i l P AtAgg regate Planning - Rajamangala University of ... · 13 i l P AtAgg regate Planning ... FritoGlobal Company Profile: Frito-Lay The Planning Process ... production for the

1313 A t Pl iA t Pl i1313 Aggregate PlanningAggregate Planning

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13 - 1© 2011 Pearson Education, Inc. publishing as Prentice Hall

OutlineOutlineOutlineOutline Global Company Profile: Frito-Lay Global Company Profile: Frito Lay The Planning Process

Planning Horizons The Nature of Aggregate Planning The Nature of Aggregate Planning Aggregate Planning Strategiesgg g g g

Capacity Options D d O ti Demand Options Mixing Options to Develop a Plan


g p p

OutlineOutline –– ContinuedContinuedOutline Outline –– ContinuedContinued

Methods for Aggregate Planning Graphical Methods Mathematical Approaches Mathematical Approaches Comparison of Aggregate Planning

MethodsMethods


OutlineOutline –– ContinuedContinuedOutline Outline –– ContinuedContinued

Aggregate Planning in Services Restaurants Restaurants Hospitals National Chains of Small Service

Firms Miscellaneous Services Airline Industry Airline Industry

Yield Management


Learning ObjectivesLearning ObjectivesLearning ObjectivesLearning ObjectivesWhen you complete this chapter youWhen you complete this chapter youWhen you complete this chapter you When you complete this chapter you should be able to:should be able to:

1. Define aggregate planning2. Identify optional strategies for

developing an aggregate plan3. Prepare a graphical aggregate plan


Learning ObjectivesLearning ObjectivesLearning ObjectivesLearning ObjectivesWhen you complete this chapter youWhen you complete this chapter youWhen you complete this chapter you When you complete this chapter you should be able to:should be able to:

4. Solve an aggregate plan via the transportation method of lineartransportation method of linear programming

5 U d t d d l i ld5. Understand and solve a yield management problem


FritoFrito LayLayFritoFrito--LayLay More than three dozen brands, 15

brands sell more than $100 million ll 7 ll $1 billiannually, 7 sell over $1 billion

Planning processes covers 3 to 18 months

Unique processes and specially q p p ydesigned equipment

High fixed costs require high volumes High fixed costs require high volumes and high utilization


FritoFrito LayLayFritoFrito--LayLay Demand profile based on historical

sales, forecasts, innovations, ti l l d d d tpromotion, local demand data

Match total demand to capacity, expansion plans, and costs

Quarterly aggregate plan goes to 38 Q y gg g p gplants in 18 regions

Each plant develops 4-week plan for Each plant develops 4 week plan for product lines and production runs


A t Pl iA t Pl iAggregate PlanningAggregate Planning

The objective of aggregate planning The objective of aggregate planning j gg g p gj gg g p gis to meet forecasted demand while is to meet forecasted demand while minimizing cost over the planning minimizing cost over the planning g p gg p g

periodperiod


The Planning ProcessThe Planning ProcessThe Planning ProcessThe Planning ProcessDetermine the quantity and timing ofDetermine the quantity and timing of production for the intermediate future Objective is to minimize cost over the

planning period by adjusting Production rates Labor levels Inventory levels Overtime work Overtime work Subcontracting rates Other controllable variables


Other controllable variables

Aggregate PlanningAggregate PlanningAggregate PlanningAggregate PlanningRequired for aggregate planning

A logical overall unit for measuring sales

Required for aggregate planning

A logical overall unit for measuring sales and output

A forecast of demand for an intermediate A forecast of demand for an intermediate planning period in these aggregate terms

A h d f d i i A method for determining costs A model that combines forecasts and

costs so that scheduling decisions can be made for the planning period


Planning HorizonsPlanning HorizonsPlanning HorizonsPlanning HorizonsLong-range plans (over one year)(over one year)Research and DevelopmentNew product plansCapital investmentsFacility location/expansion

Intermediate-range plans (3 to 18 months)Sales planning

Top executives

Sales planningProduction planning and budgetingSetting employment, inventory,

subcontracting levelsAnalyzing operating plans

Operations managers

Short-range plans (up to 3 months)Job assignmentsO d iOrderingJob schedulingDispatchingOvertimePart-time help

Operations managers, supervisors, foremen


Figure 13.1

p

Responsibility Planning tasks and horizon

Aggregate PlanningAggregate PlanningAggregate PlanningAggregate Planning

Quarter 1Jan Feb Mar

150,000 120,000 110,000

Quarter 2Quarter 2Apr May Jun

100,000 130,000 150,000100,000 130,000 150,000

Quarter 3Jul Aug Sep

180,000 150,000 140,000


AggregateAggregateAggregate Aggregate PlanningPlanning


Figure 13.2

Aggregate PlanningAggregate PlanningAggregate PlanningAggregate Planning

Combines appropriate resources into general termsinto general terms

Part of a larger production planning tsystem

Disaggregation breaks the plan Disaggregation breaks the plan down into greater detail

Di ti lt i t Disaggregation results in a master production schedule


Aggregate Planning Aggregate Planning gg g ggg g gStrategiesStrategies

1. Use inventories to absorb changes in demand

2. Accommodate changes by varying workforce size

3. Use part-timers, overtime, or idle time to absorb changesabso b c a ges

4. Use subcontractors and maintain a stable workforcestable workforce

5. Change prices or other factors to influence demand


influence demand

Capacity OptionsCapacity OptionsCapacity OptionsCapacity Options Changing inventory levels Changing inventory levels

Increase inventory in low demand i d t t hi h d d iperiods to meet high demand in

the future Increases costs associated with

storage, insurance, handling, b l d it lobsolescence, and capital

investment Shortages may mean lost sales

due to long lead times and poor t i


customer service

Capacity OptionsCapacity OptionsCapacity OptionsCapacity Options Varying workforce size by hiring

or layoffs Match production rate to demand T i i d ti t f Training and separation costs for

hiring and laying off workers New workers may have lower

productivity Laying off workers may lower

morale and productivity


Capacity OptionsCapacity OptionsCapacity OptionsCapacity Options Varying production rate through

overtime or idle time Allows constant workforce M b diffi lt t t l May be difficult to meet large

increases in demand Overtime can be costly and may

drive down productivity Absorbing idle time may be

difficult


Capacity OptionsCapacity OptionsCapacity OptionsCapacity Options Subcontracting

Temporary measure during Temporary measure during periods of peak demand

May be costly May be costly Assuring quality and timely

d li b diffi ltdelivery may be difficult Exposes your customers to a

possible competitor


Capacity OptionsCapacity OptionsCapacity OptionsCapacity Options Using part-time workers

Useful for filling unskilled or low Useful for filling unskilled or low skilled positions, especially in services


Demand OptionsDemand OptionsDemand OptionsDemand Options Influencing demand Influencing demand

Use advertising or promotion t i d d i lto increase demand in low periods

Attempt to shift demand to slow periodsperiods

May not be sufficient to balance demand and capacity


and capacity

Demand OptionsDemand OptionsDemand OptionsDemand Options Back ordering during high-

demand periods Requires customers to wait for an

order without loss of goodwill ororder without loss of goodwill or the order

Most effective when there are few Most effective when there are few if any substitutes for the product or serviceor service

Often results in lost sales


Demand OptionsDemand OptionsDemand OptionsDemand Options Counterseasonal product and

service mixing Develop a product mix of

counterseasonal itemscounterseasonal items May lead to products or services

outside the company’s areas ofoutside the company s areas of expertise


Aggregate Planning OptionsAggregate Planning OptionsAggregate Planning OptionsAggregate Planning OptionsOption Advantages Disadvantages Some Comments

Changing inventory

Changes in human

Inventory holding cost

Applies mainly to production notinventory

levelshuman resources are gradual or none; no abrupt

holding cost may increase. Shortages may result in lost

production, not service, operations.

production changes.

sales.

Varying Avoids the costs Hiring layoff Used where sizeVarying workforce size by hiring or

Avoids the costs of other alternatives.

Hiring, layoff, and training costs may be significant.

Used where size of labor pool is large.

layoffs

13 - 25© 2011 Pearson Education, Inc. publishing as Prentice HallTable 13.1


Varying production

Matches seasonal

Overtime premiums; tired

Allows flexibility within theproduction

rates through overtime or

seasonal fluctuations without hiring/ training costs.

premiums; tired workers; may not meet demand.

within the aggregate plan.

idle timeg

Sub-contracting

Permits flexibility and

Loss of quality control;

Applies mainly in productioncontracting flexibility and

smoothing of the firm’s output.

control; reduced profits; loss of future business.

production settings.

p



Using part-time

Is less costly and more

High turnover/ training costs;

Good for unskilled jobs intime

workersand more flexible than full-time workers.

training costs; quality suffers; scheduling difficult.

unskilled jobs in areas with large temporary labor pools.

Influencing demand

Tries to use excess

it

Uncertainty in demand. Hard t t h

Creates marketing idcapacity.

Discounts draw new customers.

to match demand to supply exactly.

ideas. Overbooking used in some businesses.businesses.



Back ordering

May avoid overtime

Customer must be willing to

Many companies back orderordering

during high-demand

overtime. Keeps capacity constant.

be willing to wait, but goodwill is lost.

back order.

periods

Counter-seasonal

Fully utilizes resources;

May require skills or

Risky finding products orseasonal

product and service mixing

resources; allows stable workforce.

skills or equipment outside the firm’s areas of

products or services with opposite demand g

expertise. patterns.


Methods for AggregateMethods for AggregateMethods for Aggregate Methods for Aggregate PlanningPlanning

A mixed strategy may be the best A mixed strategy may be the best way to achieve minimum costs

Th ibl i d There are many possible mixed strategies

Finding the optimal plan is not always possiblealways possible


Mixing Options toMixing Options toMixing Options to Mixing Options to Develop a PlanDevelop a Plan

Chase strategy Match output rates to demand

forecast for each periodo ecast o eac pe od Vary workforce levels or vary

production rateproduction rate Favored by many service

organizationsorganizations


Mixing Options toMixing Options toMixing Options to Mixing Options to Develop a PlanDevelop a Plan

Level strategy Daily production is uniform Use inventory or idle time as buffer Use inventory or idle time as buffer Stable production leads to better

q alit and prod cti itquality and productivity Some combination of capacity p y

options, a mixed strategy, might be the best solution


Graphical MethodsGraphical Methods

Popular techniquesp q Easy to understand and use Trial-and-error approaches that do

not guarantee an optimal solutiong p Require only limited computations


Graphical MethodsGraphical Methods1. Determine the demand for each period2. Determine the capacity for regular time, ete e t e capac ty o egu a t e,

overtime, and subcontracting each period3 Find labor costs hiring and layoff costs3. Find labor costs, hiring and layoff costs,

and inventory holding costs4 Consider company policy on workers and4. Consider company policy on workers and

stock levels5 D l lt ti l d i5. Develop alternative plans and examine

their total costs


Roofing Supplier ExampleRoofing Supplier Example 11Roofing Supplier Example Roofing Supplier Example 11P d ti D d P D

Month Expected DemandProduction

DaysDemand Per Day

(computed)Jan 900 22 41Feb 700 18 39Mar 800 21 38Apr 1,200 21 57p ,May 1,500 22 68June 1,100 20 55

6 200 124

Table 13.2

6,200 124

Average Total expected demand

= = 50 nits per da6,200

Average requirement =

pNumber of production days


= = 50 units per day124

Roofing Supplier ExampleRoofing Supplier Example 11Roofing Supplier Example Roofing Supplier Example 11Forecast demand

70 –

king

day

Level production using average

Forecast demand

60 –

50 –e pe

r wor monthly forecast demand

40 –

30ctio

n ra

te

30 –

Prod

u

0 –Jan Feb Mar Apr May June = Month

22 18 21 21 22 20 = Number of


Figure 13.3 working days

Roofing Supplier ExampleRoofing Supplier Example 22Roofing Supplier Example Roofing Supplier Example 22Cost InformationInventory carrying cost $ 5 per unit per monthSubcontracting cost per unit $20 per unitSubcontracting cost per unit $20 per unit

Average pay rate $10 per hour ($80 per day)

Overtime pay rate $17 per hour Overtime pay rate p(above 8 hours per day)

Labor-hours to produce a unit 1.6 hours per unit

Cost of increasing daily production rate $300 per unitCost of increasing daily production rate (hiring and training)

$300 per unit

Cost of decreasing daily production rate (layoffs)

$600 per unit

Table 13.3

(layoffs)


Roofing Supplier ExampleRoofing Supplier Example 22Roofing Supplier Example Roofing Supplier Example 22Production Monthly

Cost InformationInventory carrying cost $ 5 per unit per monthSubcontracting cost per unit $20 per unit

MonthProduction

Daysat 50 Units

per DayDemand Forecast

yInventory Change

Ending Inventory

Jan 22 1,100 900 +200 200Subcontracting cost per unit $20 per unit


Overtime pay rate $17 per hour

Jan 22 1,100 900 200 200Feb 18 900 700 +200 400Mar 21 1,050 800 +250 650

Overtime pay rate p(above 8 hours per day)


Cost of increasing daily production rate $300 per unit

Apr 21 1,050 1,200 -150 500May 22 1,100 1,500 -400 100J 20 1 000 1 100 100 0Cost of increasing daily production rate (hiring and training)

$300 per unit


$600 per unit

June 20 1,000 1,100 -100 01,850

Table 13.3

(layoffs)Total units of inventory carried over from one

month to the next = 1,850 unitsWorkforce required to produce 50 units per day = 10 workers


Workforce required to produce 50 units per day = 10 workers

Roofing Supplier Example 2Roofing Supplier Example 2Roofing Supplier Example 2Roofing Supplier Example 2Production Monthly

Cost InformationInventory carrying cost $ 5 per unit per monthSubcontracting cost per unit $20 per unit

MonthProduction

Daysat 50 Units

per DayDemand Forecast

yInventory Change

Ending Inventory

Jan 22 1,100 900 +200 200

Costs CalculationsInventory carrying $9,250 (= 1,850 units carried x $5

per unit)Subcontracting cost per unit $20 per unit


Overtime pay rate $17 per hour

Jan 22 1,100 900 200 200Feb 18 900 700 +200 400Mar 21 1,050 800 +250 650

p )Regular-time labor 99,200 (= 10 workers x $80 per

day x 124 days)Overtime pay rate p

(above 8 hours per day)Labor-hours to produce a unit 1.6 hours per unit


Apr 21 1,050 1,200 -150 500May 22 1,100 1,500 -400 100J 20 1 000 1 100 100 0

Other costs (overtime, hiring, layoffs, subcontracting) 0Cost of increasing daily production rate (hiring and training)

$300 per unit


$600 per unit

June 20 1,000 1,100 -100 01,850

g)Total cost $108,450

Table 13.3

(layoffs)Total units of inventory carried over from one

month to the next = 1,850 unitsWorkforce required to produce 50 units per day = 10 workers


Workforce required to produce 50 units per day = 10 workers

Roofing Supplier Example 2Roofing Supplier Example 2Roofing Supplier Example 2Roofing Supplier Example 27,000 –

nits

6,000 – Reduction of inventory

eman

d un 5,000 –

4,000 –

Cumulative level production using average monthly

forecast

6,200 units

ulat

ive

de

3,000 –

forecast requirements

Cum

u

2,000 –

1,000 –

Cumulative forecast requirements

E cess in entor

–Jan Feb Mar Apr May June

Excess inventory


Figure 13.4

Roofing Supplier ExampleRoofing Supplier Example 33Roofing Supplier Example Roofing Supplier Example 33P d ti D d P D


DaysDemand Per Day


6 200 124

Table 13.2

6,200 124

Minimum requirement = 38 units per day


q p y

Roofing Supplier ExampleRoofing Supplier Example 33Roofing Supplier Example Roofing Supplier Example 33Forecast demand

70 –

rkin

g da

y

L l d ti

Forecast demand

60 –

50 –e pe

r wor Level production

using lowest monthly forecast

demand

40 –

30ctio

n ra

te

30 –

Prod

u


22 18 21 21 22 20 = Number of


working days






$300 per unit


$600 per unit

Table 13.3

(layoffs)


Roofing Supplier ExampleRoofing Supplier Example 33Roofing Supplier Example Roofing Supplier Example 33Cost InformationInventory carry cost $ 5 per unit per monthSubcontracting cost per unit $10 per unitIn-house production = 38 units per day Subcontracting cost per unit $10 per unit

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

Overtime pay rate $ 7 per hour

p p yx 124 days

= 4,712 unitsOvertime pay rate p(above 8 hours per day)



,

Subcontract units = 6,200 - 4,7121 488 itCost of increasing daily production rate

(hiring and training)$300 per unit


$600 per unit

= 1,488 units

Table 13.3

(layoffs)


Roofing Supplier Example 3Roofing Supplier Example 3Roofing Supplier Example 3Roofing Supplier Example 3Cost InformationInventory carry cost $ 5 per unit per monthSubcontracting cost per unit $10 per unitIn-house production = 38 units per day Subcontracting cost per unit $10 per unit

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

Overtime pay rate $ 7 per hour

p p yx 124 days

= 4,712 unitsOvertime pay rate p(above 8 hours per day)



,

Subcontract units = 6,200 - 4,7121 488 it

Costs CalculationsRegular time labor $75 392 (= 7 6 workers x $80 perCost of increasing daily production rate

(hiring and training)$300 per unit


$600 per unit

= 1,488 unitsRegular-time labor $75,392 (= 7.6 workers x $80 per day x 124 days)

Subcontracting 29,760 (= 1,488 units x $20 per

Table 13.3

(layoffs) unit)

Total cost $105,152


Roofing Supplier Example 4Roofing Supplier Example 4Roofing Supplier Example 4Roofing Supplier Example 4P d ti D d P D


DaysDemand Per Day


6 200 124

Table 13.2

6,200 124

Production = Expected Demand


Roofing Supplier ExampleRoofing Supplier Example 44Roofing Supplier Example Roofing Supplier Example 44

70 –

rkin

g da

y Forecast demand and monthly production

60 –

50 –e pe

r wor

40 –

30uctio

n ra

te

30 –

Prod

u


22 18 21 21 22 20 = Number of


working days






$300 per unit


$600 per unit

Table 13.3

(layoffs)


Roofing Supplier Example 4Roofing Supplier Example 4Roofing Supplier Example 4Roofing Supplier Example 4BasicBasicCost InformationCost Information

Inventory carrying costInventory carrying cost $ 5 per unit per month$ 5 per unit per monthSubcontracting cost per unitSubcontracting cost per unit $10 per unit$10 per unitForecast Forecast

Daily Daily Prod Prod

Basic Basic Production Production

Cost Cost (demand x (demand x

1.6 hrs/unit x 1.6 hrs/unit x

Extra Cost of Extra Cost of Increasing Increasing Production Production

Extra Cost of Extra Cost of Decreasing Decreasing Production Production Subcontracting cost per unitSubcontracting cost per unit $10 per unit$10 per unit

Average pay rateAverage pay rate $ 5 per hour ($40 per day)$ 5 per hour ($40 per day)

Overtime pay rateOvertime pay rate $ 7 per hour $ 7 per hour

MonthMonth (units)(units) RateRate $10/hr)$10/hr) (hiring cost)(hiring cost) (layoff cost)(layoff cost) Total CostTotal Cost

JanJan 900900 4141 $ 14,400$ 14,400 —— —— $ 14,400$ 14,400

FebFeb 700700 3939 11 20011 200 —— $1,200 $1,200 ( 2 $600)( 2 $600) 12 40012 400Overtime pay rateOvertime pay rate pp

(above 8 hours per day)(above 8 hours per day)LaborLabor--hours to produce a unithours to produce a unit 1.6 hours per unit1.6 hours per unit

Cost of increasing daily production rateCost of increasing daily production rate $300 per unit$300 per unit

FebFeb 700700 3939 11,20011,200 (= 2 x $600)(= 2 x $600) 12,40012,400

MarMar 800800 3838 12,80012,800 —— $600 $600 (= 1 x $600)(= 1 x $600) 13,40013,400

$5 700$5 700Cost of increasing daily production rate Cost of increasing daily production rate (hiring and training)(hiring and training)

$300 per unit$300 per unit

Cost of decreasing daily production rate Cost of decreasing daily production rate (layoffs)(layoffs)

$600 per unit$600 per unit

AprApr 1,2001,200 5757 19,20019,200 $5,700 $5,700 (= 19 x $300)(= 19 x $300) —— 24,90024,900

MayMay 1,5001,500 6868 24,00024,000 $3,300 $3,300 (= 11 x $300)(= 11 x $300) —— 24,30024,300

Table Table 1313..33

(layoffs)(layoffs)JuneJune 1,1001,100 5555 17,60017,600 —— $7,800 $7,800

(= 13 x $600)(= 13 x $600) 25,40025,400

$99,200$99,200 $9,000$9,000 $9,600$9,600 $117,800$117,800


Table Table 1313..44

Comparison of Three PlansComparison of Three PlansComparison of Three PlansComparison of Three Plans

Cost Plan 1 Plan 2 Plan 3

I t i $ 9 250 $ 0 $ 0Inventory carrying $ 9,250 $ 0 $ 0

Regular labor 99,200 75,392 99,200Overtime labor 0 0 0Hiring 0 0 9,000Layoffs 0 0 9,600Subcontracting 0 29,760 0Total cost $108,450 $105,152 $117,800

Pl 2 i th l t t ti13 - 49© 2011 Pearson Education, Inc. publishing as Prentice Hall

Table 13.5Plan 2 is the lowest cost option

Mathematical ApproachesMathematical ApproachesMathematical ApproachesMathematical Approaches Useful for generating strategies Useful for generating strategies

Transportation Method of Linear P iProgramming Produces an optimal plan

Management Coefficients Model Model built around manager’s Model built around manager s

experience and performance Other Models Other Models

Linear Decision Rule Simulation


Simulation

Transportation MethodTransportation MethodTransportation MethodTransportation MethodSales Period

Mar Apr MayMar Apr MayDemand 800 1,000 750Capacity:Capacity:Regular 700 700 700Overtime 50 50 50Subcontracting 150 150 130

Beginning inventory 100 tires

CostsRegular time $40 per tire

$Overtime $50 per tireSubcontracting $70 per tireCarrying $ 2 per tire per month


Table 13.6Carrying $ 2 per tire per month

Transportation ExampleTransportation ExampleTransportation ExampleTransportation ExampleImportant pointsImportant points1. Carrying costs are $2/tire/month. If

d d i i d d h ldgoods are made in one period and held over to the next, holding costs are incurredincurred

2. Supply must equal demand, so a dummy l ll d “ d it ” icolumn called “unused capacity” is

added3. Because back ordering is not viable in

this example, cells that might be used to satisfy earlier demand are not available


satisfy earlier demand are not available

Transportation ExampleTransportation ExampleTransportation ExampleTransportation ExampleImportant pointsImportant points4. Quantities in each column designate

th l l f i t d d t tthe levels of inventory needed to meet demand requirements

5. In general, production should be allocated to the lowest cost cell

il bl ith t di davailable without exceeding unused capacity in the row or demand in the columncolumn


Example: A tire company developed data that relate toA tire company developed data that relate to production, demand, capacity and costs at its plan shown below

S l P i dS l P i dSales PeriodSales PeriodMarMar AprApr MayMay

DemandDemand 800800 11 000000 750750DemandDemand 800800 11,,000000 750750Capacity:Capacity:RegularRegular 700700 700700 700700ggOvertimeOvertime 5050 5050 5050SubcontractingSubcontracting 150150 150150 130130

B i i i tB i i i t 100100 titiBeginning inventoryBeginning inventory 100100 tires tires

CostsCostsRegular timeRegular time $$4040 per tireper tireOvertimeOvertime $$5050 per tireper tireSubcontractingSubcontracting $$7070 per tireper tire

13 - 54

SubcontractingSubcontracting $$7070 per tireper tireCarryingCarrying $ $ 22 per tireper tire

ประเภทการผลติ 1 2 3 … กาํลงัการผลติที่ กาํลงัการผลติไมไ่ดใ้ช้

ระดบัคลงัสนิคา้ตน้งวด 0 h 2h … I0+h +2h

1

ผลติปกติ r r+h r+2h … R1ผลติลว่งเวลา t t+h t+2h … O1การจา้งเหมา s s+h s+2h … S1ผลติปกติ r+b r r+h … R2

2 ผลติลว่งเวลา t+b t t+h … O2การจา้งเหมา s+b s s+h … S2

3

ผลติปกติ r+2b r+b r … R3ผลติลว่งเวลา t+2b t+b t … O33การจา้งเหมา s+2b s+b s … S3

ความตอ้งการสนิคา้ … รวม

13 - 55

Demand Supply From Period 1 Period 2 Period 3 Unused Capacity

Total Capacity Available (Supply)(Supply)

Beginning Inventory

Regular time g

Overtime

Perio

d 1

P Subcontract

Regular time

Overtime

Perio

d 2

SubcontractSubcontract

Regular time

St 1Overtime

Perio

d 3

Subcontract

Step 1:Fill in Demand for each period

13 - 56Total Demand 800 1,000 750


Total Capacity Available (Supply) (Supp y)

Beginning Inventory 100

Regular time 700700

Overtime 50

Perio

d 1

S b t tP Subcontract 150

Regular time 700

Step 2:Fill in CapacityFor each period

Overtime 50

Perio

d 2

Subcontract 150

p/type

150

Regular time 700

3

Overtime 50

Perio

d 3

Subcontract 130

13 - 57

Total Demand 800 1,000 750 2,780


Total Capacity Available (Supply) ( pp y)


2 4 100

Regular time 700 d 1 Step 3:

Overtime 50 Perio

d

Subcontract 150

Step 3:Fill in inventory cost for each cell

Always start with 0Then cumulative add with inventory costSubcontract 150

Regular time 700

riod

2

y

Overtime 50 Per

Subcontract 150

Regular time 700

Overtime 50Perio

d 3

Overtime 50 P

Subcontract 130

T l D d

13 - 58

Total Demand 800 1,000 750 2,780


Total Capacity Available (Supply)


2 4 100

Regular time 40 42 44 700

Overtime 50 52 54 50

Perio

d 1

Subcontract 70 72 74 150

Regular time 700

Overtime 50d 2

Step 4:Fill in production cost

for each cell 50

Perio

d

Subcontract 150

R l ti

for each cellThen cumulative add with

inventory costRegular time 700

Overtime 50

Perio

d 3

P

Subcontract 130

Total Demand 800 1,000 750 2,780

13 - 59




2 4 100

Regular time 40 42 44 700

Overtime 50 52 54 50

Perio

d 1


Regular time 40 42 700

Overtime 50 52 50d 2

Step 5:Fill in production cost

for each cell 50 52 50

Perio

d

Subcontract 70 72 150

R l ti


inventory costRegular time 700

Overtime 50

Perio

d 3

P

Subcontract 130

Total Demand 800 1,000 750 2,780

13 - 60




2 4 100

Regular time 40 42 44 700d 1

Overtime 50 52 54 50Perio



Overtime 50 52 50erio

d 2 Step 5:

Fill in production cost for each cellOvertime 50 52 50Pe



inventory cost

Regular time 40 700

Overtime 50 50Perio

d 3

Subcontract 70 130

Total Demand 800 1,000 750 2,780

13 - 61

800 1,000 750 2,780



Beginning Inventory 0 2 4 100g g y

100

Regular time 40

42 44 700

O ti 50 52 54erio

d 1

Overtime 50 52 54 50 Pe

Subcontract 70 72 74 150 Step 6:


Overtime 50 52 50 Perio

d 2 Step 6:

Start calculation

Period 1:Subcontract 70 72 150

Regular time 40 7003

Period 1:Demand 800

Lowest Cost is $0 700

Overtime 50 50 Perio

d

Subcontract 70 130

Lowest Cost is $0Check for available: 100

Fill in 100Subcontract 70 130

Total Demand 800 1,000 750 2,780

13 - 62



Beginning Inventory 0 2 4 100g g y 0100

100

Regular time 40

42 44 700

O ti 50 52 54erio

d 1



Start calculation



d 2

Period 1:Demand 800



Lowest Cost is $0Check for available: 100

Fill in 100g 700


d

S b t t 70 130

Fill in 100

Need 700 moreCheck for lowest cost: $40

Subcontract 70 130

Total Demand 800 1,000 750 2,780

$Check for available 700

Fill in 700

13 - 63




100 0 100

Regular time 40

42 44 700

O ti 50 52 54 50erio

d 1





d 2 Start calculation

Period 1:



Demand 800

N d 700700


d

Subcontract 70 130


Check for available 700Fill i 700Subcontract 70 130

Total Demand 800 1,000 750 2,780

Fill in 700

13 - 64




100 0 100

Regular time 40 700

42 44 700

O ti 50 52 54 0erio

d 1





d 2 Start calculation

Period 1:



Demand 800

N d 700 700


d

Subcontract 70 130


Check for available 700Fill i 700Subcontract 70 130

Total Demand 800 1,000 750 2,780

Fill in 700

13 - 65



Beginning Inventory 0 100

2 4 0

100

Regular time 40 700

42 44 0

700od

1

700 0 700 Overtime 50 52

54

50

Perio


Regular time 40

42

700

Overtime 50 52Perio

d 2

Overtime 50

52 50

P

Subcontract 70

72 150

Step 7:

Period 2:Regular time 40

700 Overtime 50

50

Perio

d 3

Period 2:Demand 1,000

Compare Cost50

Subcontract 70 130

Total Demand 800 1,000 750 2,780

pLowest Cost is $40

Check for available: 700Fill in 700

13 - 66

800 1,000 750 2,780

Meet Demand?No (need 300 more)




2 4 0 100

Regular time 40 700

42 44 0 700od

1

700 0 700Overtime 50 52

54

50

Perio


150Regular time 40

700 42

0 700O ti 50 52

erio

d 2

Overtime 50

52

50

P

Subcontract 70 72

150

Step 7:

Period 2: 150Regular time 40

700Overtime 50 Pe

riod

3

Period 2:Demand 1,000

Compare Cost50

Subcontract 70

130Total Demand 800 1 000 750 2 780

pLowest Cost is $40


13 - 67

Total Demand 800 1,000 750 2,780





2 4 0

100

Regular time 40 700

42 44 0

700od

1

700 0 700 Overtime 50 52

54

50

Peri


Regular time 40 700

42 0

700

Overtime 50 52Perio

d 2

Overtime 50

52 50

P

Subcontract 70

72 150 Step 7:Regular time 40 700

Overtime 50 50

Perio

d 3 Step 7:

Next lowest cost is $50Check for available: 50 50

Subcontract 70 130

Total Demand 800 1,000 750 2,780


Meet Demand?

13 - 68

, ,





2 4 0 100

Regular time 40 700

42 44 0 700od

1

700 0 700Overtime 50 52

54

50

Perio


150Regular time 40

700 42

0 700Overtime 50 52Pe

riod

2

Overtime 50 50

52

50

P

Subcontract 70

72

150Step 7:Regular time 40

700Overtime 50

50

Perio

d 3 Step 7:

Next lowest cost is $50Check for available: 50 50

Subcontract 70

130Total Demand 800 1,000 750 2,780


Meet Demand?

13 - 69

800 1,000 750 2,780





2 4 0

100

Regular time 40 700

42 44 0

700od

1

700 0 700 Overtime 50 52

54

50

Perio


Regular time 40 700

42 0

700

O ti 50 52Perio

d 2

Overtime 50 50

52 0

50

P


Regular time 40 700

Overtime 50 Perio

d 3 Step 7:

Next lowest cost is $5250

Subcontract 70 130

Total Demand 800 1 000 750 2 780


13 - 70

Total Demand 800 1,000 750 2,780

Meet Demand?

No (need 200 more)




2 4 0 100

Regular time 40 700

42 44 0 700od

1

700 0 700Overtime 50 52

50 54

0 50

Perio


150Regular time 40

700 42

0 700O ti 50 52Pe

riod

2

Overtime 50 50

52 0 50

P

Subcontract 70 72

150 150Regular time 40

700Overtime 50 Pe

riod

3 Step 7:

Next lowest cost is $5250

Subcontract 70

130Total Demand 800 1 000 750 2 780


13 - 71

Total Demand 800 1,000 750 2,780

Meet Demand?

No (need 200 more)




2 4 0

100

Regular time 40 700

42 44 0

700od

1

700 0 700 Overtime 50 52

50 54

0

50

Peri


Regular time 40 700

42 0

700

Overtime 50 52Perio

d 2

Overtime 50 50

52 0

50

P

Subcontract 70 150

72 0

150

Regular time 40 700

Overtime 50 50

Perio

d 3

Step 7:N t l t t i $70 50

Subcontract 70 130

Total Demand 800 1,000 750 2,780

Next lowest cost is $70Check for available: 150

Fill in 150Meet Demand?

13 - 72

, ,

Meet Demand?

No (need 50 more)




2 4 0

100

Regular time 40 700

42 44 0

700io

d 1

700 0 700 Overtime 50 52

50 54

0

50

Peri


74 50 100 150

Regular time 40 700

42 0

700

Overtime 50 52Perio

d 2

Overtime 50 50

52 0

50

Subcontract 70 150

72 0

150

Regular time 40

700

Overtime 50 50

Perio

d 3

Step 7:Next lowest cost is $72 50

Subcontract 70 130

Total Demand 800 1,000 750 2,780

$Check for available: 50

Fill in 50Meet Demand?

13 - 73

Yes




2 4 0

100

Regular time 40 700

42 44 0

700io

d 1

700 0 700 Overtime 50 52

50 54

0

50

Peri


74 50 100 150

Regular time 40 700

42 0

700

Overtime 50 52Perio

d 2

Overtime 50 50

52 0

50

Subcontract 70 150

72 0

150

Regular time 40

700

Overtime 50 50

Perio

d 3

Step 8:Demand 750 50

Subcontract 70 130

Total Demand 800 1,000 750 2,780

Demand = 750Lowest cost = $40

Fill in 700Need 50 more

13 - 74

Need 50 more




2 4 0

100

Regular time 40 700

42 44 0

700rio

d 1

0 700 Overtime 50 52

50 54

0

50

Per


74 100

15050 100 150

Regular time 40 700

42 0

700


d 2

50 0 50 Subcontract 70

150 72

0

150 Regular time 403 g 40

700

0

700 Overtime 50

50

Perio

d

Subcontract 70Step 8:

Demand 750Subcontract 70 130

Total Demand 800 1,000 750 2,780

Demand = 750Lowest cost = $40

Fill in 700Need 50 more

13 - 75

Need 50 more



B i i I t 0 2 4Beginning Inventory 0 100

2 4 0

100

Regular time 40 700

42 44 0

700

erio

d 1

Overtime 50 52 50

54 0

50

Pe


74 100

150100 150

Regular time 40 700

42 0

700

Overtime 50 50

52 0

50

Perio

d 2

50 0 50 Subcontract 70

150 72

0

150 Regular time 40

700

0

700od 3

700 0 700

Overtime 50 50

0

50

Perio

Subcontract 70 130

Step 8:130 130

Total Demand 800 1,000 750 2,780

p

Lowest cost = $50Fill in 50

13 - 76




2 4 0 100

Regular time 40 700

42 44 0 700rio

d 1

700 0 700Overtime 50 52

50 54

0 50

Per


74 100 15050 100 150

Regular time 40 700

42 0 700


d 2

50 0 50Subcontract 70

150 72

0 150Regular time 403

Total Cost = ($0x100) + ($40x700) +

Regular time 40 700

0 700

Overtime 50 50

0 50

Perio

d 3( ) ( )

($52x50) + ($72x50) +($40x700) + ($50x50) +($70x150) +($40x700) +


Total Demand 800 1,000 750 230 2,780

($50x50)

= $105,700

13 - 77

Transportation Transportation ExampleExampleExampleExample


Table 13.7

Management CoefficientsManagement CoefficientsManagement Coefficients Management Coefficients ModelModel

Builds a model based on manager’s Builds a model based on manager s experience and performance

A i d l i t t d A regression model is constructed to define the relationships between decision variables

Objective is to remove Objective is to remove inconsistencies in decision making


Other ModelsOther ModelsOther ModelsOther Models

Linear Decision Rule

Mi i i t i d ti t Minimizes costs using quadratic cost curves Operates over a particular time period

Simulation

Uses a search procedure to try different combinations of variables

D l f ibl b t t il ti l Develops feasible but not necessarily optimal solutions


Summary of AggregateSummary of AggregateSummary of Aggregate Summary of Aggregate Planning MethodsPlanning Methods

TechniquesSolution

Approaches Important Aspectsq pp p pGraphical

methodsTrial and

errorSimple to understand and

easy to use. Many solutions; one chosensolutions; one chosen may not be optimal.

Transportation Optimization LP software available; pmethod of linear programming

p ;permits sensitivity analysis and new constraints; linear functions may not be realistic.


Summary of AggregateSummary of AggregateSummary of Aggregate Summary of Aggregate Planning MethodsPlanning Methods

TechniquesSolution

Approaches Important Aspectsq pp p pManagement

coefficients model

Heuristic Simple, easy to implement; tries to mimic manager’s decision process; usesmodel decision process; uses regression.

Simulation Change Complex; may be difficult gparameters

p ; yto build and for managers to understand.


Aggregate Planning inAggregate Planning inAggregate Planning in Aggregate Planning in ServicesServices

Controlling the cost of labor is critical1. Accurate scheduling of labor-hours

to assure quick response to customer d ddemand

2. An on-call labor resource to cover unexpected demand

3. Flexibility of individual worker skills3 e b ty o d dua o e s s4. Flexibility in rate of output or hours of

work13 - 83© 2011 Pearson Education, Inc. publishing as Prentice Hall

work

Five Service ScenariosFive Service Scenarios

Restaurants Smoothing the production

processp Determining the optimal

workforce sizeworkforce size Hospitals

Responding to patient demand


Five Service ScenariosFive Service Scenarios National Chains of Small Service

FirmsFirms Planning done at national level

and at local level Miscellaneous Services Miscellaneous Services

Plan human resource requirementsrequirements

Manage demand


Law Firm ExampleLaw Firm ExampleLabor-Hours Required Capacity Constraints

(2) (3) (4) (5) (6)(1) Forecasts Maximum Number of(1) Forecasts Maximum Number of

Category of Best Likely Worst Demand in QualifiedLegal Business (hours) (hours) (hours) People PersonnelTrial work 1 800 1 500 1 200 3 6 4Trial work 1,800 1,500 1,200 3.6 4Legal research 4,500 4,000 3,500 9.0 32Corporate law 8,000 7,000 6,500 16.0 15Real estate law 1 700 1 500 1 300 3 4 6Real estate law 1,700 1,500 1,300 3.4 6Criminal law 3,500 3,000 2,500 7.0 12Total hours 19,500 17,000 15,000Lawyers needed 39 34 30

Table 13 9

Lawyers needed 39 34 30


Table 13.9

Five Service ScenariosFive Service Scenarios Airline industry

E t l l l i Extremely complex planning problem

Involves number of flights, number of passengers, air and gro nd personnel allocation ofground personnel, allocation of seats to fare classes

Resources spread through the entire system


Yield ManagementYield ManagementYield ManagementYield ManagementAllocating resources to customers at gprices that will maximize yield or revenue

1. Service or product can be sold in advance of consumptionadvance of consumption

2. Demand fluctuates3. Capacity is relatively fixed4. Demand can be segmented4. Demand can be segmented5. Variable costs are low and fixed costs

are high13 - 88© 2011 Pearson Education, Inc. publishing as Prentice Hall

are high

Yield Management ExampleYield Management ExampleDemand

Curve

Yield Management ExampleYield Management ExampleRoom sales

CurvePotential customers exist who are willing to pay more than the $15 variable cost of the room,

100

Passed-up

$15 variable cost of the room, but not $150

Some customers who paidpcontribution

Some customers who paid $150 were actually willing to pay more for the roomTotal

$ contribution(P i ) (50

50

Money left

= (Price) x (50rooms)

= ($150 - $15)x (50) Money left

on the tablex (50)

= $6,750

Price$150$15

13 - 89© 2011 Pearson Education, Inc. publishing as Prentice HallFigure 13.5

$Price charged

for room

$Variable cost

of room

Yield Management ExampleYield Management ExampleDemand

Curve

Yield Management ExampleYield Management ExampleRoom sales

Total $ contribution =(1st price) x 30 rooms + (2nd price) x 30 rooms =

($100 - $15) x 30 + ($200 - $15) x 30 =$2 550 + $5 550 = $8 100

Curve

100$2,550 + $5,550 = $8,100

6060

30

Price$100 $200$15


$Price 1

for room

$Price 2

for room

$Variable cost

of room

Yield Management MatrixYield Management MatrixYield Management MatrixYield Management MatrixPricePrice

Tend to be fixed Tend to be variable

Quadrant 1: Quadrant 2:

e nd to

be

dict

able


Movies HotelsStadiums/arenas Airlines

C ti t R t l

on o

f use

Ten

pred Convention centers Rental carsHotel meeting space Cruise lines

Dur

atio

d to

be

erta

in


Restaurants Continuing careGolf courses hospitals

Tend

Unc

e Golf courses hospitalsInternet service

providers


Making Yield ManagementMaking Yield ManagementMaking Yield Management Making Yield Management WorkWork

1 Multiple pricing structures must1. Multiple pricing structures must be feasible and appear logical to the customerthe customer

2. Forecasts of the use and duration of use

3 Changes in demand3. Changes in demand


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