UNIVERSITY OF LAGOS

DEPARTMENT OF BUSINESS ADMINISTRATION

TERM PAPER

TOPICS:

AGGREGATE PLANNING

BASIC STRATEGIES FOR UNEVEN DEMAND

TECHNIQUES FOR AGGREGATE PLANNING,

DISAGGREGATING THE AGGREGATE PLAN,

MASTER SHEDULING AND MASTER SCHEDULING PROCESS.

NAME :IWUJI INNOCENT IFEANYI

MATRIC NO:740007860

COURSE TITLE: OPERATIONS PLANNING AND CONTROL

COURSE CODE:BUS 822

PROGRAMME: MPHIL (PRODUCTION AND OPERATIONS MANAGEMENT)

NOVEMBER, 2009

LECTURER

DR. G.O. MELODI

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1.0 INTRODUCTION

Aggregate planning is the process of planning the quantity and timing the output over the

intermediate range (often 3 months to 18 months or 12 weeks to 74 weeks) by adjusting the

production rate ,employment level, and other controllable variables. Melodi, G.O. (2008). The

objective of Aggregate planning is to respond effective to fluctuating demand through effective

utilization of resources. The planning is aggregate because it does not focus on individual goods

or services but on homogenous or families of products, lumped together as number of customers

served, Man-hours required tons of metal required and amount of money required etc. Within the

intermediate planning period the physical facilities are assumed to be fixed.

From the above definition the following characteristics of aggregate planning become evident:

1._A time horizon of about 12 months, with updating of the plan on a periodic basis, perhaps

monthly.

2._ An aggregate level of demand for one or a few categories of product. The demand is

assumed to be fluctuating, uncertain, or seasonal.

3._ The possibility of changing both supply and demand variables.

4._ A variety of management objectives, which might include low inventories, good labor

relations, low costs, flexibility to increase future output levels, and good customer service.

5._ Facilities that are considered fixed and cannot be expanded or reduced.

Aggregate planning is closely related to other business decisions involving, for example,

budgeting, personnel, and marketing. The relationship to budgeting is particularly strong. Most

budgets are based on assumptions about aggregate output, personnel levels, inventory levels,

purchasing levels, and so forth. An aggregate plan should thus be the basis for initial budget

development and for budget revisions as conditions warrant.

Personnel, or human resource planning is also greatly affected by aggregate planning because

aggregate planning results in hiring, layoff, and overtime decisions. In the service industries,

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where inventory is not a factor, aggregate planning is practically synonymous with budgeting and

personnel planning.

Marketing must always be closely related to aggregate planning because the future supply of

output, and thus customer service, is being determined. Furthermore, cooperation between

marketing and operations is required when both supply and demand variables are being used to

determine the best business approach to aggregate planning. Aggregate planning is the primary

responsibility of the operations function, but it requires cross-functional coordination and

cooperation with all parts of the firm, including accounting, finance, human resources, and

marketing.

To drive home the concepts of aggregate planning an automatic Microsoft excel spreadsheet is

developed for a hypothetical case of Company XYZ for the implementation of modern

Aggregate planning techniques her manufacturing plant. The company produces a single product

and the aggregate product is in units of the quantity of the product produced. The plant manager

is considering three strategies, 1) level work force 2) chase demand and use of inventory to meet

peak demand 3) level workforce plus overtime. The objective is to select the best strategy that

minimizes cost of production subject to operational constraints.

The spreadsheet model is attached as appendix A. The spreadsheet is divided into input and

output panels. The model is simple to implement because the production manager only needs to

specify the input parameters starting and ending inventory, available workforce, overtime rate,

inventory holding cost, hiring and firing rates, salary, and the demand forecast etc. Based on

these input variables the spreadsheet will automatically generate the Aggregate plan. When the

aggregate plan is disaggregated the result is the master production schedule (MPS). The MPS

together with the exploded bill of materials(BOM) are necessary input to materials requirement

planning MRP). For the purposes of this paper the following outline is followed;

1.0 INTRODUCTION

2.0 AGGREGATE PLANNING

3.0 BASIC STRATEGIES FOR UNEVEN DEMAND

4.0 DISAGGREGATING THE AGGREGATE PLAN,

5.0. MASTER PRODUCTION SCHEDULING

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6.0 MASTER SCHEDULING PROCESS.

7.0. TECHNIQUES FOR AGGREGATE PLANNING

8.0 RECOMMENDATIONS AND CONCLUSION

2.0 AGGREGATE PLANNING

Aggregate planning is an operational activity which does an aggregate plan for the production

process, in advance of 2 to 18 months, to give an idea to management as to what quantity of

materials and other resources are to be procured and when, so that the total cost of operations of

the organization is kept to the minimum over that period.

The quantity of outsourcing, subcontracting of items, overtime of labor, numbers to be hired and fired in each period and the amount of inventory to be held in stock and to be backlogged for each period are decided. All of these activities are done within the framework of the company ethics, policies, and long term commitment to the society, community and the country of operation.

Aggregate planning has certain pre-required inputs which are inevitable. They include:

Information about the resources and the facilities available. Demand forecast for the period for which the planning has to be done.

Cost of various alternatives and resources. This includes cost of holding inventory, ordering cost, cost of production through various production alternatives like subcontracting, backordering and overtime.

Organizational policies regarding the usage of above alternatives.

Managers often use forecasts of product demand to estimate the short-term workload the facility

must handle. This enables them to anticipate output requirements for different products, and

services. The output requirements are then compared with existing capacity and decisions taken

as to when the capacity adjustments are needed.

Many short-term adjustments for increasing or decreasing capacity are possible. The adjustments

to be required depend upon the conversion process like whether it is capital intensive or labour

intensive or whether product can be stored as inventory. Capital intensive processes depend on

physical facilities, plant and equipment. Short-term capacity can be modified by operating these

facilities more or less intensively than normal. In labour intensive processes short-term capacity

can be changed by laying off or hiring people or by giving overtime to workers. The strategies

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for changing capacity also depend upon how long the product can be stored as inventory.

Schroeder, R.G.(2000).

3.0 BASIC STRATEGIES FOR UNEVEN DEMAND

Two basic operations strategies can be used, along with many combinations in between, to meet

fluctuating demand over time. One basic strategy is to level the workforce; the other is to chase

demand with the workforce. With a perfectly level strategy, the rate of regular-time output will be

constant. Any variations in demand must then be absorbed by using inventories, overtime,

temporary workers, subcontracting, cooperative arrangements, or any of the demand-influencing

options. What has essentially been done with the level strategy is to fix the regular workforce by

using one of the above variables available for aggregate planning. Schroeder, R.G.(2000).

With the chase strategy, the workforce level is changed to meet, or chase, demand. In this case, it

is not necessary to earn inventory or to use any of the other variables available for aggregate

planning; the workforce absorbs all the changes in demand.

Of course, these two strategies are extremes; one strategy makes no change in the workforce and

the other varies the workforce directly with demand changes. In practice, many combinations are

also possible but the basic strategies help focus on the issues.

The variables of the production system are labour, materials and capital. More labour effort is

required to generate higher volume of output. Hence, employment and use of overtime (OT) are

the two relevant variables. Materials help to regulate output. The alternatives available to the

company are inventories, back ordering or subcontracting of items. These controllable variables

constitute pure strategies by which fluctuations in demand and uncertainties in production

activities can be accommodated. Some of the many ways in which firms can adjust capacity in

the intermediate term are listed below. Each alternative has advantages and disadvantages.

The adjustments to be required depend upon the conversion process like whether it is capital

intensive or labour intensive or whether product can be stored as inventory.

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Capital intensive processes depend on physical facilities, plant and equipment. Short-term

capacity can be modified by operating these facilities more or less intensively than normal. In

labour intensive processes short-term capacity can be changed by laying off or hiring people or

by giving overtime to workers. The strategies for changing capacity also depend upon how long

the product can be stored as inventory.

1. Adjust the workforce level: Output is controlled by hiring or laying off workers in

proportion to changes in demand. When done excessively, it may increase the difficulty of

attracting quality employees at competitive wages.

2. Maintain the stable workforce, but permit idle time when there is a slack and permit

overtime (OT) when demand is peak.

3. Vary inventory levels: Demand fluctuations can be met by large amount of inventory.

4. Subcontract or capacity sharing: Constant production rates can be met by using

subcontractors to provide extra capacity. If one firm cannot provide a specific service or is at full

capacity, it can subcontract work to local competitors. Using another firm to make the product

may be more profitable than losing current (and possibly future) sales. The firm usually has less

control over quality levels and delivery schedules..

5. Allow backlog or back orders or waiting lists. Customers may agree to wait a short time

before their orders are filled or to be placed on a waiting list.

6. Stock-outs. The firm may choose not to satisfy all demand. Prestigious private schools,

restaurants, and resorts use this option extensively. Depending on the competitive environment,

the firm may lose current and future sales

.7 Adjust the length of the workday. Some firms ask employees to work longer hours during

the busy season in exchange for shorter hours during slow periods.

8.. Employee training: Develop multi-skilled employees through training so that they can

be rotated among different jobs. Using a multi-skilled floating staff can prove a good option.

The multi-skilling helps as an alternative to hiring employees

9. Process design: Change job contents by redesigning the job.

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In general, the range of capacity-generating alternatives available to a firm is limited by the

following constraints:

The type of workforce required,the available labor pool, and union contracts.

The type of product sold and the process by which it is made

The firm's competitive strategy and competitive environment

The firm's position in the community

For example, a firm cannot easily adjust the production rate through frequent change in

workforce size if the workforce is highly skilled and the labor pool is small, the process is a

continuous-flow operation, or the workforce has a powerful union. If the product is a service or a

perishable good, inventory cannot be used to smooth production levels. Only a limited amount of

inventory can he accumulated if the product is customized or subject to rapid obsolescence.

Backlogs and waiting lists cannot be used extensively if there is excess capacity in the industry

and competition is fierce. Finally, a firm that is the major employer in an area has less flexibility

in releasing employees than does a firm that is one of many employers in a large city. This is

especially true when the economy is in a downturn, for laid-off employees will find it very

difficult to get other jobs.

According to Noori & Radford (1995), the aggregate planning process is in six steps as follows:

1. Select a planning horizon and divide it into a set of time periods. If the firm produces a

variety of goods or services, create aggregate product groups. An aggregate product group

usually consists of goods or services that have common processing, labor, and/or material

requirements.

2. Develop a forecast of the estimated demand for each aggregate product group in every

period of the planning horizon. Translate the demand forecasts into resource requirements. For

example demand can be translated into monthly labor requirements by multiplying the monthly

demand for each product group by its average labor requirements. Some me firms use the dollar

value of monthly output, labour hours or the number of units produced. Whichever way, a

homogenous unit of measurement should be used.

3. If the production requirements vary widely from one period to the next, consider using

pricing, promotion, and other techniques for altering the timing and level of demand. As a

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general rule, the smaller the variation in production requirements from one period to the next ,

the easier it is to march capacity to demand in the intermediate term. When production

requirements vary widely throughout the planning horizon, firms often try to adjust the demand

for their goods and services. Offering price discounts, producing complementary products, and

increasing promotional efforts are common techniques for altering demand. Capacity

requirements can be reduced by transferring work to the customer (e.g., automated teller

machines and self-service gas stations).

4. For each planning period, compare the current capacity with production requirements.

If there are mismatches between the capacity' required and the capacity available, generate

alternatives for adjusting capacity. Estimate the cost of each alternative. Even after demand has

been manipulated, there are usually mismatches between the required capacity and the available

capacity in one or more planning periods. The balance between required capacity and available

capacity can be met using any of the above listed strategies.

5. Select an aggregate planning strategy.

The following strategic options are available to the production manager:

1. Case strategy: When following a chase strategy, a firm adjusts the output rate in each

aggregate planning period to match the demand rate in that period.

2. Level strategy: When following a level strategy, a firm maintains the output rate in every

aggregate planning period.

3. Mixed strategy: combination of both strategies.

Rather than adopting a pure chase or level strategy, many firms combine elements, from both.

For example, a firm may decide to (1) build up anticipatory inventory in slack periods, (2) allow

only a few workforce changes each year, [3) utilize overtime to increase capacity during busy

periods, and (4) allow customers' orders to backlog.

Generally, the most suitable strategy depends on the capacity adjustment options available to the

firm, the relative costs of those options, and the firm's competitive situation. Union agreements

and inflexible production equipment, for example, may preclude the firm from following a pure

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chase strategy. A level strategy may not be feasible for firms, which must contend with seasonal

demand and high inventory costs.

6. Develop the aggregate plan by using optimization or heuristic techniques.

Once an aggregate planning Strategy has been selected, the aggregate plan can be developed.

The goal is to find the lowest-cost plan that supports the firm's competitive emphasis on

flexibility, timeliness, quality, service, and dependability. It is not unusual for a firm to modify

the original plan several times before it is accepted. If the firm has decided to follow a pure level

strategy, developing the aggregate plan is relatively simple. The production rate is established,

and then the way in which that rate will be achieved (e.g., the number of workers and shifts) is

determined.

According to Kumar & Suresh (2008), the following aggregate planning guidelines are also

relevant:

1. Determine corporate policy regarding controllable variables.

2. Use a good forecast as a basis for planning.

3. Plan in proper units of capacity.

4. Maintain the stable workforce.

5. Maintain needed control over inventories.

6. Maintain flexibility to change.

7. Respond to demand in a controlled manner.

8. Evaluate planning on a regular base.

4.0 DISAGGREGATING THE AGGREGATE PLAN.

As mentioned earlier aggregate planning does not focus on individual goods or services but on

homogenous or families of products, lumped together as number of customers served, Man-hours

required tons of metal required and amount of money required etc. In other words, there is need

to disaggregate the aggregate plan by translating the aggregate units to individual end items that

can be produced. This disaggregating process will give rise to the Master schedule (MPS).

Aggregate plan precedes The master schedule, which provides the link between intermediate

planning and work scheduling at the shop floor.

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5.0 MASTER PRODUCTION SCHEDULE (MPS)

MPS is a series of time phased quantities for each item that a company produces, indicating how

many are to be produced and when. Master Production Schedule (MPS) gives a formal details of

the production plan and converts this plan into specific material and capacity requirements. The

requirements with respect to labour, material and equipment is then assessed. MPS is initially

developed from firm customer orders or from forecasts of demand before MRP system begins to

operate.

Master scheduling follows aggregate planning. It expresses the overall plans in terms of specific

end items or models that can be assigned priorities. It is useful to plan for the material and

capacity requirements. Time interval used in master scheduling depends upon the type, volume,

and component lead times of the products being produced. Normally weekly time intervals are

used. The time horizon covered by the master schedule also depends upon product characteristics

and lead times. Some master schedules cover a period as short as few weeks and for some

products it is more than a year.

Functions of MPS

1. To translate aggregate plans into specific end items: Aggregate plan determines level

of operations that tentatively balances the market demands with the material, labour and

equipment capabilities of the company. A master schedule translates this plan into specific

number of end items to be produced in specific time period.

2. Evaluate alternative schedules: Master schedule is prepared by trial and error. Many

computer simulation models are available to evaluate the alternate schedules.

3. Generate material requirement: It forms the basic input for material requirement planning

(MRP).

4. Generate capacity requirements: Capacity requirements are directly derived from MPS.

Master scheduling is thus a prerequisite for capacity planning.

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5. Facilitate information processing: By controlling the load on the plant. Master schedule

determines when the delivery should be made. It coordinates with other management

information systems such as, marketing, finance and personnel.

6. Effective utilization of capacity: By specifying end item requirements schedule establishes The load and utilization requirements for machines and equipment.

6.0 THE MASTER SCHEDULING PROCESS

A master schedule determines the quantities needed to meet demand from all sources,

which governs key decisions and activities throughout the organization. It indicates the

quantities and timing ( ie delivery times ) for a product or a group of products, but it does

not show planned production. A customer order may or may not require production if

product in inventory is considered. (Stevenson, W. (2007)

6.1 MASTER PRODUCTION SCHEDULE (MPS).

MPS indicates the quantity and timing of planned production taking into consideration

desired delivery quantity and timing as well as on-hand inventory. It forms the basis for

short term planning.

THE MASTER SCHEDULING PROCESS.

The diagram below shows the input and output elements of the Master cheduling process.

DIAGRAM

To demonstrate the master scheduling process we shall use a hypothetical example shown

below showing the various systematic and sequential steps of master scheduling process:

Step 1 INPUT DATA

Beginning inventory = 64 units for week 1.

Production lot size = 70 units. As a matter of policy the company feels it is more

economical to produce larger quantity than small sizes using the right lot sizing technique.

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INPUT/DATA TABLE

Step 2 Generate the MPS and projected on-hand inventory from the given information

listed in step 1, using the template below:

TABLE

Note: The requirement column is the larger of customer orders and forecast.

Step 3 Combine the projected on-hand inventory and the MPS to get the master schedule

shown below:

TABLE

We also note that the above master schedule can be generated automatically using excel

spreadsheet model. This will make updating easier for both the master scheduler and the

production manager.

7.0 AGGREGATE PLANNING TECHNIQUES

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Aggregate planning techniques into two broad categories: those which use optimization models

to find the best production plan and those which use heuristics (rules of thumb) to arrive at a

feasible efficient plan.

Optimization Techniques

Linear Decision Rules (HMM)

One of the first attempts to develop an aggregate production planning model that could

simultaneously consider several parameters was made by Holt, Modigliani, Muth, and Simon in

the 1950s. It reflected the close relationship between production and employment levels over a

series of time periods.

The HMMS model uses a single quadratic cost function that include payroll, inventory, hiring,

layoff, overtime, back order, and setup costs. A pair of linear equations are derived from this

total cost function and are used to determine the best aggregate production level and workforce

size for the upcoming month in accordance with the forecast demand for the planning horizon.

The HMMS model does not directly consider constraints such as limited overtime capacity and

maximum inventory levels.

In practice, once the quadratic cost function is obtained, it can be used repeatedly as long as the

underlying cost structure does not change. When the cost structure changes, however, the cost

estimates and quadratic cost function also must be revised. An Inability to consider constraints

frequently encountered by firms and the difficulty of making modifications severely limit the

value of this model .However it is used occasionally as a benchmark against which heuristic

models are compared.

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Linear programming and the transportation method. Linear programming (LP) is another

optimization tool. LP can be used to determine the impact of a variety of costs and restrictions on

production alternatives and to find the optimal production plan.

The goal is to minimize production costs for the year, subject to constraints such as limitations in

regular time capacity, overtime capacity, inventory storage space, and capacity available through

subcontracting. Linear programming models can handle hundreds of decision variables and

constraints.

The transportation method greatly simplifies the problem. The problem can be reformulated and

simplified as a transportation problem.

The major drawback with LP and other optimization models is that they over simplify the

problem. For example, LP and other optimization models is that the relationships among the

variables are all linear and deal only with a single objective (e.g, minimizing costs or

maximizing profits). Some constraints and objectives are often left out of the model. Therefore,

the “optimal” solution provided by these models may not even be feasible.

Optimization models do have practical value in aggregate planning, however. The solution

derived using linear programming provides an excellent initial plan that can be modified until it

becomes a good, realistic plan. Sensitivity analysis can be used to examine how much values can

be varied without changing the optimal solution.

Heuristic Techniques

Unlike optimization models, the intent of heuristic techniques is to generate a good, feasible

aggregate plan quickly and cost-effectively. This may or may not be the optimal plan.

Management coefficients Model. The management coefficients model Bowman (1956) and

cited by Noori and Radford (1995) uses past decisions regarding workforce and production

levels to suggest the levels at which these variables should be set in the future. The reasoning and

rules of thumb behind past decisions, however, are not identified directly. Instead, multiple

regression analysis using past data is employed to develop a general decision rule.

P t = a W t-1 – b I t-1 + c F t-1 + K

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Where P t = production rate set for period t, W t-1 = workforce in previous period , I t-1 = ending inventory for previous period,

a, b, c and k are parameters to be determined from multiple regression.

Search Decision Rules The search decision rules (SDR) model (Taubert (1968) uses cost

equation of any form to conduct a systematic search for the minimum – cost combination of

workforce (W) and production (P) levels over the planning horizon. A trial set of values for

workforce size and production rate in each period of the planning horizon is selected. The

computer evaluates this plan and makes small changes to it in the most promising direction. If

the changes result in a lower cost plan, they are adopted. If the new plan is more costly, the

changes are not made. This cycle is repeated until no more improvements can be made. As with

all heuristic technique, there is no guarantee that the optimal solution has been found.

Knowledge – Based Expert Systems A relatively new advancement in computing knowledge-

based expert systems (KBESs) – provides another tool for aggregate planners. A KBES develops

the aggregate plan. The user can override decisions made by the system and ask the system to

explain the reasoning behind its decisions.

Unlike the formal models described here, expert systems can incorporate the wide range of

constraints typically found in operating environments. The ease with which these systems can be

updated to reflect changes in a firms’ environment, though, is perhaps their most attractive

benefit. In the dynamic competitive environment in which firms are finding themselves this

flexibility is very important.

Many expert systems can now access data from the firm’s corporate database and “talk” to other

computerized tools used by the firm. This allows a firm to examine the cascading effects on

lower levels of decisions made on one level and facilitate planning tool.

The Trial – and – Error approach

The trial – and – error approach is a conceptually simple and popular aggregate planning

technique. Using heuristics based on past experience, simple cost data, and intuition, planner

generate and evaluate several aggregate plans. Graphs are often used to illustrate alternative

plans and compare the capacity each plan generates with the forecast demand.

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With these heuristics, an aggregate plan that could be used as a starting point to generate a

better, lower-cost plan was developed. The calculations are straightforward, though they become

repetitive and time-consuming as alternative plans are evaluated. This problem can be alleviated

if a computer spreadsheet is used.

MATERIAL REQUIREMENT PLANNING (MRP)

MRP refers to the basic calculations used to determine components required from end item

requirements. It also refers to a broader information system that uses the dependence relationship

to plan and control manufacturing operations. Materials Requirement Planning (MRP) is a

technique for determining the quantity and timing for the acquisition of dependent demand items

needed to satisfy master production schedule requirements.”

The master production schedule specifies the quantity required of each end item in each planning

period; it is a set of time-phased requirements for end items. But the firm also needs a set of

time-phased requirements for the parts and raw materials that make up those end items.

Material requirements planning (MPR) is a production planning and control technique in which

the master production schedule(MPS) is used to create production and purchase orders for

dependent demand items. The production orders are used to schedule production on the shop

floor, and the purchase orders are used by purchasing to ensure that the right quantities of

components are delivered when needed. Thus, MRP acts as a link between a firm's intermediate-

term and short-term production planning and scheduling functions.

Information Requirements

The master production schedule is just one of the major inputs in a typical MRP system.

Information contained in bills of material and inventory files is required as well. These inputs

will be described in the next two sections.

Bills of Material

The bill of material 'BOM) lists the component parts that make up one unit of a particular

product. Since the firm can hold inventories after each step in the building sequence, the eight

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pan codes are used. Each BOM contains a list of the components that directly constitute the part,

along with the quantity required of each component.

Exploding the Bill of Material

To ensure that the end product can be produced as required, each component part must be

available at the right time and in the right quantities. The desired quantity of each component

part is calculated by using the MPS in a process known as bill of material explosion.

Objectives of MRP

1. Inventory reduction: MRP determines how many components are required when they

are required in order to meet the master schedule. It helps to procure the materials/ components

as and when needed and thus avoid excessive build up of inventory.

2. Reduction in the manufacturing and delivery lead times: MRP identifies materials and

component quantities, timings when they are needed, availabilities and procurements and

actions required to meet delivery deadlines. MRP helps to avoid delays in production and

priorities of production activities by putting due dates on customer job order.

3. Realistic delivery commitments: By using MRP, production can give marketing timely

information about likely delivery times to prospective customers.

4. Increased efficiency: MRP provides a close coordination among various work centres

and hence help to achieve uninterrupted flow of materials through the production line. This

increases the efficiency of production system.

MRP System

The inputs to the MRP system are: (1) A master production schedule, (2) An inventory status

file and (3) Bill of materials (BOM).

Using these three information sources, the MRP processing logic (computer program)

provides three kinds of information (output) for each product component: order release

requirements, order rescheduling and planned orders.

1. Master Production Schedule (MPS)

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. The MRP system whatever the master schedule demands and translates MPS end items into

specific component requirements. Many systems make a simulated trial run to determine whether

the proposed master can be satisfied.

2. Inventory Status File

Every inventory item being planned must have an inventory status file which gives complete and

up to date information on the on-hand quantities, gross requirements, scheduled receipts and

planned order releases for an item. It also includes planning information such as lot sizes, lead

times, safety stock levels and scrap allowances.

3. Bill Of Materials (BOM)

BOM identifies how each end product is manufactured, specifying all subcomponents items,

their sequence of build up, their quantity in each finished unit and the work centres performing

the build -up sequence. This information is obtained from product design documents, workflow

analysis and other standard manufacturing information.

2. Short-Term Capacity Strategies

Managers often use forecasts of product demand to estimate the short-term workload the facility

must handle. Managers looking ahead up to 12 months, anticipate output requirements for

different products, and services. Managers then compare requirements with existing capacity and

then take decisions as to when the capacity adjustments are needed or short-term periods of up to

one year, fundamental capacity is fixed. Major facilities will not be changed. Many short-term

adjustments for increasing or decreasing capacity are possible.

8.0 RECOMMENDATIONS AND CONCLUSION

This paper has adequately discussed a various elements of aggregate planning strategies for

adjustment of uneven demand, master scheduling process, Master production schedule(MPS),as

the basis for shop floor or short term management, and the various techniques for solving the

aggregate planning problem. This theoretical framework is aimed at giving practitioners and

managers of operations the insight required for implementation of aggregate planning strategies.

The benefits of the adoption of aggregate planning strategies cannot be over emphasized because

evidences abound of improved profitability for those firms that have implemented the scientific

method in aggregate planning.

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There are simulation models aggregation and disaggregation of aggregate plans, but the

automatic Microsoft excel spreadsheet model is used by the author for a hypothetical case of

company XYZ. (see Appendix A attached) as one of the techniques for a computer based

solution of aggregate planning problem. The beauty of the spreadsheet model is that all the

mathematical formulae are hidden in the reference cells of excel spreadsheet. This will enable

the user to concentrate on input section of the programme during periodic updates. Aggregate

planning guarantees operational efficiency and cost reduction, which are some of the objectives

of the aggregate planning problem.

While Aggregate planning through disaggregation is an input to the generation of the master

production schedule(MPS) and expected on-hand inventory, MPS and Bill of materials (BOM)

are inputs to the materials requirement planning(MRP) for dependent demand systems.

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