Planning Tasks and Responsibilities

Aggregate Planning

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The Production Planning Process

Types of Planning Over a Business Planning Objectives
Time Horizon Top Management
Planning Sales Planning Demands

Production Planning Resources

Long Range Add Facilities Operations management Resource no

Planning Add long lead time equipment * Planning OK? yes

FEEDBACK
Products
Bill of Materials Master Scheduling
Intermediate Sub-Contract Add Personnel
Range Planning Add Equipment Build or Use Inventory Inventory status Materials Planning Materials
Add Shifts
Routings Capacity Planning Capacity
no
Schedule Jobs Planning
Short Range * Schedule Personnel OK?
Planning Allocate Machinery yes
Operations Purchasing Parts
*Limited options exist Modify Capacity Use Capacity Management
Execution Shop Floor control Hours
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Performance Measurement Accountability

Relationships of the Aggregate Plan

Aggregate Planning Goals
Marketplace Product Research and
and Demand Decisions Technology
z Meet demand
Process
z Use capacity
Demand
Forecasts, Planning & Capacity efficiently
orders Decisions Work Force
Raw Materials
Aggregate Available z Meet inventory policy
Inventory On
Plan for
Production External
Hand z Minimize cost
Capacity z Labor
Master Subcontractors
Production z Inventory
Schedule, and MRP systems
z Plant & equipment
Detailed Work z Subcontract
Schedules 5 6

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 Production planning process
Inputs and Outputs to APP
Capacity
Capacity Strategic
Strategic Company
Company Economic
Constraints Objectives Policies Corporate Aggregate
Constraints Objectives Policies Political
strategies demand
Competitive forecast
and policies
conditions

Aggregate
Aggregate
Demand
Demand Financial
Financial
Production
Production
Forecasts
Forecasts Constraints
Constraints
Planning
Planning
Business Plan Establishes Operations and
capacity strategy

Aggregate Plan Establishes Operations capacity

Production
Production Units
Units or
or dollars
dollars
Size
Size of
of Inventory
Inventory
per
per month
month subcontracted,
subcontracted,
Workforce
Workforce Levels
Levels
(in
(in units
units or
or $)
$) backordered,
backordered, or
or lost
lost
Establishes schedule for
7 Master Production Schedule specific products
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Pure Strategies - The Extremes Level Production

Demand
Level Chase Production
Strategy Strategy
Units

Production
Production rate
equals
is constant
demand
Level production - produce at Chase demand - change workforce
constant rate & use inventory levels so that production matches Time
as needed to meet demand demand 9 10

Aggregate Planning Strategies

Chase Demand Pure Strategies
z Capacity Options — change capacity:
Demand
z changing inventory levels
Production z varying work force size by hiring or
layoffs
Units

z varying production capacity through

overtime or idle time
z subcontracting
z using part-
part-time workers
Time
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 Aggregate Planning Strategies
Pure Strategies Examples from Indian industry
z Demand Options — change demand: z Automobiles - Mahindra _different
strategies
z influencing demand – pricing, promotion z Two wheelers – LML Ltd (flow)
z Process – ACC refractories
z backordering during high demand
z Hotels, Restaurants
periods
z Services –
z Banking , Credit cards
z counterseasonal product mixing
z Airports _ flexi - counters
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APP Using Pure Strategies

Solved example:
APP Using Pure Strategies
QUARTER SALES FORECAST (LB) QUARTER SALES FORECAST (LB)
Spring 80,000 Spring 80,000
Summer 50,000 Summer 50,000
Fall 120,000 Fall 120,000
Winter 150,000 Winter 150,000

Hiring cost = $100 per worker Level production

Hiring cost = $100 per worker
Firing cost = $500 per worker Firing cost = $500 per worker
Inventory carrying cost = $0.50 pound per quarter (50,000carrying
Inventory + 120,000 + 150,000
cost = $0.50+pound
80,000)per quarter
Production per employee = 1,000 pounds per quarter Production per employee 4 = 1,000 pounds per quarter
Beginning work force = 100 workers Beginning =work forcepounds
100,000 = 100 workers

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Level Production Strategy Chase Demand Strategy

SALES PRODUCTION WORKERS WORKERS WORKERS
QUARTER FORECAST PLAN NEEDED HIRED FIRED
SALES PRODUCTION
QUARTER FORECAST PLAN INVENTORY Spring 80,000 80,000 80 0 20
Spring 80,000 100,000 20,000 Summer 50,000 50,000 50 0 30
Summer 50,000 100,000 70,000
Fall 120,000 120,000 120 70 0
Fall 120,000 100,000 50,000
Winter 150,000 150,000 150 30 0
Winter 150,000 100,000 0
100 50
400,000 140,000
Cost = (100 workers hired x $100) + (50 workers fired x $500)
Cost = 140,000 pounds x 0.50 per pound = $70,000 = $10,000 + 25,000 = $35,000

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 Aggregate Scheduling Options -
APP Using Mixed Strategies Advantages and Disadvantages
MONTH DEMAND (CASES) MONTH DEMAND (CASES)
January 1000 July 500 Option Advantage Disadvantage Some
February 400 August 500 Comments
March 400 September 1000
April 400 October 1500 Changing Changes in Inventory Applies mainly
May 400 November 2500
inventory levels human resources holding costs; to production,
June 400 December 3000
are gradual, not Shortages may not service,
abrupt result in lost operations
Production per employee= 100 cases per month
production sales
Wage rate = $10 per case for regular production
= $15 per case for overtime changes
= $25 for subcontracting
Hiring cost = $1000 per worker Varying Avoids use of Hiring, layoff, Used where size
Firing cost = $500 per worker workforce size other alternatives and training of labor pool is
Inventory carrying cost = $1.00 case per month by hiring or costs large
Beginning work force = 10 workers layoffs
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Advantages/Disadvantages - Continued Advantages/Disadvantages - Continued

Option Advantage Disadvantage Some

Option Advantage Disadvantage Some
Comments
Comments
Varying Matches seasonal Overtime Allows
Using part-time Less costly and High Good for
production rates fluctuations premiums, tired flexibility within workers more flexible turnover/training unskilled jobs in
through overtime without workers, may not the aggregate than full-time costs; quality areas with large
or idle time hiring/training meet demand plan workers suffers; temporary labor
costs scheduling pools
Subcontracting Permits Loss of quality Applies mainly difficult
flexibility and control; reduced in production Influencing Tries to use Uncertainty in Creates
smoothing of the profits; loss of settings demand excess capacity. demand. Hard to marketing ideas.
firm's output future business Discounts draw match demand to Overbooking
new customers. supply exactly. used in some
businesses.

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Aggregate Planning
Advantage/Disadvantage - Continued
z Steps and techniques for aggregate planning
Option Advantage Disadvantage Some 1. Determine demand for each period
Comments
2. Determine capacities for each period (regular,
Back ordering May avoid Customer must Many companies
during high- overtime. Keeps be willing to backorder. OT, sub-
sub-contracting etc)
demand periods capacity constant wait, but
goodwill is lost.
3. Identify company / departmental policies that
are pertinent (safety stock, level workforce)
Counterseasonal Fully utilizes May require Risky finding
products and resources; allows skills or products or 4. Determine unit costs - for regular time, OT, sub-
sub-
service mixing stable workforce. equipment services with contracting, holding inventories, backorders, layoffs etc
outside a firm's opposite demand
areas of patterns. 5. Develop alternative plans and compute cost for each
expertise. 6. If satisfactory plan emerges, select one that best
satisfies objectives-
objectives- else repeat step 5.
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Aggregate Planning – assumptions made
z Regular capacity same in all periods (No Aggregate Planning Methods
holidays , festivals etc)
z Cost is a linear function of unit cost and z Graphical & charting techniques
number of units. (cost actually step a z Popular & easy-
easy-to-
to-understand
function) z Trial & error approach
z Plans are feasible – sufficient capacity / z Mathematical approaches
inventory holding available z Transportation method
z All costs associated with a decision are
represented by a lump sum or per unit
cost (Actually step function)
z Cost figures can be reasonably estimated
z Inventory build up and withdrawal at 25 26

constant rate. Backlogs for entire period.

Next _ MPS and MRP

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