aggregate planning
TRANSCRIPT
Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e
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Operations Operations ManagementManagement
Aggregate PlanningAggregate PlanningChapter 13Chapter 13
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AGGREGATE PLANNING STRATEGIES Capacity Options Demand Options Mixing Options to Develop a Plan
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METHODS FOR AGGREGATE PLANNING Graphical and Charting Methods Mathematical Approaches to Planning
AGGREGATE PLANNING IN SERVICES Restaurants Hospital Miscellaneous Services National Chains of Small Service Firms Airline Industry
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Anheuser-BuschAnheuser-Busch
Anheuser-Busch produces nearly 40% of the beer consumed in the U.S.
Matches fluctuating demand by brand to specific plant, labor, and inventory capacity
High facility utilization requires meticulous cleaning between batches effective maintenance efficient employees efficient facility scheduling
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Aggregate Planning RequiresAggregate Planning Requires
Logical overall unit for measuring sales and outputs
Forecast of demand for intermediate planning period in these aggregate units
Method for determining costs Model that combines forecasts and costs so that
planning decisions can be made
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Setting goals & objectives Example: Meet demand within the limits
of available resources at the least cost Determining steps to achieve goals
Example: Hire more workers Setting start & completion dates
Example: Begin hiring in Jan.; finish, Mar. Assigning responsibility
PlanningPlanning
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Planning Tasks and ResponsibilitiesPlanning Tasks and Responsibilities
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Planning HorizonsPlanning Horizons
Today 3 Months 1 year 5 years
Planning Horizon
Short-range plansJob assignmentsOrderingJob schedulingDispatching
Intermediate-range plansSales planningProduction planning and budgetingSetting employment, inventory, subcontracting levelsAnalyzing operating plans
Long-range plansR&DNew product plansCapital expensesFacility location, expansion
Responsible: Operations managers, supervisors, foremen
Responsible: Operations managers
Responsible: Top executives
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Relationships of the Aggregate PlanRelationships of the Aggregate Plan
AggregatePlan for
Production
DemandForecasts,
orders
MasterProduction
Schedule, and MRP systems
Detailed WorkSchedules
ExternalCapacity
Subcontractors
Inventory OnHand
Raw MaterialsAvailable
Work Force
Marketplaceand Demand
Research andTechnology
ProductDecisions
ProcessPlanning & Capacity
Decisions
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A mathematically based aggregate planning model requires considerable: time
problem definition model development model verification model application
expertise people who understand the problem people who understand both the modeling process, and the
specific model money
money to pay for all of the above often requires funding for several people for several months!
What’s Needed for Aggregate What’s Needed for Aggregate PlanningPlanning
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Provides the quantity and timing of production for intermediate future Usually 3 to 18 months into future
Combines (‘aggregates’) production Often expressed in common units
Example: Hours, dollars, equivalents (e.g., FTE students)
Involves capacity and demand variables
Aggregate PlanningAggregate Planning
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Meet demand Use capacity efficiently Meet inventory policy Minimize cost
Labor Inventory Plant & equipment Subcontract
Aggregate Planning GoalsAggregate Planning Goals
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The ExtremesThe Extremes
Level Strategy
Chase Strategy
Production equals
demand
Production rate is constant
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Aggregate Planning StrategiesAggregate Planning StrategiesPure StrategiesPure Strategies
Capacity Options — change capacity: changing inventory levels varying work force size by hiring or layoffs varying production capacity through overtime or idle
time subcontracting using part-time workers
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Aggregate Planning StrategiesAggregate Planning StrategiesPure StrategiesPure Strategies
Demand Options — change demand:
influencing demand backordering during high demand periods counterseasonal product mixing
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Aggregate Scheduling Options - Aggregate Scheduling Options - Advantages and DisadvantagesAdvantages and Disadvantages
Option Advantage Disadvantage SomeComments
Changinginventory levels
Changes inhuman resourcesare gradual, notabruptproductionchanges
Inventoryholding costs;Shortages mayresult in lostsales
Applies mainlyto production,not service,operations
Varyingworkforce sizeby hiring orlayoffs
Avoids use ofother alternatives
Hiring, layoff,and trainingcosts
Used where sizeof labor pool islarge
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Option Advantage Disadvantage SomeComments
Varyingproduction ratesthrough overtimeor idle time
Matches seasonalfluctuationswithouthiring/trainingcosts
Overtimepremiums, tiredworkers, may notmeet demand
Allowsflexibility withinthe aggregateplan
Subcontracting Permitsflexibility andsmoothing of thefirm's output
Loss of qualitycontrol; reducedprofits; loss offuture business
Applies mainlyin productionsettings
Advantages/Disadvantages - Advantages/Disadvantages - ContinuedContinued
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Advantages/Disadvantages - Advantages/Disadvantages - ContinuedContinued
Option Advantage Disadvantage SomeComments
Using part-timeworkers
Less costly andmore flexiblethan full-timeworkers
Highturnover/trainingcosts; qualitysuffers;schedulingdifficult
Good forunskilled jobs inareas with largetemporary laborpools
Influencingdemand
Tries to useexcess capacity.Discounts drawnew customers.
Uncertainty indemand. Hard tomatch demand tosupply exactly.
Createsmarketing ideas.Overbookingused in somebusinesses.
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Advantage/Disadvantage - Advantage/Disadvantage - ContinuedContinued
Option Advantage Disadvantage SomeComments
Back orderingduring high-demand periods
May avoidovertime. Keepscapacity constant
Customer mustbe willing towait, butgoodwill is lost.
Many companiesbackorder.
Counterseasonalproducts andservice mixing
Fully utilizesresources; allowsstable workforce.
May requireskills orequipmentoutside a firm'sareas ofexpertise.
Risky findingproducts orservices withopposite demandpatterns.
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Mixed strategy Combines 2 or more aggregate scheduling options
Level scheduling strategy Produce same amount every day Keep work force level constant Vary non-work force capacity or demand options Often results in lowest production costs
Aggregate Planning StrategiesAggregate Planning Strategies
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Graphical & charting techniques Popular & easy-to-understand Trial & error approach
Mathematical approaches Transportation method Linear decision rule Management coefficients model Simulation
Aggregate Planning MethodsAggregate Planning Methods
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The Graphical Approach to The Graphical Approach to Aggregate PlanningAggregate Planning
Forecast the demand for each period Determine the capacity for regular time, overtime,
and subcontracting, for each period Determine the labor costs, hiring and firing costs,
and inventory holding costs Consider company policies which may apply to the
workers or to stock levels Develop alternative plans, and examine their total
costs
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Forecast and Average Forecast Forecast and Average Forecast DemandDemand
0
10
20
30
40
50
60
70
Pro
duction r
ate
per
work
ing d
ay
Jan Feb Mar Apr May Jun
Forecast Demand
Level production using average monthly forecast demand
22 18 21 21 22 20
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Cumulative Demand Graph for Cumulative Demand Graph for Plan 1Plan 1
Jan Feb Mar Apr May Jun
Cumulative forecast requirements
Cumulative level production using average monthly
forecast requirements
Reduction of inventory
Excess inventoryCum
ulat
ive D
eman
d (U
nits
)7,000
6,000
5,000
4,000
3,000
2,000
1,000
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Comparison of Three Major Comparison of Three Major Aggregate Planning Methods Aggregate Planning Methods
Charting/graphical methods
Transportation method
Management coefficient model
Trial and error
Optimization
Heuristic
Simple to understand, easy to use. Many solutions; one chosen may not be optimal
LP software available;permits sensitivity analysis and constraints. Linear function may not be realistic
Simple, easy to implement; tries to mimic manager’s decision process; uses regression
Techniques Approaches Aspects
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Controlling the Cost of Labor in Controlling the Cost of Labor in Service FirmsService Firms
Seek: Close control of labor hours to ensure quick response
to customer demand On-call labor resource that can be added or deleted to
meet unexpected demand Flexibility of individual worker skills to permit
reallocation of available labor Flexibility of individual worker in rate of output or hours
of work to meet demand
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Hotel: Single Price LevelHotel: Single Price Level
$15 variable cost of room
$150 Price charged for room
Price
Sales
$sales = Net price * 50 rooms =150*50=$7500
Demand Curve
Passed up profit contributions
Money left on the table
Potential customers exist who are willing to pay more than the $15 variable cost
Some customers who paid $150 for the room were actually willing to pay more
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Hotel: Two Price LevelsHotel: Two Price Levels
$15 variable cost of room
Demand
Sales
$100Price #1
$200Price #2
Total sales =
1st net price *30 + 2nd net price *30
= $8100
Net prices are:Price #1 => $85Price #2 => $175