aggregate planning

The Aggregate Operations Plan• An aggregate plan links strategic goals and

objectives of the organization with the plans for individual products, services and their various components.

• Aggregate Production Planning is planning about how many units of the product are to be produced on a weekly or monthly basis for the coming Six to Eighteen Months ensuring the plan to be in line with the overall business plan of the company.

• Main purpose is to specify the optimal combination of– production rate (units completed per unit of time)– workforce level (number of workers)– inventory on hand (inventory carried from

previous period) with a view to minimize the overall production costs.

Aggregate Planning ObjectivesAggregate Planning Objectives

To Minimize Costs:To Minimize Costs:

Minimize Investment in InventoryMinimize Investment in Inventory

Minimize Changes in Production RatesMinimize Changes in Production Rates

Minimize Changes in Workforce Levels Minimize Changes in Workforce Levels andand

Maximize Utilization of Plant and EquipmentMaximize Utilization of Plant and Equipment

To Maximize Customer Service and Profits To Maximize Customer Service and Profits

Determine requirements for planning horizon

Aggregate Planning ProcessAggregate Planning Process


Identify alternatives, constraints, and costs





Prepare prospective plan for

planning horizon




planning horizon

Is the plan acceptable?





planning horizon


NoNo





planning horizon

Implement and update the plan


NoNo

YesYes





planning horizon

Move aheadto next

planning session

Implement and update the plan


NoNo

YesYes


An Overview of Aggregate Production Planning System

AggregateProduction Planning

External capacity

Corporate Plan

Cap.Installed / Utilized

Funds Avail.

Manpower available

Sales P

lan

Investment Plan

Manpower Hiring/Lay off Plan

Capacity

Plan

Aggregate Prodn Plan

Sub

con

trac

t p

lan

Strategies for Aggregate Planning

• Chase

• Level

• Minimum Manpower

• Mixed

Strategies for Aggregate Planning (contd.)

Chase StrategyChase Strategy - As demand changes, hire and - As demand changes, hire and layoff work force to produce the units required. layoff work force to produce the units required. Some inventory also has to be accounted for, Some inventory also has to be accounted for, because of rounding errors.because of rounding errors.

Level StrategyLevel Strategy - Constant Work Force. As demand - Constant Work Force. As demand changes inventory build-up & stock outs occur.changes inventory build-up & stock outs occur.

Minimum Manpower Strategy Minimum Manpower Strategy - - Use of minimum Use of minimum manpower based upon minimum demand during manpower based upon minimum demand during the plan period and meeting the additional demand the plan period and meeting the additional demand through overtime and or subcontract.through overtime and or subcontract.

Mixed StrategyMixed Strategy - Use any or all of the production - Use any or all of the production variables to determine the lowest cost plan.variables to determine the lowest cost plan.

The Chase Strategy

Cont….

The Level Strategy

Example on Aggregate Planning

M/s ABC Ltd. has projected sales of 300, 500, 400, 100, 200 and 300 for the six months Jan to June and the number of working days in the corresponding month are 22, 19, 21, 21, 22 & 20 respectively. The company at present employs 20 workers and each unit requires 10 labour hours for its production. The hiring costs are Rs 300 and layoff costs are Rs 400 per person. Company policy is to retain a safety stock equal to 20% of the monthly forecast. There are currently 50 units in stock carried at Rs 2/- per unit - month. Stock outs have been assigned a cost of Rs.20/- per unit – month. Labour cost /hr is Rs 6/- and Rs 9/- on regular & O.T. basis respectively. Suggest an aggregate plan based upon the following strategies:-

1. Chase2. Constant Work force of 20 & using O.T. & Idle times to meet

the demand3. Constant Workforce of 20 & build inventory /occur stock out

cost.

Solution to the problem on Aggregate Planning – Chase Straegy

Month Days DJSafety Stock (20%)

Op. Stock

Prodn

ReqdMan reqd

Hiring/ Retrench-ment

JAN 22 300 60 50 ?

FEB 19 500 100

MAR 21 400

APR 21 100

MAY 22 200

JUN 20 300



Op. Stock

Prodn

ReqdMan reqd


JAN 22 300 60 50 310

FEB 19 500 100

MAR 21 400

APR 21 100

MAY 22 200

JUN 20 300

?



Op. Stock

Prodn

ReqdMan reqd


JAN 22 300 60 50 310

FEB 19 500 100 60 540

MAR 21 400

APR 21 100

MAY 22 200

JUN 20 300



Op. Stock

Prodn

ReqdMan reqd


JAN 22 300 60 50 310

FEB 19 500 100 60 540

MAR 21 400 80 100

APR 21 100 20 80

MAY 22 200 40 20

JUN 20 300 60 40


Month Days DJ Safety Stock

Op. Stock

Prodn

ReqdMan reqd


JAN 22 300 60 50 310 ?

FEB 19 500 100 60 540

MAR 21 400 80 100 380

APR 21 100 20 80 40

MAY 22 200 40 20 220

JUN 20 300 60 40 320


Month Days DJ

Safety Stock (20%)

Op. Stock

Prodn

ReqdMan reqd


JAN 22 300 60 50 310 (310x10)÷ (22x8)= 18

FEB 19 500 100 60 540

MAR 21 400 80 100 380

APR 21 100 20 80 40

MAY 22 200 40 20 220

JUN 20 300 60 40 320


Month Days DJ

Safety Stock (20%)

Op. Stock

Prodn

ReqdMan reqd


JAN 22 300 60 50 310 18 (310x10)÷176

FEB 19 500 100 60 540 (540x10)÷152=36

MAR 21 400 80 100 380

APR 21 100 20 80 40

MAY 22 200 40 20 220

JUN 20 300 60 40 320


Month Days DJ

Safety Stock (20%)

Op. Stock

Prodn

ReqdMan reqd


JAN 22 300 60 50 310 18 (310x10)÷176

?

FEB 19 500 100 60 540 36

MAR 21 400 80 100 380 23

APR 21 100 20 80 40 3

MAY 22 200 40 20 220 13

JUN 20 300 60 40 320 20


Month Days DJ

Safety Stock (20%)

Op. Stock

Prodn

ReqdMan reqd


JAN 22 300 60 50 310 18 (310x10)÷176

(2)

FEB 19 500 100 60 540 36

MAR 21 400 80 100 380 23

APR 21 100 20 80 40 3

MAY 22 200 40 20 220 13

JUN 20 300 60 40 320 20


Month Days DJ

Safety Stock (20%)

Op. Stock

Prodn

ReqdMan reqd


JAN 22 300 60 50 310 18 (310x10)÷176

(2)

FEB 19 500 100 60 540 36 18

MAR 21 400 80 100 380 23

APR 21 100 20 80 40 3

MAY 22 200 40 20 220 13

JUN 20 300 60 40 320 20



Op. Stock

Prodn

ReqdMan reqd


JAN 22 300 60 50 310 18 (310x10)÷176

(2)

FEB 19 500 100 60 540 36 18

MAR 21 400 80 100 380 23 (13)

APR 21 100 20 80 40 3 (20)

MAY 22 200 40 20 220 13 10

JUN 20 300 60 40 320 20 7

Solution to the problem on Aggregate Planning-Chase Strategy (contd.)

RUPEES

Cost of Hiring Manpower

Cost of Retrenchment

Cost of Regular Prodn

TOTAL COST OF CHASE STRATEGY 1,33,100


RUPEES

Cost of Hiring Manpower (18+10+7)x300/- 10,500

Cost of Retrenchment




RUPEES


Cost of Retrenchment (2+13+20)x400/- 14,000




RUPEES


Cost of Retrenchment (2+13+20)x400/- 14,000

Cost of Regular Prodn 1810x10x6/- 1,08,600


Solution to the problem on Aggregate Planning-constant work force with O.T./ Idle time strategy

Month Prodn

ReqdHrs Reqd

Days Hrs Avai*

O.T. Hrs

Idle Hrs

Cost

JAN 310 3100 22 3520 420

FEB 540 5400 19 3040 2360

MAR 380 21

APR 40 21

MAY 220 22

JUN 320 20 - - --

*Hours Available=Days*Manpower*Working Hrs./Day


Month Prodn

ReqdHrs Reqd

Days Hrs

Avai*O.T. Hrs

Idle Hrs

Cost

JAN 310 3100 22 3520 420

FEB 540 5400 19 3040 2360

MAR 380 3800 21 3360 440

APR 40 400 21 3360

MAY 220 2200 22 3520

JUN 320 3200 20 3200 - -

*Hours Available=Days*Manpower*Working Hrs./Day


Month Prodn

ReqdHrs Reqd

Days Hrs Avail

O.T. Hrs

Idle Hrs

Cost

JAN 310 3100 22 3520 420 ?

FEB 540 5400 19 3040 2360

MAR 380 3800 21 3360 440

APR 40 400 21 3360 2960

MAY 220 2200 22 3520 1320

JUN 320 3200 20 3200 - - --


Month Prodn

ReqdHrs Reqd

Days Hrs Avail

O.T. Hrs

Idle Hrs

Cost

JAN 310 3100 22 3520 420 2,520 (Rs6)

FEB 540 5400 19 3040 2360

MAR 380 3800 21 3360 440

APR 40 400 21 3360 2960

MAY 220 2200 22 3520 1320

JUN 320 3200 20 3200 - - --

Total cost of strategy=?


Month Prodn

ReqdHrs Reqd

Days Hrs Avail

O.T. Hrs

Idle Hrs

Cost

JAN 310 3100 22 3520 420 2,520 (Rs6)

FEB 540 5400 19 3040 2360 7,080 (Rs3)

MAR 380 3800 21 3360 440

APR 40 400 21 3360 2960

MAY 220 2200 22 3520 1320

JUN 320 3200 20 3200 - - --



Month Prodn

ReqdHrs Reqd

Days Hrs Avail

O.T. Hrs

Idle Hrs

Cost

JAN 310 3100 22 3520 420 2,520

FEB 540 5400 19 3040 2360 7,080

MAR 380 3800 21 3360 440 1,320

APR 40 400 21 3360 2960 17,760

MAY 220 2200 22 3520 1320 7,920

JUN 320 3200 20 3200 - - --



Month Prodn

ReqdHrs Reqd

Days Hrs Avail

O.T. Hrs

Idle Hrs

Cost

JAN 310 3100 22 3520 420 2,520

FEB 540 5400 19 3040 2360 7,080

MAR 380 3800 21 3360 440 1,320

APR 40 400 21 3360 2960 17,760

MAY 220 2200 22 3520 1320 7,920

JUN 320 3200 20 3200 - - --

Total cost of strategy=18100x6 + 8400 +28200= 1,45,200

Solution to the problem on Aggregate Planning-constant work force with Invy/stock out strategy

Month Prodn

ReqdDays Hrs

Avail

ActualProdn

Cum Prodn

Cum Reqd

Excess/ (Short)

JAN 310 22 3520 352

FEB 540 19 3040 304

MAR 380 21

APR 40 21

MAY 220 22

JUN 320 20



Month Prodn

ReqdDays Hrs

Avail

ActualProdn

Cum Prodn

Cum Reqd

Excess/ (Short)

JAN 310 22 3520 352

FEB 540 19 3040 304

MAR 380 21 3360 336

APR 40 21 3360 336

MAY 220 22 3520 352

JUN 320 20 3200 320



Month Prodn

ReqdDays Hrs

AvailProdn Cum

Prodn

Cum Reqd

Excess/ (Short)

JAN 310 22 3520 352 352

FEB 540 19 3040 304 656

MAR 380 21 3360 336 992

APR 40 21 3360 336 1328

MAY 220 22 3520 352 1680

JUN 320 20 3200 320 2000



Month Prodn

ReqdDays Hrs

AvailProdn Cum

Prodn

Cum Reqd

Excess/ (Short)

JAN 310 22 3520 352 352 310

FEB 540 19 3040 304 656 850

MAR 380 21 3360 336 992 1230

APR 40 21 3360 336 1328 1270

MAY 220 22 3520 352 1680 1490

JUN 320 20 3200 320 2000 1810



Month Prodn

ReqdDays Hrs

AvailProdn Cum

Prodn

Cum Reqd

Excess/ (Short)

JAN 310 22 3520 352 352 310 42

FEB 540 19 3040 304 656 850 194

MAR 380 21 3360 336 992 1230 238

APR 40 21 3360 336 1328 1270 58

MAY 220 22 3520 352 1680 1490 190

JUN 320 20 3200 320 2000 1810 190



Month Prodn

ReqdDays Hrs

AvailProdn Cum

Prodn

Cum Reqd

Excess/ (Short)

JAN 310 22 3520 352 352 310 42

FEB 540 19 3040 304 656 850 194

MAR 380 21 3360 336 992 1230 238

APR 40 21 3360 336 1328 1270 58

MAY 220 22 3520 352 1680 1490 190

JUN 320 20 3200 320 2000 1810 190

Total cost of strategy=20000x6 + 432x20 +480x2= 1,29,600

aggregate planning

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