MBA782.Aggr.PlngCAJ9.12.1 Aggregation Relationship to Other Plans Reactive vs. Aggressive Alternatives Aggregate Planning Strategies Planning with Spreadsheets

MBA782.Aggr.Plng CAJ9.12.1

• Aggregation

• Relationship to Other Plans

• Reactive vs. Aggressive Alternatives

• Aggregate Planning Strategies

• Planning with Spreadsheets

• Planning with Mathematical Models

Operations Management

Aggregate Planning


Aggregate Plan is....– statement of ____________ rates,

_____________ levels, and _______________ holdings based on customer demands and capacity limitations

Goal: Specify the ____________ combination of– production rate– workforce level– inventory on hand

that _____________ all relevant costs.

Aggregate Planning Overview

Problem Context


• Translation of annual business plans into ______ labor

and output plans for the ________________ term

• Generalize the problem

– too ____ to solve for each individual product

• Aggregate quantities into broad categories or product

groups

• Intermediate Range


Aggregation


• Long-range planning

– Greater than _____ year planning horizon

• Intermediate-range planning

– ____ to _______ months

• Short-range planning

– One day to less than ____ months


Planning Horizons


• Brings operations, finance, and marketing __________

• Manufacturing....

– business plan

> a ______________ of income, costs, and profits

– _________________ plan

> sets production rates, inventory levels, and work-

force levels for a product family

– ____________ production schedule

> specifies _________ and productions __________

Aggregate Planning

Relationship to Other Plans



Relationship to Other Plans

CapacityRequirementsPlan (CRP)

MasterProduction

Schedule (MPS)

ProductionPlan

Material RequirementsPlan (MRP)

Work-forceSchedule)

StaffingPlan

BusinessPlan

Manufacturing Service

AggregatePlans


• Should inventories be used to absorb changes in demand?

• Should the ______ of the workforce vary?

• Should part-time, overtime, and/or undertime be used?

• Should sub-contractors be used to maintain a stable

workforce?

• Should price or other factors be changed to influence

demand?

Aggregate Production Planning

Production Planning Environment


• Accept demand forecast as a given, and

_______ to fluctuations in demand.

• Resources:

– changing inventory levels

– varying work force size by hiring or layoffs

– varying production capacity through overtime

or idle time

– subcontracting

– using part-time workers


Capacity Management Options


• _________ the demand pattern to achieve

efficiency and reduce costs.

• Resources:

– competitive pricing and promotion

– counter-seasonal product mixing

– backordering during high demand periods


Demand Management Options


Level Strategy

• Keep the work-force level __________– not hiring or laying off workers

• Vary _____-workforce capacity or demand options

• Advantage of level output rates and

________ work force

• Disadvantages of

– increased inventory investment, and

– increased undertime and overtime expenses


Production Planning Strategies


Level Strategy



01020304050607080

0 1 2 3 4 5 6 7 8 9 10 11 12

Period

Uni

ts

Inventory:

Sales:

Production:


• Chase Strategy

– production _________ demand

– uses _______ ___ ________ to match demand

– does not include building of anticipation inventory

– produces ___________ inventory investment.

– expense of adjusting work-force size

– potential alienation of workforce, loss of productivity,

and lower quality

– favored by service organizations because inventory is difficult

if not impossible to adopt




• Chase Strategy



01020304050607080

0 1 2 3 4 5 6 7 8 9 10 11 12

Period

Uni

ts

Inventory:

Sales:

Production:


Mixed Strategy

• Neither a pure level or pure chase strategy– work force level is not exactly level, and– does not exactly match demand on

a period-by-period basis

Fitting the Situation

• The best strategy must fit the companies– environment, and – competitive priorities




Mixed Strategy



01020304050607080

0 1 2 3 4 5 6 7 8 9 10 11 12

Period

Uni

ts

Inventory:

Sales:

Production:


Relevant costs to consider and include:

• Basic production (labor) costs– regular time and overtime

• __________ in production levels

– hiring, training, layoff

• Inventory costs ( _________ costs):

– storage, insurance, taxes,spoilage, obsolescence

• Backorder and stockout costs ( ___________ costs):

– expediting, goodwill, lost sales


Relevant Costs


• Cut-and-Try charting and graphic methods– trial & error approach

– cost out _______________ plans and

pick the _______ one– popular & easy-to-understand

• Mathematical approaches

Aggregate Planning

Aggregate Planning Techniques


• Forecast of demand for each period

• Determine the ____________ for regular time, overtime, and subcontracting, for each period

• Determine the labor ______, hiring and firing costs, and inventory holding costs

• Consider company policies which may apply to the workers or to stock levels

• Develop ______________ plans, and examine their total costs


Cut-and-Try


• Use a spreadsheet approach for– stating a strategy,– developing a plan,– identifying possible improvements, and– modify until we are satisfied.

• Components of a spreadsheet are:– input values– derived values, and – calculated costs.


Using Spreadsheets


Number of working days:

Jan 22Feb 19Mar 22Apr 21May22Jun 20

Using Spreadsheets

Aggregate Planning Example

Monthly Demand for the Executive Line

8,000

6,0007,000

9,000

5,5004,500

-

2,000

4,000

6,000

8,000

10,000

12,000

Janu

ary

Febru

ary

Mar

chApr

ilM

ayJu

ne

Dem

and

(u

nit

s/m

on

th)


Using Spreadsheets

Aggregate Planning ExampleHolding Cost: 1.00$ per unit per month

Backorder Cost: 1.25$ per unit per monthHiring Cost: 200$ per workerLayoff Cost: 250$ per worker

Regular Labor Cost: 8.00$ per hourOvertime Labor Cost: 12.00$ per hour

Undertime Labor Cost: -$ per hour

Materials: 5.00$ per unitSubcontracting Cost: 20.00$ per hour

Production Time: 0.15 hours per unitTime at regular pay: 8.00 hours per day

Productivity: 1.00 Overtime Limit: 20% of regular labor hours

Sub-contracting Limit: 10% of regular plus overtime hours


Using Spreadsheets

Level Strategy ExampleJanuary

Demand: - 8,000 Beginning inventory: -

Net requirement: - Labor hours required: -

Days per month: - Required workers: -

Workforce size: 5 Regular hours: -

Overtime hours: - Undertime hours: -

Subcontract hours: - Number to hire: - Number to fire: -

Units produced: - Ending inventory: 250


Using Spreadsheets

Level Strategy Example

January February March April May June TotalsDemand: - 8,000 6,000 7,000 9,000 5,500 4,500 40,000

Beginning inventory: - 250 (6) - - (1,608) - Net requirement: - 7,750 6,006 7,000 9,000 7,108 4,500

Labor hours required: - 1,163 901 1,050 1,350 1,066 675 Days per month: - 22 19 22 21 22 20

Required workers: - 6.605 5.927 5.966 8.036 6.058 4.219 Workforce size: 5 5 5 5 5 5 5 Regular hours: - 880 760 880 840 880 800

Overtime hours: - 176 141 170 168 176 - Undertime hours: - - - - - - -

Subcontract hours: - 106 - - 101 10 - Number to hire: - - - - - - - Number to fire: - - - - - - -

Units produced: - 7,744 6,006 7,000 7,392 7,108 5,333 40,583 Ending inventory: 250 (6) - - (1,608) - 833


Using Spreadsheets


January

Material costs: - -$ Regular labor costs: - -

Overtime labor costs: - - Undertime costs: - -

Subcontract costs: - - Hiring costs: - - Firing costs: - -

Holding costs: - - Backorder costs: - -

Totals: -$


Using Spreadsheets


January February March April May June Totals

Material costs: - -$ -$ -$ -$ -$ -$ -$ Regular labor costs: - 7,040 6,080 7,040 6,720 7,040 6,400 40,320

Overtime labor costs: - 2,112 1,691 2,040 2,016 2,112 - 9,971 Undertime costs: - - - - - - - -

Subcontract costs: - 2,112 - - 2,016 204 - 4,332 Hiring costs: - - - - - - - - Firing costs: - - - - - - - -

Holding costs: - - - - - - 833 833 Backorder costs: - 8 - - 2,010 - - 2,018

Totals: 11,272$ 7,771$ 9,080$ 12,762$ 9,356$ 7,233$ 57,474$


Using Spreadsheets

Chase Strategy ExampleJanuary

Demand: - 8,000 Beginning inventory: -

Net requirement: - Labor hours required: -

Days per month: - Required workers: -

Workforce size: 5 Regular hours: -

Overtime hours: - Undertime hours: -

Subcontract hours: - Number to hire: - Number to fire: -

Units produced: - Ending inventory: 250


Using Spreadsheets

Chase Strategy Example

January February March April May June TotalsDemand: - 8,000 6,000 7,000 9,000 5,500 4,500 40,000

Beginning inventory: - 250 90 810 530 490 590 Net requirement: - 7,750 5,910 6,190 8,470 5,010 3,910

Labor hours required: - 1,163 887 929 1,271 752 587 Days per month: - 21 21 21 21 21 21

Required workers: - 6.920 5.277 5.527 7.563 4.473 3.491 Workforce size: 5 7 6 6 8 5 4 Regular hours: - 1,176 1,008 1,008 1,344 840 672

Overtime hours: - - - - - - - Undertime hours: - - - - - - -

Subcontract hours: - - - - - - - Number to hire: - 2 - - 2 - - Number to fire: - - 1 - - 3 1

Units produced: - 7,840 6,720 6,720 8,960 5,600 4,480 40,320 Ending inventory: 250 90 810 530 490 590 570


Using Spreadsheets


January

Material costs: - -$ Regular labor costs: - -

Overtime labor costs: - - Undertime costs: - -

Subcontract costs: - - Hiring costs: - - Firing costs: - -

Holding costs: - - Backorder costs: - -

Totals: -$


Using Spreadsheets


January February March April May June Totals

Material costs: - -$ -$ -$ -$ -$ -$ -$ Regular labor costs: - 9,408 8,064 8,064 10,752 6,720 5,376 48,384

Overtime labor costs: - - - - - - - - Undertime costs: - - - - - - - -

Subcontract costs: - - - - - - - - Hiring costs: - 400 - - 400 - - 800 Firing costs: - - 250 - - 750 250 1,250

Holding costs: - 90 810 530 490 590 570 3,080 Backorder costs: - - - - - - - -

Totals: 9,898$ 9,124$ 8,594$ 11,642$ 8,060$ 6,196$ 53,514$


• Mathematical Models– Transportation algorithm– Linear Programming– Simulation

• Managerial considerations– Mathematical techniques are ___________ aids to

the planning process– Planning process is dynamic and complicated by

_______________ objectives– Manager - not _______________ - make decisions

Aggregate Planning Methods

Aggregate Planning with Mathematical Models


• Close control of labor hours to ensure ________

response to customer demand

• Some form of ___ - ______ labor resource that can

be added or deleted to meet unexpected demand

• Flexibility of individual worker skills to permit

______________ of available labor

Aggregate Planning

Workforce Issues in Service Firms


• Read Chapter 12

• Concepts / Terminology

• Review Lecture notes

• Recommended Problems

– none

Aggregate Planning

Chapter Wrap-Up

Documents

MBA782.Aggr.PlngCAJ9.12.1 Aggregation Relationship to Other Plans Reactive vs. Aggressive Alternatives Aggregate Planning Strategies Planning with Spreadsheets