Operations Management

Year: Ist Semester: Ist

Weightage: 100 marks Duration: 40 hrs

Asst Professor Shrinivas Gokhale

NE Society’s Institute of Management Studies
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 Chapter 6 : Capacity & Aggregate planning
 Capacity is the rate of productive capability of a facility i.e. the maximum load that can
be handled by facility during a given period of time. The load can be expressed in terms
of the amount of inputs & outputs.

 Capacity planning is the process of determining the production capacity needed by an

organization to meet demands for it’s products.

 According to APICS – “Capacity planning is the function of establishing, measuring, &

adjusting limits or levels of capacity.

 Capacity planning is the study of the level of capacity the organization provides at each
stage of the production or service delivery system to meet its objectives.

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 Aggregate Planning
 It is the process of developing, analyzing & maintaining a preliminary,
approximate schedule of the overall operations of an organization.

 The aggregate plan generally consists of targeted sales forecasts, production

levels, inventory levels & customer backlogs, etc. This schedule is intended
to satisfy the demand forecast at a minimum cost.

 In simple terms, aggregate planning is an attempt to balance capacity &

demand in such a way that costs are minimized.

 Aggregate planning is considered to be intermediate term in nature.

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 Costs associated with Aggregate Planning
Hiring & Lay-off costs
Inventory carrying costs
Backorder costs
Using overtime & Under-time costs
Basic production costs
Costs associated with changes in the production rates
Cost of regular payroll
Other costs

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 Need for Aggregate Planning
Demand fluctuations
Capacity fluctuations
Difficult level in altering production rates
Benefits of multi-period planning
Effective utilization of facility’s capacity

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 Strategies of Aggregate planning
APP Strategy APP Alternatives Applicability
Level Strategy Inventory based alternatives;
i) Build alternative
ii) Backlog/Backorder/Shortage
Chase Strategy Capacity adjustment alternatives;
i) Over time / Under time
ii) Vary number of shifts
iii) Hire/Lay offs workers
Capacity augmentation alternatives;
i) Sub-contract / outsource
ii) De-bottleneck
Key Features
i) Inventory as a critical link between the
periods
ii) Made to stock environments
iii) Products with low risk of obsolescence
No inventory carried from one period to
another
Made to order and project environments
Several services systems
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 Techniques for Aggregate Planning
Graphical Method / Trial-&-Error Approach
Mathematical Approach;
i) Linear Programming
ii) Mixed-Integer Programming
iii) Linear Decision Rule
iv) Management Coefficient Model
v) Search Decision Rule
vi) Simulation
vii) Functional Objective Search Approach

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  Thank You! 

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11/21/2018
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