Aggregate Planning

Rohit kapoor

Aggregate Production Planning

Aggregate Planning is a complex problem! Macro planning
Deciding about how many employees the firm should retain Product mix to be produced by a manufacturing firm In service industry
Airlines (staffing level of flight attendants and pilots) Hospitals (staffing level of nurses)

Planning Levels and Activities

Short range (now to 3 months)
Detailed scheduling, routings, alternate work centers (lower level management)

Intermediate range (3 18 months)

Aggregate planning or workforce, overtime, inventory, subcontracting, minor capacity changes (midlevel management)

Long range (18 months - ???)

Major capacity decisions, product process decisions (top level management)

Some Views
Costs can be controlled only by making frequent changes in the size and/or composition of workforce
Airlines industry
Other firms have a reputation of retaining employees, even in the bad times
AT & T, IBM, Japanese firms

Master Schedule
Forecasting Aggregate production planning Master production schedule
Month Number of Motors Jan 40 Feb 25 Mar 55 Aggregate Plan Apr May Jun 30 30 50 Master Schedule Apr May Jun 15 15 15 15 30 15 5 Jul 30 Aug 60 Sep 40

Month AC Motors: 5 hp 25 hp DC Motors 20 hp WR Motors 10 hp

Jan 15 20 5

Feb 25 -

Mar 30 25 -

Jul 20 10 -

Aug 30 10 20

Sep 10 20 10

Variables used in Aggregate Planning

Decision Variable Varying size of work force Using overtime or accepting idle time Varying inventory levels Accepting backorders Subcontracting work to others Changing the use of existing capacity Associated Cost Hiring, training and layoff costs Wage premiums and non-productive time costs Carrying and storage costs Stockout costs of lost orders Higher labor and material costs Delayed response & higher fixed costs

An Example
Densepack is to plan workforce and production level for the six month period January to June. The firm produces a line of disk drivers for mainframe computers. Forecast demands over the next six months for a particular line of drives produced in plant are 1280, 640, 900, 1200, 2000 and 1400. There are currently (end of December) 300 workers employed in the plant. Ending inventory in December is expected to be 500 units, and the firm would like to have 600 units on hand at the end of June. Cost of hiring is $500, Cost of firing is $1000 & Cost of Holding one unit of inventory for one month is $80.

Example Contd.
In the past, the plant manager observed that over 22 working days, with the work force level constant at 76 workers, the firm produced 245 disk drives. Evaluate the following two plans: 1) Changing the work force to meet the demand 2) Maintain the minimum constant work force
Month January February March April May June Number of Working Days 20 24 18 26 22 15

Analysis
Planning horizon = 6 months Planning period = 1 month Forecast (6 mth): 1280, 640, 900, 1200, 2000, 1400 Current worker level = 300 Initial inventory = 500 units Required ending inventory = 600 units cH = $ 500, cF = $ 1000; cI = $ 80 (unit/mth); no shortages K = 0.14653 drives/day

Option 1: Zero Inventory Plan

Month Days/Month Forecast Worker Level A B C D E Jan 20 2.9306 780 266 Feb 24 3.51672 640 182 Mar 18 2.63754 900 341 Apr 26 3.80978 1200 315 May 22 3.22366 2000 620 Jun 15 2.19795 2000 910 Hire F Fire G

APP Exercise
A manufacturer of electrical switchgears is in the process of preparing the aggregate production plan for the next year. Let us assume that a good measure of capacity is the number of working hours available per month. Table 1 presents details pertaining to the forecast demand for the equivalent model of switchgears and the number of working days available during the planning horizon. The following relevant details are also available:
The manufacturer currently works on a single shift basis and employs 125 workers. One unit of switchgear requires 100 hours of production time. It is expected that at the beginning of the planning horizon, there will be a finished goods inventory of 200 switchgears.

Inventory carrying costs are INR 1000 per switchgear per month and unit shortage/backlogging costs are 200 percent of unit carrying cost.

Table 1
Month April May June July August September October November December January February March Demand (in Units) 250 220 300 290 260 180 200 220 250 200 240 270 Number of Working Days 23 22 21 24 22 22 19 23 21 23 20 24

Devise a level production strategy with constant workforce and constant working hours. Compute the cost of the plan.

Part II
Consider the previous example. Assume the switchgear manufacturer has no opening stock of inventory and chooses to devise a chase production strategy. The following additional information is available:
Overtime costs are INR 40 per hour and under-time costs are INR 20 per hour Hiring and training expenses are INR 7500 per worker and layingoff costs are INR 5000 per worker

Evaluate the following options for chase strategy and offer your suggestions to the switchgear manufacturer: Utilizing overtime and under-time alternatives Using hiring and laying-off alternatives for capacity adjustment

Part III
Consider Part II example. Assume that on the basis of these computations, the switchgear manufacturer has come up with a plan that employs the following alternatives: Hire 25 more workers at the beginning of April. Lay off the 25 workers at the end of August. Maintain constant working hours (1 shift of 8 hours) throughout the year. Absorb the demand-supply mismatch by building inventory during periods of lean demand and by resorting to OT during periods of excess demand. Evaluate the cost of this plan and compare it with the earlier alternatives. What are the key inferences?