will be
  used in the most profitable way, considering
  market constraints
• If there is not enough capacity, which products
  or customers will have priority?
• If there is more capacity than needed, how can
  the firm sell more?
• The Aggregate Operations Plan and the Sales Plan
  must be consistent.

8
Why is Aggregate Planning Important?(3)

• Accounting and Finance
• To have an accurate budget for operations
• To ensure adequate cash flow for operations
• Year-end inventory levels affect earnings
  forecasts
• Human resources management
• If more workers will be needed, plan for hiring
  and training
• If fewer workers are needed, plan for layoffs

9
3 Levels of Planning for Manufacturing
10
Master Production Schedule (MPS)and Rough Cut
Capacity Plan

• Master Production Schedule (MPS) shows planned
  production by item, by day or week, for 2 6
  months
• Is revised as sales forecast changes
• Rough Cut Capacity Plan a calculation to ensure
  that there is enough capacity to make the items
  in the Master Production Schedule

11
Aggregate Production Planand Master Production
Schedule (MPS)
12
Master Production Schedule
13
Aggregate Planning OptionsWork Force and
Capacity Management

• Hiring
• Layoffs
• Increase or decrease working hours (overtime or
  undertime)
• Increase or decrease use of part-time or
  temporary workers
• Contract production to another firm
• Use contract service workers (service or
  administrative departments)

14
Aggregate Planning OptionsDemand-Driven Options

• To increase demand, reduce prices and offer
  promotions to increase demand when you need it
• Profit per unit is lower, but you get additional
  business
• A good strategy when fixed costs are high and
  variable costs are low
• Service firms often use appointment systems to
  match supply and demand

15
Aggregate Planning OptionsDemand-Driven Options
(2)

• Build finished goods inventory when demand is low
  and sell it when demand is high
• High inventory costs
• Risk of having obsolete inventory
• Companies with highly seasonal demand may have to
  use this strategy.
• Back orders result when a company cannot supply
  demand immediately
• Unless you have a unique product or a lower price
  than competitors, there is a high risk of lost
  sales
• Additional administrative and transportation costs