PRODUCTI ONS AND OPERATIONS MANAGEMENT DIARY AGGREGATE PLANNING

1. POM class proceedings:

Date: 24-11-2014 Group number: 16

Group members: Gayathri Satish (14055), Krishnendu Sain (14069), Shreyas K G (14147)

2. List of Topics Covered with Examples In real life demand is unstable entity, to overcome this companies either

Prepare production schedule to take care of demand Either produce according to demand or leave demand unfulfilled

Producing according to Demand Short term option available like temporary workers or subcontracting Can also keep or preserve excess stock and push it to sales when demand is high

Leaving demand unfulfilled The company can backlog the demand to future periods if demand is not met in this period,

subject to customer agreeing to it Or it can accept the shortage and incur loss of business through lost salesIt is up to the company to decide as to what should be its policy, i.e. to satisfy demand or let go

Ultimate Objective is to minimise cost of plan or minimise cost of aggregate planningEvery production unit needs certain iterative approaches for aggregate planning. It should go for the mix of policy that result in lowest possible total cost of plan.This can be done using tools such as Linear Programming or Linear Decision Tools. They help in finding whether or not to go for better plans or not. But since it involves high level computing and is beyond the scope of this course, we rely on MS Excel to solve the problem. Though companies say they are interested in long term relations with their vendors, most of them don’t go beyond a 12 months of deal. Aggregate planning becomes very necessary here.

ProblemPoints to be noted while doing problems:

Develop plan Analyse it Improve it If demand > production, then there is shortage If demand < production, then there is excess production leading to ending inventory Some cases might require ending inventory to be brought to zero Some cases may allow ending inventory, but storage space should also be taken into

consideration in this caseTypes of aggregate planningBroadly classified into two:1. Level Plan – Maintaining the same inventory levels2. Chase Plan –Looking at the demand and adjust production. The advantage here is that the inventory is not carried forward or will there be shortagesHere too, there is no ideal plan, it all depends on the company to find which is most suitable for it3. Examples cited : The instructor also gave an example of a Harvard Case Study, about how backlogs can also happen in airlines. For e.g. if 340 seats are available on a plane, the airline company takes booking for 350 people, considering the fact that some people don’t turn up. But, here situations do arise where all the 350 passengers turn up. They will have to immediately find alternate measures for the extra 10 people.

4. Questions Raised by students :a) For solving the capacity planning of Walt Disney can aggregate planning approach be used?Sir said yes, there are two approaches they can follow. One is reactive approach where number of employees (capacity) is increased with respect to increase in demand. Second approach is not responding to the change in demand. b) Is cost calculated on cumulative value or on ending value of inventory?Sir said that cost is calculated on cumulative value.c) When inventory size is defined how the aggregate planning is done?Sir said in that case the company can either adjust production to inventory or might consider to produce same number. Depends on company strategy but plant shut down is not feasible

5. Questions raised by the instructor : No question was raised by the instructor6. Further studies recommended: Suggested us to learn on lean management. In present situation

lean analysis is done on big data. 7. Learning from the class : how aggregate planning can be applied in case of varying demand

across industries. 8. Feedback: All the problems are explained well in depth.

9. Value addition by group: Some more Aggregate planning Model, we want to add. These are:

Transportation Method.It is possible to formulate aggregate planning problem in such a way that if the solution exist somewhere, it can be shown to be optimal. Thus, in contrast with the preceding trial-error methods we now have the assurance that the “best” production plan is prepared. One technique used for this purpose is the transportation method in linear programming. This approach allows for the use of regular production, overtime, inventory, back-ordering, and subcontracting.

Vogel’s Approximation Method (VAM)The procedure is simple and fast by comparison. Its advocates claim that it will give an optimal allocation for a majority of problems and that the approximation is very good for the remainder. In some applications, the final result of this approximation method may be accepted as is. In others it might be desirable to apply the optimality test and then iterate toward an optimal solution if needed. Normally, this scheme is used to find an initial solution so that the total number of iterations can be reduced which is required by the conventional method.

Real company example:

Bangladesh Cable Shilpa limited, Khulna has applied the aggregate planning according to the above process.