Aggregate Planning Mark 2005

8/3/2019 Aggregate Planning Mark 2005

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Aggregate planning 1

Aggregate planning / scheduling

Medium range plan - what we will make over thenext 3-18 months.

general demand

controllable variables / forms of capacity production rates

labor levels

inventory levels

outsourcing

overtime

does not include investments in facilities


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Linkages

Marketing: when will products be available ? Lead times ? Excess inventory

(good time for a sale?)

Accounting and Finance:

cash flows- will we be making more than we are selling?

do we have to finance inventory?

when will suppliers need to be paid?

Human resources

timing of hiring, firing and training

Information Systems

what to track

linkages to other supply chain members


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Aggregate planning strategies

Companies can do any or all of the following: Use inventory to absorb changes in demand

Vary the size of the workforce

Vary work hours part timers

overtime

Outsource parts they could make

the entire product

Demand management


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Examples of different strategies: tool and die

shops

1) Atlas Tool and Die (competes on cost)

as demand increases working hours increase -

until both shifts are working 65 hours a week

once the shop is effectively running 24 a day

they start to outsource. If there is enough

demand they will outsource the entire project.

as demand decrease they bring work back inhouse and then cut work hours


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Examples: DieCast

2) DieCast (competes on innovation / knowledge) work hours set at 50 a week

size of workforce driven by decision to keep people

working 50 hours a week all the time. usually outsource simple work

never outsource entire project

when demand decreases they bring work back

in house - have never laid off

when demand outstrips their capacity they turn

work down


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Examples: Grand Rapids Mold and Die

3) GRMD (competes on speed)

machine capacity set at maximum level of

demand

hire workers as they get busier and fire whenwork slows down

only outsource if every machine is running 24

hours a day- and then only until they can get

another machine


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Aggregate planning options: capacity

Changing inventory levels

Varying workforce size by hiring or firing

Grand Rapids

Construction unions Over and idle time

why do companies prefer overtime to hiring new

people?

Part time or temps

Adjunct faculty members

Outsourcing



Outsourcing pluses and minuses

Pluses increased flexibility

increased quality (?)

decreased costs (?)

Minuses

decreased control

can be very expensive in certain situations suppliers can become competitors



Aggregate planning options: demand

management

Directly influence demand

promotions

early bird specials and happy hour

Back-orders

MTO verses MTS

Product mixing Sea-doo / Ski-doo

The golf / ski shop



Level verses chase strategies

Level production strategies: if possible the best plan is to

keep production level and use inventory or backlogs (noteDieCast is level with no inventory) to act as a buffer

between production and demand.

requires fairly stable demand (or very low inventory /

backorder costs) why is this preferred

Chase demand production strategies: vary the level of

production to match demand using a combination of the

previously discussed options. What must our capacity be to chase?



Methods of aggregate planning

Mathematical approaches: a number of

mathematical approaches to scheduling

exist- but they are very complex, often donot work for large problems, and or take a

very long time to run. So...

Graphical / logical models tend to be usedin practice



An example

Month Demand Productiondays Demand perday

Jan. 900 22 41

Feb. 700 18 39

Mar. 800 21 38

Apr. 1200 21 57

May 1500 22 68

June 1100 20 55

Total 6200 124 50



Cost info. for example

Inventory carrying costs $5 unit per month

Subcontracting costs $10 unit

Average pay rate $ 5 hour ($40 a day)

Overtime pay rate $ 7 an hour (after 8 hours)

Labor hours per unit 1.6

units per day 5 per employee (8 hours)

costs to hire an employee 500

cost to fire an employee 700



A level demand strategy

Produce 50 units a day - increasing inventory in

Jan., Feb., and Mar., and decreasing it the last 3

months

Workers required = 10 per day no O.T. Beginning inventory and ending inventory = 0


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Another option: outsourcing

In this option we choose to set production atthe level of the lowest demand month (like

DieCast) and outsource the remaining work.

The lowest demand month is March wherewe make 38 units per day - so 38 units per

day is our production plan.

In order to achieve this we need 7.6 workers(38 /5)


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Outsourcing costs

In house production = 38 * 124 = 4712

7.6 workers * $ 40 per day * 124 days = 37,696

Outsourced production = 6200 - 4712 = 1488

1488 * 10 unit = 14,880

Total costs =

37.696 + 14,880 = 52,576


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Your turn

Do a chase demand plan

Use only whole employees

Remember to include hire and fire costs

Use overtime not idle time


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Chase strategyDeman

d

Days Produc

e

Emplo

yee

RT OT Hire

costs

Fire

costs

Total

900 22 41 8 7040 246.4 0 0 7286.4

700 18 39 7 5040 806.4 0 700 6546.4

800 21 38 7 5880 705.6 0 0 6585.6

1200 21 57 11 9240 470.4 2000 0 11710.

4

1500 22 68 13 11440 739.2 1000 0 13179.

21100 20 55 11 8800 0 0 1400 10200

55508


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Try this

Use the same cost data but Add backorder costs of $10 a unit

Plan split level: 1 level of production for

Jan- March, a second for April June Use overtime not idle time

If you did not want to have backorders what

could you do?


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The basics of the split plan

Month day month Demand Inventorychange

Endinginventory

Jan. 39.34 865.57 900 -34.43 -34.43

Feb. 39.34 708.2 700 8.2 -26.23

Mar. 39.34 826.23 800 26.23 0

Apr. 60.32 1266.67 1200 66.67 66.67

May 60.32 1326.98 1500 -173.02 -106.35

June 60.32 1206.35 1100 106.35 0


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Costs for the split plan

Employ

ment

RT OT Ending

Invento

ry

Invento

ry

backord

er

hire Fire total

7 6160 1070..4

3

-34.43 0 344 0 0 7574.69

7 5040 875.80 -26.23 0 262 0 0 6178.1

7 5880 1021.77 0 0 0 0 0 6901.77

12 10080 74.67 66.67 333 0 2500 0 12988

12 10560 78.22 -106.35 0 1063 0 0 11701.71

12 9600 71.11 0 0 0 0 0 9671.11

55015.38


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Aggregate planning conclusions

These were only a few of a number of

options.

We generally focused on the price

Other goals besides lowest price ?

customer service

employee morale

etc.

Should be linked to strategy

Documents

Aggregate Planning Mark 2005