om - aggregate planning

8/18/2019 OM - Aggregate Planning

1/57

12-1 Aggregate Planning

William J. Stevenson

Operations Management

9th edition


2/57


Chapter 12Chapter 12

Aggregate planning


3/57


Planning HorizonPlanning Horizon

Aggregate planning : Intermediate-rangecapacity planning, usually covering 2 to 12 months.The goal of aggregate planning is to achieve a

production plan that will effectively utilize the

organization’s resources to satisfy expecteddemand.

Shortrange

Intermediaterange

Long range

Now 2 months 1 Year


4/57


Organizations make capacity decisions on three levels:• Short-range plans (etailed plans!

• "achine loading

•

#o$ assignments• Intermediate plans (%eneral levels!

• &mployment

•

Output, and inventories• Long-range plans

• 'ong term capacity

•

'ocation layout

Overview of Planning LevelsOverview of Planning Levels


5/57


Planning SequencePlanning Sequence

Business PlanEstablishes operationsand capacity strategies

Establishes operationsand capacity strategies

Aggregate plan

Establishes

operations capacity

Establishes

operations capacity

aster schedule Establishes schedules!or speci!ic products

Establishes schedules!or speci!ic products

"orporatestrategies

and policies

Economic#competiti$e#and politicalconditions

Aggregatedemand

!orecasts

Figure 12.1


6/57


Overview of aggregate planningOverview of aggregate planning

• Aggregate planning $egins )ith a *orecast o* aggregate

demand *or the intermediate range.

• +his is *ollo)ed $y a general plan to meet demand

reuirements $y setting output, employment, and *inished-

goods inventory or service capacities.• "anagers must consider a num$er o* plans, each o* )hich

must $e eamined in light o* *easi$ility and cost.

• I* a plan is reasona$ly good $ut has minor di**iculties, it

may $e re)orked.

• Aggregate plans are updated periodically, o*ten monthly,

to take into account updated *orecast and other changes.


7/57


•

esources• /ork*orceproduction rate

• 0acilities and euipment

• emand *orecast• olicies

• u$contracting

• Overtime

• Inventory levels

• 3ack orders

•

4osts• Inventory carrying

• 3ack orders

• 5iring*iring• Overtime

• Inventory changes

• su$contracting

Aggregate Planning InputsAggregate Planning Inputs


8/57


•

+otal cost o* a plan• ro6ected levels o*:

• Inventory

• Output• &mployment

• u$contracting

• 3ackordering

Aggregate Planning OutputsAggregate Planning Outputs


9/57


Aggregate Planning StrategiesAggregate Planning Strategies

•

roactive• Involve demand options: Attempt to alter

demand to match capacity

•

eactive• Involve capacity options: attempt to alter

capacity to match demand

•

"ied• ome o* each


10/57


•

ricing

• romotion

• 3ack orders

• 7e) demand

Dean! OptionsDean! Options

l


11/57


PricingPricing

• ricing di**erential are commonly used to shi*t demand

*rom peak periods to o**-peak periods, *or eample:• ome hotels o**er lo)er rates *or )eekend stays

• ome airlines o**er lo)er *ares *or night travel

•

"ovie theaters o**er reduced rates *or matinees• ome restaurant o**er early special menus to shi*t some o*

the heavier dinner demand to an earlier time thattraditionally has less tra**ic.

•

+o the etent that pricing is e**ective, demand )ill $eshi*ted so that it correspond more closely to capacity.

• An important *actor to consider is the degree o* priceelasticity o* demand8 the more the elasticity, the more

e**ective pricing )ill $e in in*luencing demand patterns.

12 12 A Pl


12/57


ProotionProotion

• Advertising and any other *orms o* promotion,such as displays and direct marketing, cansometimes $e very e**ective in shi*ting demandso that it con*orms more closely to capacity.

• +iming o* promotion and kno)ledge o*response rates and response patterns )ill $eneeded to achieve the desired result.

•

+here is a risk that promotion can )orsen thecondition it )as intended to improve, $y $ringing in demand at the )rong time.

12 13 A Pl i


13/57


"ac# or!er"ac# or!er

• An organization can shi*t demand to other periods

$y allo)ing $ack orders. +hat is , orders are taken

in one period and deliveries promised *or a later

period.

• +he success o* this approach depends on ho)

)illing the customers are to )ait *or delivery.

• +he cost associated )ith $ack orders can $e

di**icult to pin do)n since it )ould include lost

sales, annoyed or disappointed customers, and

perhaps additional paper)ork.

12 14 A t Pl i


14/57


$ew !ean!$ew !ean!

•

"anu*acturing *irms that eperienceseasonal demand are sometimes a$le

to develop a demand *or a

complementary product that makesuse o* the same production process.

0or eample, the *irms that produce

)ater ski in the summer , produce

sno) ski in the )inter.

12 15 A t Pl i


15/57


•

5ire and layo** )orkers• Overtimeslack time

• art-time )orkers

• Inventories• u$contracting (in- out!

Capacit% OptionsCapacit% Options

12 16 A t Pl i


16/57


Aggregate Planning StrategiesAggregate Planning Strategies

for eeting uneven !ean!for eeting uneven !ean!

• Maintain a level worforce

• Maintain a steady output rate

• Match demand period !y period

• "se a com!ination of decision varia!les

12 17 Aggregate Planning


17/57


"asic Strategies"asic Strategies

• 'evel capacity strategy:• "aintaining a steady rate o* regular-time

output )hile meeting variations in demand $y a

com$ination o* options such as: inventories,overtime, part-time )orkers, su$contractingand $ack orders.

•

4hase demand strategy:• "atching capacity to demand8 the planned

output *or a period is set at the epecteddemand *or that period.



18/57


Chase ApproachChase Approach

•

Advantages• Investment in inventory is lo)

• 'a$or utilization is high

• isadvantages

• +he cost o* ad6usting output rates andor

)ork*orce levels



19/57


Level ApproachLevel Approach

•

Advantages• ta$le output rates and )ork*orce levels

• isadvantages

• %reater inventory costs

• Increased overtime and idle time

• esource utilizations vary over time



20/57


+echniues *or aggregate planning are classi*ied into

t)o categories:

• In*ormal trial-and-error techniues (*reuently

used!

• "athematical techniues

&echniques for Aggregate Planning &echniques for Aggregate Planning


A l ! f AA l ! f A t


21/57


1. etermine demand *or each period2. etermine capacities (regular time, over time, and

su$contracting! *or each period

9. Identi*y policies that are pertinent

. etermine units costs *or regular time, overtime,

su$contracting, holding inventories, $ack orders, layo**s,

and other relevant costs;. evelop alternative plans and compute the costs *or each


22/57


'atheatical &echniques'atheatical &echniques

Linear programming : "ethods *or o$taining optimalsolutions to pro$lems involving allocation o* scarce

resources in terms o* cost minimization.

Linear decision rule: Optimizing techniue that seeks tominimize com$ined costs, using a set o* cost-

approimating *unctions to o$tain a single uadratic

euation.

imulation models: eveloping a computerized models that

can $e tested under a variety o* conditions in an attempt

to identi*y reasona$ly accepta$le (although not al)ays

optimal! solutions to pro$lem.



23/57


Suar% of Planning &echniquesSuar% of Planning &echniques

%echni&ue Solution "haracteristics

'raphical(charting %rial and

error

Intuiti$ely appealing# easy to

understand) solution not

necessarily optimal*

Linearprogramming

+ptimi,ing "omputeri,ed) linearassumptions not always $alid*

Linear

decision rule

+ptimi,ing "omple-# re&uires considerable

e!!ort to obtain pertinent cost

in!ormation and to construct

model) cost assumptions notalways $alid*

Simulation %rial and

error

"omputeri,ed models can be

e-amined under a $ariety o!

conditions*

Table 12.7



24/57


Linear prograingLinear prograing

• 'inear programming models are methods *or o$taining

optimal solutions to pro$lems involving the allocation o*scarce resources in terms o* cost minimization or pro*itmaimization.

• /ith aggregate planning, the goal is usually to minimize

the sum o* costs related to regular la$or time, overtime,su$contracting, carrying inventory, and cost associated)ith changing the size o* the )ork*orce. 4onstraintsinvolve the capacities o* the )ork*orce, inventories, and

su$contracting.• +he aggregate planning pro$lem can $e *ormulated as a

transportation pro$lem (special case o* linear programming.



25/57


Aggregate planning notationAggregate planning notation

r = regular production cost per unitt = overtime cost per unit

s = su$contracting cost per unit

h = holding cost per unit $ = $ackorder cost per unit per period

n = num$er o* periods in planning horizon


& t ti t ti f t& t ti t ti f t


26/57


&ransportation notation for aggregate &ransportation notation for aggregate

planningplanningeriod

1eriod

2eriod

9> eriod n ?nused

capacitycapacity

eriod 3eginninginventory

@ h 2h (n-1!h @ I@

1 egular r rh r2h r(n-1!h @ 1

Overtime t th t2h t(n-1!h @ O1

su$contract s sh s2h s(n-1!h @ 1

2 egular r$ r rh r(n-2!h @ 2

Overtime t$ t th t(n-2!h @ O2

su$contract s$ s sh s(n-2!h @ 2

9 egular r2$ r$ r r(n-9!h @ 9

Overtime t2$ t$ t t(n-9!h @ O9

su$contract s2$ s$ s s(n-9!h @ 9

demand 1 2 9 n total



27/57


notesnotes

• egular cost, overtime cost, and su$contracting cost are at

their lo)est level )hen output is consumed in the same period it is produced.

• I* goods are made availa$le in one period $ut carried overto later period, holding costs are incurred at the rate o* (h!

per period.• 4onversely, )ith $ack orders, the unit cost increases as

you move across a ro) *rom right to le*t, $eginning at theintersection o* a ro) and column *or the same period.

•

3eginning inventory is given a unit cost o* @ i* it is usedto satis*y demand in period 1. ho)ever, i* it is held over*or use in later periods, a holding cost o* h per unit isadded *or each period.



28/57

gg g g

()aple()aple• %iven the *ollo)ing in*ormation set up the pro$lem in a transportation ta$le and

solve *or the minimum cost plan.

period

1 2 9

demand ;;@ B@@ B;@

#apacity

egular ;@@ ;@@ ;@@

Overtime ;@ ;@ ;@

su$contract 12@ 12@ 1@@

3eginning inventory 1@@

#osts egular time C


29/57

gg g g

SolutionSolution

• +he transportation ta$le and solution are sho)n in the net slide.

ome entries reuire additional eplanation:a. Inventory carrying cost, h = C1 per unit per period. 5ence, units

produced in one period and carried over to a later period )illincur a holding cost that is a linear *unction o* the length o* timeheld.

$. 'inear programming models o* this type reuire that supply(capacity! and demand $e eual. A dummy column has $eenadded (noneistent capacity! to satis*y that reuirement. ince itdoes not FcostG anything etra to not use capacity in this case,cell costs o* C@ have $een assigned.

c. 7o $acklogs )ere needed in this eampled. +he uantities (e.g., 1@@, ;@ in column 1! are the amounts o*

output or inventory that )ill $e used to meet demandreuirements. +hus, the demand o* ;;@ units in period 1 )ill $emet using 1@@ units *rom inventory and ;@ o$tained *rom

regular time output.



30/57

gg g g

Initial solution using northwest cornerInitial solution using northwest corner

eriod1 eriod2 eriod9 ?nusedcapacity capacity


@ 1 2 @ 1@@

1 egular


31/57

gg g g

Optial solutionOptial solution

eriod

1

eriod

2

eriod

9

?nused

capacity

capacity


@ 1 2 @ 1@@

1 egular


32/57

gg g g

&rial an! error techniques &rial an! error techniques

• +rial and error approaches consist o* developing

simple ta$les or graphs that ena$le planners to

visually compare pro6ected demand reuirements

)ith eisting capacity.

• i**erent plans are conducted and evaluated in

terms o* their overall costs. +he one )ith the

minimum cost )ill $e chosen.

• +he disadvantage o* such techniues is that theydo not necessarily result in the optimal aggregate

plan.



33/57

AssuptionsAssuptions

1. +he regular output capacity is the same in all periods.

2. 4ost ( $ack order, inventory, su$contracting, etc! is a linear*unction composed o* unit cost and num$er o* units.

9. lans are *easi$le8 that is, su**icient inventory capacity eists toaccommodate a plan, su$contractors )ith appropriate uality and

capacity are standing $y, and changes in output can $e made asneeded.

. All costs associated )ith a decision option can $e represented $y alump sum or $y unit costs that are independent o* the uantityinvolved

;. 4ost *igures can $e reasona$ly estimated and are constant *or the planning horizon.


34/57

Soe iportant relationshipsSoe iportant relationships

7um$er o* num$er o* num$er o* ne) num$er o* laid-o**

/orkers in = )orkers at end o* )orkers at start - )orkers at start o* A period the previous period o* the period the period

Inventory inventory production amount used to

At the end o* = at the end o* in the - satis*y demand in

A period previous period current period current period

4ost *or output cost hirelayo** inventory $ack order = a period (eg O+ su$contract! cost cost cost

A$eragein$entory

Beginning In$entory 4 Ending In$entory2

5



35/57

Cost calculationCost calculation

Type of cost $ow to calculate

%utput

egular egular cost per unit * +uantit% of regular output

Overtime Overtime cost per unit * Overtie quantit%

u$contract u$contract cost per unit * su,contract quantit%

$ire&layoff

5ire 4ost per hire * nu,er hire!

'ayo** 4ost per layo** * nu,er lai! o-

Inventory 4arrying cost per unit * average inventor%

3ack order 3ack-order cost per unit * nu,er of ,ac# or!erunit



36/57

()aple 1()aple 1

• lanners *or a company that makes several models o* skate$oards are a$out to prepare theaggregate plan that )ill cover si periods. +hey no) )ant to evaluate a plan that calls *ora steady rate o* regular output, mainly using inventory to a$sor$ the uneven demand $utallo)ing some $acklog. Overtime and su$contracting are not used $ecause they )ant asteady output. +hey intend to start )ith zero inventory on hand in the *irst period. reparean aggregate plan and determine its cost using the *ollo)ing in*ormation. Assume a levelo* output rate o* 9@@ unit per period )ith regular time. 7ote that the planned endinginventory is zero. +here are 1; )orkers, and each can produce 2@ units per period.

period ' ( ) * + , total

*orecast 2@@ 2@@ 9@@ @@ ;@@ 2@@ 1D@@

"ost#

$egular time % &2 per s'ateboar(Overtime % &! per s'ateboar(

Sub)ontra)t % &* per s'ateboar(

+nventor, % &1 per s'ateboar( per perio( on average inventor,

-a)' or(ers % &5 per s'ateboar( per perio(


l i l


37/57

Solution. e)aple 1Solution. e)aple 1

eriod ' ( ) * + , total

0orecast 2@@ 2@@ 9@@ @@ ;@@ 2@@ 1D@@%utput

egular 9@@ 9@@ 9@@ 9@@ 9@@ 9@@ 1D@@

Overtime - - - - - -

u$contract - - - - - -Output-*orecast 1@@ 1@@ @ (1@@! (2@@! 1@@ @

Inventory

3eginning @ 1@@ 2@@ 2@@ 1@@ @

&nding 1@@ 2@@ 2@@ 1@@ @ @ Average ;@ 1;@ 2@@ 1;@ ;@ @


38/57

()aple 2()aple 2

A*ter revie)ing the plan developed in the preceding

eample, planners have decided to develop an

alternative plan. +hey have learned that one is

a$out to retire *rom the company. ather than

replace that person, they )ould like to stay )iththe smaller )ork*orce and use overtime to make

up *or lost output. +he reduced regular time output

is 2D@ units per period. +he maimum amount o*overtime output per period is @ units. evelop a

plan and compare it to the previous one.



39/57

Solution. e)aple 2Solution. e)aple 2

eriod ' ( ) * + , total

0orecast 2@@ 2@@ 9@@ @@ ;@@ 2@@ 1D@@%utput

egular 2D@ 2D@ 2D@ 2D@ 2D@ 2D@ 1


40/57

Coent. e)aple 2Coent. e)aple 2

• +he amount o* overtime that must $e scheduled has to

make up *or lost output o* 2@ units per period *or si periods, )hich is 12@. this is scheduled to)ard the centero* the planning horizon since that is )here the $ulk o*demand occurs. cheduling it earlier )ould increaseinventory carrying costs8 scheduling it later )ouldincrease $acklog cost.

• Overall the total cost *or this plan is


41/57

• Aggregate planning *or services takes into account

pro6ected customer demands, euipment, capacities, andla$or capa$ilities. +he resulting plan is a time-phased

pro6ection o* service sta** reuirements.

• Aggregate planning *or manu*acturing and aggregate planning *or services share similarities in some respect, $ut there are some important di**erences )hich are:

• ervices occur )hen they are rendered

• emand *or service can $e di**icult to predict

• 4apacity availa$ility can $e di**icult to predict

• 'a$or *lei$ility can $e an advantage in services

Aggregate Planning in ServicesAggregate Planning in Services



42/57

Disaggregating the aggregate planDisaggregating the aggregate plan

• 0or the production plan to $e translated into meaning*ul terms o*

production, it is necessary to disaggregate the aggregate plan.• +his means $reaking do)n the aggregate plan into speci*ic product

reuirements in order to determine la$or reuirements (skills, sizeo* )ork*orce!, materials, and inventory reuirements.

• +o put the aggregate production plan into operation, one mustconvert, or decompose, those aggregate units into units o* actual

product or services that are to $e produced or o**ered.

• 0or eample, televisions manu*acturer may have an aggregate planthat calls *or 2@@ television in #anuary, 9@@ in 0e$ruary, and @@ in

"arch. +his company produce 21, 2


43/57

'aster sche!uling'aster sche!uling

• +he result o* disaggregating the aggregate plan is a master schedule

sho)ing the uantity and timing o* speci*ic end items *or ascheduled horizon, )hich o*ten covers a$out si to eight )eeksahead.

• +he master schedule sho)s the planned output *or individual products rather than an entire product group, along )ith the timing

o* production.• It should $e noted that )hereas the aggregate plan covers an interval

o*, say, 12 months, the master schedule covers only a portion o* this.In other )ords, the aggregate plan is disaggregated in stages , or

phases, that may cover a *e) )eeks to t)o or three months.• +he master schedule contains important in*ormation *or marketing

as )ell as *or production. It reveals )hen orders are scheduled *or production and )hen completed orders are to $e shipped.


l h ! l


44/57

Aggregate Plan to 'aster Sche!uleAggregate Plan to 'aster Sche!ule

#an 0e$ "ar.

2@@ 9@@ @@

3ggregate

lanning

4isaggregation

Master

Schedule

Figure 12.4

Aggregateplan

+ype #an. 0e$. "ar

21inch

1@@ 1@@ 1@@

2<inch

B; 1;@ 2@@

2Einch

2; ;@ 1@@

asterschedule


S h ! li' t S h ! li


45/57

'aster Sche!uling'aster Sche!uling

•

"aster schedule• etermines uantities needed to meet demand

• Inter*aces )ith

•

"arketing: it ena$les marketing to make validdelivery commitments to )arehouse and *inal

customers.

• 4apacity planning: it ena$les production to evaluate

capacity reuirements

• roduction planning

• istri$ution planning


' S h ! l' t S h ! l


46/57

'aster Sche!uler'aster Sche!uler

+he duties o* the master scheduler generallyinclude:

• &valuates impact o* ne) orders

•

rovides delivery dates *or orders• eals )ith pro$lems such as:

• roduction delays

• evising master schedule• Insu**icient capacity


' S h ! li P' t S h ! li P


47/57

'aster Sche!uling Process'aster Sche!uling Process

aster Scheduling

Beginning in$entory

6orecast

"ustomer orders

Inputs +utputs

Pro7ected in$entory

aster production schedule

8ncommitted in$entory

Figure 12.*


' h ! li' t h ! li


48/57

'aster sche!uling process'aster sche!uling process

• !aster production schedule "!P#$ indicates the uantity

and timing o* planned production, taking into accountdesired delivery uantity and timing as )ell as on-hand

inventory. +he " is one o* the primary outputs o* the

master scheduling process.

• %ough-cut capacit& Planning "%''P#$ it involves testing

the *easi$ility o* a proposed master relative to availa$le

capacities, to assure that no o$vious capacity constraints

eist. +his means checking capacities o* production)arehouse *acilities, la$or, and vendors to ensure that no

gross de*iciencies eist that )ill render the master

schedule un)orka$le


' t h ! l' t h ! l


49/57

'aster sche!ule'aster sche!ule

• Inputs:• 3eginning inventory8 )hich is the actual inventory

on hand *rom the preceding period o* the schedule

• 0orecasts *or each period demand

• 4ustomer orders8 )hich are uantities alreadycommitted to customers.

• Outputs•

ro6ected inventory• roduction reuirements

• +he resulting uncommitted inventory )hich isre*erred to as availa$le-to-promise (A+! inventory


P / t ! O h ! I tP / t ! O h ! I t


50/57

Pro/ecte! On0han! Inventor%Pro/ecte! On0han! Inventor%

ro6ected on-hand

inventory

Inventory *rom

previous )eek

4urrent )eeks

reuirements-5


( l ' t S h ! l( l ' t S h ! l


51/57

()aple. 'aster Sche!ule()aple. 'aster Sche!ule

A company that makes industrial pumps )ants to prepare a

master production schedule *or #une and #uly. "arketing has*orecasted demand o* 12@ pumps *or #une and 1


52/57

Solution. 'aster sche!uleSolution. 'aster sche!ule

9/ 1 2 3 / : 9 ;

6orecast !0 !0 !0 !0 40 40 40 40

"ustomer Or(ers.)ommitte(/ !! 20 10 4 2

roe)te( on3an(

inventor, !1 1 2


53/57

Solution. &he aster sche!uleSolution. &he aster sche!ule

• +he *irst step you have to calculate the on hand inventory

7ee Inventoryfrom previouswee

8e9uirements etinventory!efore MS

MS ro;ectedinventory

1


54/57

Solution. 'aster Sche!uleSolution. 'aster Sche!ule

• +he pro6ected on-hand inventory and " are added to the master

scheduleInitial inventory


55/57

$otes$otes

• +he reuirements euals the maimum o* the

*orecast and the customer orders

• +he net inventory $e*ore " euals the

inventory *rom previous )eek minus the

reuirements.

• +he " = run size, )ill $e added )hen the net

inventory $e*ore " is negative ( )eeks 9, ;, B,

and D!.• +he pro6ected inventory euals the net inventory

$e*ore " plus the " (B@!.


S l ti ' t S h ! lSolution 'aster Sche!ule


56/57

Solution. 'aster Sche!uleSolution. 'aster Sche!ule

• +he amount o* inventory that is uncommitted, and,

hence, availa$le to promise is calculated as *ollo)s:

um $ooked customer orders )eek $y )eek until

($ut not including! a )eek in )hich there is an "

amount. 0or eample, in the *irst )eek, this procedure results in summing customer orders o* 99

()eek 1! and 2@ ()eek 2! to o$tain ;9. in the *irst

)eek, this amount is su$tracted *rom the $eginninginventory o*


57/57

&ie ences in 'PS &ie ences in 'PS

Period

ro6enirm or

=slushy>somewhat

li9ui(open/

1 2 9 ; < B D E

%ime !ences di$ide a scheduling time hori,on into three sections or phases#sometimes re!erred as !ro,en# slushy# and li&uid# in re!erence to the !irmness o!schedule?

6ro,en phase? is the near@term phase that is so soon that deli$ery o! a new orderwould be impossible# or only possible using $ery costly or e-traordinary optionssuch as delaying another deli$ery*

Slushy phase? is the ne-t phase# and its time !ence is usually a !ew periods beyondthe !ro,en phase* +rder entry in this phase necessitate trade@o!!s# but is less costly

or disrupti$e than in !ro,en phase*Li&uid phase? is the !arthest out on the time hori,on* New orders or cancellationscan be entered with ease

om - aggregate planning

Documents