Agregate Planning

Aggregate Planning
Chapter 14
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To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition 2004 Prentice Hall, Inc. All rights reserved.
Planning Relationships
Business or annual plan
Figure 14.1
Business or annual plan Production or staffing plan
Figure 14.1
Business or annual plan Production or staffing plan MPS or workforce schedule
Figure 14.1
Figure 14.1
Figure 14.1
Managerial Inputs
Aggregate plan
Figure 14.2
Managerial Inputs
Distribution and marketing Customer needs Demand forecasts Competition behavior
Aggregate plan
Figure 14.2
Managerial Inputs
Aggregate plan
Accounting and finance Cost data Financial condition of firm
Figure 14.2
Managerial Inputs
Aggregate plan
Human resources Labor-market conditions Training capacity
Figure 14.2
Managerial Inputs
Aggregate plan
Engineering New products Product design changes Machine standards
Figure 14.2
Managerial Inputs
Materials Supplier capabilities Storage capacity Materials availability
Aggregate plan
Figure 14.2
Managerial Inputs
Operations Current machine capacities Plans for future capacities Workforce capacities Current staffing level Distribution and marketing Customer needs Demand forecasts Competition behavior
Materials Supplier capabilities Storage capacity Materials availability
Aggregate plan
Figure 14.2
Aggregate Planning Objectives

Minimize Costs/Maximize Profits Maximize Customer Service Minimize Inventory Investment Minimize Changes in Production
Rates Minimize Changes in Workforce Levels Maximize Utilization of Plant and Equipment
Aggregate Planning Strategies

TABLE 14.1 PLANNING STRATEGIES FOR AGGREGATE PLANS Possible Alternatives during Slack Season
Layoffs Layoffs, undertime, vacations No layoffs, building anticipation inventory, undertime, vacations Layoffs, building anticipation inventory, undertime, vacations
Strategy
1. Chase #1: vary workforce level to match demand 2. Chase #2: vary output rate to match demand 3. Level #1: constant workforce level
Possible Alternatives during Peak Season

Hiring Hiring, overtime, subcontracting No hiring, depleting anticipation inventory, overtime, subcontracting, backorders, stockouts Hiring, depleting anticipation inventory, overtime, subcontracting, backorders, stockouts
4. Level #2: constant output rate
Aggregate Planning Process

Determine requirements for planning horizon
Figure 14.3

Determine requirements for planning horizon Identify alternatives, constraints, and costs
Figure 14.3

Determine requirements for planning horizon Identify alternatives, constraints, and costs Prepare prospective plan for planning horizon
Figure 14.3

Is the plan acceptable?
Figure 14.3

No
Figure 14.3

No
Yes Implement and update the plan
Figure 14.3

No
Move ahead to next planning session
Yes Implement and update the plan
Figure 14.3
Aggregate Planning Costs
Regular-Time Costs Overtime Costs Hiring and
Layoff Costs Inventory Holding Costs Backorder and Stockout Costs

Level Strategy for Services
Dock
Aisle

TIME PERIOD 1 Requirement* 6 2 12 3 18 4 15 Current employment = 10 part-time clerks
Dock
Aisle
5 13
6 14
Total 78
* Number of part-time employees
Example 14.1

TIME PERIOD 1 Requirement* 6 2 12 3 18 4 15 Current employment = 10 part-time clerks 1. 2. 3. 4.
Dock
Aisle
5 13
6 14
Total 78
* Number of part-time employees
No more than 10 new hires in any period No backorders are permitted Overtime can not exceed 20% of regular-time capacity The following costs can be assigned: Regular-time wage $2,000/period at 20 hours/week Overtime wages 150% of regular-time Hiring $1,000/person Layoffs $500/person
Example 14.1

TIME PERIOD 1 Requirement* 6 2 12 3 18 4 15
Dock
Aisle
5 13
6 14
Total 78
Current employment = 10 part-time clerks Requirement Peak 1. 2. 3. 4. No more than 10 new hires in any period No backorders are permitted Overtime can not exceed 20% of regular-time capacity The following costs can be assigned: Regular-time wage $2,000/period at 20 hours/week Overtime wages 150% of regular-time Hiring $1,000/person Layoffs $500/person
Example 14.1

Dock
Aisle
5 13
6 14
Total 78
Current employment = 10 part-time clerks Requirement Peak 1. 2. 3. 4. No more than 10 new hires in any period No backorders are permittedemployees in peak period 1.20w = 18 Overtime can not exceed 20% of regular-time capacity The following costs can be assigned: Regular-time wage $2,000/period at 20 hours/week Overtime wages 150% of regular-time Hiring $1,000/person Layoffs $500/person
Example 14.1

Dock
Aisle
5 13
6 14
Total 78
Current employment = 10 part-time clerks Requirement Peak 1. 2. 3. 4. No more than 10 new hires in any period No backorders are permittedemployees in peak period 1.20w = 18 Overtime can not exceed 20% of regular-time capacity The following costs can be assigned: 18 w$2,000/period at 20 hours/week = = 15 employees Regular-time wage 1.20 Overtime wages 150% of regular-time Hiring $1,000/person Layoffs $500/person
Example 14.1

Dock
Aisle
5 13
6 14
Total 78
Current employment = 10 part-time clerks Requirement Peak 1. 2. 3. 4. No more than 10 new hires in any period No backorders are permittedemployees in peak period 1.20w = 18 Overtime can not exceed 20% of regular-time capacity The following costs can be assigned: 18 w$2,000/period at 20 hours/week = = 15 employees Regular-time wage 1.20 Overtime wages 150% of regular-time Hiring $1,000/person Layoffs $500/person
Figure 14.4
Chase Strategy for Services

TIME PERIOD 1 Requirement* 6 2 12 3 18 4 15 Current employment = 10 part-time clerks
Dock
Aisle
5 13
6 14
Total 78
Figure 14.5
Mixed Strategies in Manufacturing

Figure 14.6
Production Planning Tableau
Alternatives
Quarter
Quarter 1
0 r c s r+b c+b s+b r+2b c+2b s+2b r+3b c+3b s+3b
2
h r+h c+h s+h r c s r+b c+b s+b r+2b c+2b s+2b
3
2h r+2h c+2h s+2h r+h c+h s+h r c s r+b c+b s+b
4
3h r+3h c+3h s+3h r+2h c+2h s+2h r+h c+h s+h r c s
Unused Total Capacity Capacity

4h u 0 0 u 0 0 u 0 0
Beginning inventory Regular time
I0 R1 O1 S1 R2 O2 S2 R3 O3 S3 R4 O4
Overtime Subcontract Regular time
u 0 0
S4
Overtime Subcontract
Requirements
D1
D2
D3
D4 + I4
Figure 14.7

Tru-Rainbow Company
Alternatives
Quarter
Quarter 1
0 r c s r+b c+b s+b r+2b c+2b s+2b r+3b c+3b s+3b
2
h r+h c+h s+h r c s r+b c+b s+b r+2b c+2b s+2b
3
2h r+2h c+2h s+2h r+h c+h s+h r c s r+b c+b s+b
4
3h r+3h c+3h s+3h r+2h c+2h s+2h r+h c+h s+h r c s
Unused Total Capacity Capacity

4h u 0 0 u 0 0 u 0 0
I0 R1 O1 S1 R2 O2 S2 R3 O3 S3 R4 O4
u 0 0
S4
Overtime Subcontract
Requirements
D1
D2
D3
D4 + I4
Example 14.3
Production Planning Demand Capacities Tableau time Regular

Company
Alternatives
1
0 r c s r+b c+b s+b
1 300 450 90 200
Unused Total Quarter 4 Capacity Capacity 3 2 3 4 Total I R 850 1500 350 3000 2
h 2h 3h 4h u 0 0 u 0 0
0
Quarter
Quarter
r+h
r+2h
r+3h
c+h
c+2h
c+3h s+3h r+2h
O1 S 2100 R 420 O 800

1 2 2
Tru-RainbowOvertime Subcontracting
2
450 90 200
r c s
s+h
750 150 200

s+2h r+h c+h s+h r
c+2h s+2h r+h
450 90 200
S2 R3 O3 S3 R4 O4 S4
Current inventory = 250,000 Ending inventory = 300,000 Regular time = $1.00/unit Overtime = $1.50/unit Subcontracting = $1.90/unit Inventory holding cost = $0.30/gallon/quarter Maximum overtime = 20% of regular time Maximum subcontract = 200,000 No back orders or stockouts Requirements D D D D +I U
r+2b r+b u 0 0 3 Overtime c+2b s+2b c+b s+b c s c+h s+h r Subcontract Regular time r+3b r+2b r+b u 0 0 4 Overtime c+3b s+3b c+2b s+2b c+b s+b c s Subcontract
1 2 3 4 4
Example 14.3
Production Plan 1500

Paint (thousands of gallons)
Tru-Rainbow Company
1250 1000 750 500 250 0 | 1 | | 2 3 Quarter | 4

Requirements
Figure 14.8

Tru-Rainbow Company
1250 1000 750 500 250 0 | 1 | | 2 3 Quarter | 4

Requirements Production plan
Figure 14.8

Inventory accumulation
Tru-Rainbow Company
1250 1000 750 500 250 0 510 | 1 | | 2 3 Quarter | 4

Requirements Production plan
300
Figure 14.8

Inventory accumulation Inventory consumption Requirements Production plan
Tru-Rainbow Company
1250 1000 750 500 250 0 510 | 1
400
110 300
Figure 14.8
| | 2 3 Quarter
| 4

Inventory accumulation Inventory consumption Requirements Production plan
Tru-Rainbow Company
1250 1000 750 500 250 0 510 | 1
400
110 300
Figure 14.8
| | 2 3 Quarter
| 4

Tru-Rainbow Company
Figure 14.9

Tru-Rainbow Company Quarter
Total Cost Cost
Example 14.3

1 Total Cost Cost 250($0) + 30($1.00) + 20($1.90) = $68
Example 14.3

Total Cost $68 1,048 Cost 1 250($0) + 30($1.00) + 20($1.90) = 2 420($1.30) + 90($1.80) + 340($1.00) =
Example 14.3

Total Cost $68 1,048 2,100 Cost 1 250($0) + 30($1.00) + 20($1.90) = 2 420($1.30) + 90($1.80) + 340($1.00) = 3 110($1.30) + 90($1.80) + 200($2.20) + 750($1.00) + 150($1.50) =
Example 14.3

1 2 3 4 Total Cost Cost 250($0) + 30($1.00) + 20($1.90) = $68 420($1.30) + 90($1.80) + 340($1.00) = 1,048 110($1.30) + 90($1.80) + 200($2.20) + 750($1.00) + 150($1.50) = 2,100 450($1.00) + 90($1.50) + 110($1.90) = 794 Total $4,010
Example 14.3
Quarter
Regular-Time Production
Overtime Production
Subcontracting
Total
Anticipation Inventory Quarter Quantity
Example 14.3
Quarter
Overtime Production
Subcontracting
Total
1 2 3 4 Totals
450 450 750 450 2,100
90 90 150 90 420
20 200 200 110 530
560 740 1,100 650 3,050
Anticipation Inventory Quarter Quantity
Example 14.3
Quarter
Overtime Production
Subcontracting
Total
1 2 3 4 Totals
450 450 750 450 2,100
90 90 150 90 420
20 200 200 110 530
560 740 1,100 650 3,050
Anticipation Inventory Quarter Quantity 1 250 + 560 300 = 2 510 + 740 850 = 3 400 + 1,100 1,500 = 4 0 + 650 350 =
Example 14.3
510 400 0 300
Solved Problem 1
Figure 14.10
Solved Problem 1
Figure 14.11
Solved Problem 1
Figure 14.12
Solved Problem 2
Figure 14.13

Agregate Planning

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Agregate Planning

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Aggregate Planning

3 Ov ert im e Su bc on tra Re ct g tim ula e r

Ov ert im e Su bc on tra Re ct g tim ula e r

Ov ert im e Su bc on tra Re ct g tim ula e r

Be inv gin en nin tor g Re y gu tim la e r

Accounting and finance Cost data Financial condition of firm

Accounting and finance Cost data Financial condition of firm

Human resources Labor-market conditions Training capacity

Accounting and finance Cost data Financial condition of firm

Engineering New products Product design changes Machine standards

Human resources Labor-market conditions Training capacity

Materials Supplier capabilities Storage capacity Materials availability

Accounting and finance Cost data Financial condition of firm

Engineering New products Product design changes Machine standards

Human resources Labor-market conditions Training capacity

Materials Supplier capabilities Storage capacity Materials availability

Accounting and finance Cost data Financial condition of firm

Engineering New products Product design changes Machine standards

Human resources Labor-market conditions Training capacity

Aggregate Planning Objectives

Aggregate Planning Strategies

Possible Alternatives during Peak Season

4. Level #2: constant output rate

Aggregate Planning Process

Aggregate Planning Process

Aggregate Planning Process

Aggregate Planning Process

Is the plan acceptable?

Aggregate Planning Process

Is the plan acceptable?

Aggregate Planning Process

Is the plan acceptable?

Yes Implement and update the plan

Aggregate Planning Process

Is the plan acceptable?

Move ahead to next planning session

Yes Implement and update the plan

Aggregate Planning Costs

Regular-Time Costs Overtime Costs Hiring and

Layoff Costs Inventory Holding Costs Backorder and Stockout Costs

Level Strategy for Services

Level Strategy for Services

* Number of part-time employees

Level Strategy for Services

* Number of part-time employees

Level Strategy for Services

Level Strategy for Services

Level Strategy for Services

Level Strategy for Services

Chase Strategy for Services

Mixed Strategies in Manufacturing

Production Planning Tableau

Unused Total Capacity Capacity

Beginning inventory Regular time

Overtime Subcontract Regular time

Overtime Subcontract Regular time

Overtime Subcontract Regular time

Production Planning Tableau

Unused Total Capacity Capacity

Beginning inventory Regular time

Overtime Subcontract Regular time

Overtime Subcontract Regular time

Overtime Subcontract Regular time