in a

Aggregate Planning Supply Chain

Case:

Abhay Kant 043001 Anirudh Singh 043010 Sonakshi Gulati 043053 Sumeet Anand 043056 Ca role Pauquet fy1101

Aggregate Planning
Aggregate Planning is a process by which a company determines ideal levels of capacity, production, subcontracting, inventory, stock outs, and even pricing over a specified time horizon. The goal is to satisfy demand while maximizing profit.

Case: Red Tomato Tools

Demand for the gardening tools is highly seasonal. Handle demand and maximize profits?? Options:

Hire worker in peak season Subcontraction of some work Build up inventory in slow period Backlogging No limit on subcontracting, inventories, stockouts, backlog All stockouts are backlogged from the following month. Inventory costs are incurred on the ending inventory in a month. Inventory level at the end of June is at least 500 units.

Constraints:

Table 8-1 Month

January February March April May June

Demand Forecast at Red Tomato Tools Demand Forecast

1600 3000 3200 3800 2200 2200

Red Tomato Tools-Initialization

Unit price=$40/unit Inventory at the beginning of January=1000 Workforce at the beginning of January=80 employees Total of 20 workdays/month are available Regular work hours=8hrs/day/employee Overtime work hours can not exceed 10hrs/month/employee

units

Required labor hours= 4hrs/unit

Table 8-2
Material Cost Inventory holding cost Marginal cost of stockout/backlog Hiring and training costs Layoff cost Labor hours required Regular time cost Overtime cost

Cost for Red Tomato

$ 10/unit $ 2/unit/month $ 5/unit/month $ 300/worker $ 500/worker 4/unit $ 4/hour $ 6/hour

Cost of subcontracting

$ 30/unit

Aggregate Planning (Define Decision Variables)

W t = Workforce size for month t, t = 1, ..., 6 H t = Number of employees hired at the beginning of month

t, t = 1, ..., 6
Lt = Number of employees laid off at the beginning of month

t,
, ..., Pt = Production in month t, t = 1, ..., 6

t =1

I t = Inventory at the end of month t, t = 1, ..., 6 St = Number of units stocked out (backlogged) at the end of month t, t = 1, ..., 6 C t = Number of units subcontracted for month t, t = 1, ..., 6 Ot = Number of overtime hours worked in month t, t = 1, ..., 6

? Min cost = Max profit

Min cost and max profit are equivalent if

All demand has to be met in some way The unit price is fixed, i.e., total revenue is fixed.

Then, min cost and max profit gives the same optimal plan.

Aggregate Planning (Define Objective Function)

Workforce Balance Equations

Workforce size for each month is based on
hiring and layoffs

Ht

t-1

Period t

Lt

Lt

Inventory Balance Equations

Pt Ct

Period t I

S
t- 1

Dt

S
t

Lt

Production Capacity Constraints

Production for each month cannot exceed regular+overtime working capacity

Overtime Capacity Constraints

Over time for each month

Average Flow Time

Littles Law:
Average Flow time=Average Inventory/Throughput

Average Flow Time for Red Tomato=895/2,667=0.34 months

hat happens to Average Flow Time if uncertainty in demand ases?

Scenarios

Increased demand fluctuation Increase in holding cost (from $2 to $6) Overtime cost drops to $4.1 per hour

Table 83

Aggregate Plan for Red Tomato

No.Hir e d, Ht No. Laid Off, Lt Workfor c e Size, Wt Overtim e, Ot Inventor y , It Stocko ut, St Subcontra ct , Ct Total Production, Pt

Period,t

0 1 2 3

0 0 0 0

0 15 0 0

80 65 65 65

0 0 0 0

1000 1983 1567 950

0 0 0 0

0 0 0 0 2583 2583 2583

4 5 6

0 0 0

0 0 0

65 65 65

0 0 0

0 117 500

267 0 0

0 0 0

2583 2583 2583

Table 8-4
Month
January

Demand Forecast with Higher Seasonal Fluctuation

Demand Forecast
1000

February March April May June

Table 85

3000 3800 4800 2000 1400

Aggregate Plan for Red Tomato

Period,t

No.Hire d , Ht

No. Laid Off, Lt

Workfor c e Size, Wt

Overtime , Ot

Inventor y, It

Stockou t, St

Subcontra ct , Ct

Total Production, Pt

0 1 2 3 4

0 0 0 0 0

0 15 0 0 0

80 65 65 65 65

0 0 0 0 0

1000 2583 2167 950 0

0 0 0 0 1267

0 0 0 0 0 2583 2583 2583 2583

5 6

0 0

0 0

65 65

0 0

0 500

683 0

0 0

2583 2583

Analysis
Optimal aggregate plan is shown in Table 8-5. Monthly production remains the same but both inventories and stock outs (backlogs) go up compared to the aggregate plan in Table 8-3 for the demand profile in Table 8-1. The cost of meeting the new demans profile in Table 8-4 is higher at $432,858 (compared to $422,275 for the previous deamd profile in Table 8-1). The seasonal inventory during the planning horizon is given by: Seasonal Inventory:- 6450/6= 1075 The average flow time for this aggregate plan over the planning horizon (using equation 8.6) is given by: Average Flow Tim:- 1075/2667= 0.40 Months

Thank You