aggregate planning and master scheduling mcgraw-hill/irwin copyright © 2012 by the mcgraw-hill...
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Aggregate Planning and
Master Scheduling
Chapter 11
McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter 11: Learning ObjectivesYou should be able to:
1. Explain what aggregate planning is and how it is useful2. Identify the variables decision makers have to work
with in aggregate planning and some of the possible strategies they can use
3. Describe some of the graphical and quantitative techniques planners use
4. Prepare aggregate plans and compute their costs5. Describe the master scheduling process and explain its
importance
Instructor Slides 11-2
Aggregate PlanningAggregate planning
Intermediate-range capacity planning that typically covers a time horizon of 2 to 18 months
Useful for organizations that experience seasonal, or other variations in demand
Goal:Achieve a production plan that will effectively
utilize the organization’s resources to satisfy demand
Instructor Slides 11-3
Sales and Operations PlanningSome organizations use the term sales
operations and planning rather than aggregate planningSales and operation planning
Intermediate-range planning decisions to balance supply and demand, integrating financial and operations planning
Since the plan affects functions throughout the organization, it is typically prepared with inputs from sales, finance, and operations
Instructor Slides 11-4
Overview of Planning Levels
Long-Range Plans
Long-term capacity} 5Location} 8Layout} 6Product design} 4Work system design} 7
Intermediate Plans
(This Chapter)General levels of:• Employment• Output•Finished-goods inventories•Subcontracting•Backorders
Short-Range Plans
Detailed plans:• Production lot
size} 13• Order
quantities} 13• Machine
loading} 16• Job
assignments} 16• Job sequencing}
16• Work schedules}
16
Overview of Planning Levels (chapter numbers shown)
Instructor Slides 11-5
The Planning Sequence
Instructor Slides 11-6
Why Use Aggregate PlanningWhy do organizations need to do aggregate
planning? Planning
It takes time to implement plans Strategic
Aggregation is important because it is not possible to predict with accuracy the timing and volume of demand for individual items
It is connected to the budgeting process It can help synchronize flow throughout the supply chain; it
affects costs, equipment utilization; employment levels; and customer satisfaction
Instructor Slides 11-7
AggregationThe plan must be in units of measurement
that can be understood by the firm’s non-operations personnel
• Aggregate units of output per month
• Dollar value of total monthly output
• Total output by factory
• Measures that relate to capacity such as labor hours
Instructor Slides 11-8
Dealing with VariationMost organizations use rolling 3, 6, 9 and
12 month forecastsForecasts are updated periodically, rather than
relying on a once-a-year forecastThis allows planners to take into account any
changes in either expected demand or expected supply and to develop revised plans
Instructor Slides 11-9
Dealing with VariationStrategies to counter variation:
Maintain a certain amount of excess capacity to handle increases in demand
Maintain a degree of flexibility in dealing with changesHiring temporary workersUsing overtime
Wait as long as possible before committing to a certain level of supply capacitySchedule products or services with known demands firstWait to schedule other products until their demands
become less uncertain
Instructor Slides 11-10
Overview of Aggregate Planning
Forecast of aggregate
demand for the
intermediate range
Develop a general plan
to meet demand
requirements
Update the aggregate
plan periodically
(e.g., monthly)
Instructor Slides 11-11
Demand and SupplyAggregate planners are concerned with the
Demand quantityIf demand exceeds capacity, attempt to achieve
balance by altering capacity, demand, or both Timing of demand
Even if demand and capacity are approximately equal, planners still often have to deal with uneven demand within the planning period
Instructor Slides 11-12
Aggregate Planning InputsResources
Workforce/production rates
Facilities and equipment
Demand forecastPolicies
Workforce changes Subcontracting Overtime Inventory levels/changes Back orders
Costs Inventory carrying Back orders Hiring/firing Overtime Inventory changes subcontracting
Instructor Slides 11-13
Aggregate Planning OutputsTotal cost of a planProjected levels of
InventoryOutputEmploymentSubcontractingBackordering
Instructor Slides 11-14
Aggregate Planning StrategiesProactive
Alter demand to match capacityReactive
Alter capacity to match demandMixed
Some of each
Instructor Slides 11-15
Demand Options Pricing
Used to shift demand from peak to off-peak periods
Price elasticity is important
Promotion Advertising and other forms
of promotion
Back orders Orders are taken in one
period and deliveries promised for a later period
New demand
Instructor Slides 11-16
Supply OptionsHire and layoff workersOvertime/slack timePart-time workersInventoriesSubcontracting
Instructor Slides 11-17
Aggregate Planning Pure StrategiesLevel capacity strategy:
Maintaining a steady rate of regular-time output while meeting variations in demand by a combination of options: inventories, overtime, part-time workers,
subcontracting, and back ordersChase demand strategy:
Matching capacity to demand; the planned output for a period is set at the expected demand for that period.
Instructor Slides 11-18
Uneven Demand and Two Strategies:
Instructor Slides 11-19
Chase ApproachCapacities are adjusted to match demand
requirements over the planning horizonAdvantages
Investment in inventory is lowLabor utilization in high
DisadvantagesThe cost of adjusting output rates and/or workforce
levels
Instructor Slides 11-20
Level ApproachCapacities are kept constant over the
planning horizonAdvantages
Stable output rates and workforceDisadvantages
Greater inventory costsIncreased overtime and idle timeResource utilizations vary over time
Instructor Slides 11-21
Techniques for Aggregate PlanningGeneral procedure:
1. Determine demand for each period
2. Determine capacities for each period
3. Identify company or departmental policies that are pertinent
4. Determine unit costs
5. Develop alternative plans and costs
6. Select the plan that best satisfies objectives. Otherwise return to step 5.
Instructor Slides 11-22
Trial-and-Error TechniquesTrial-and-error approaches consist of developing
simple table or graphs that enable planners to visually compare projected demand requirements with existing capacity
Alternatives are compared based on their total costs
Disadvantage of such an approach is that it does not necessarily result in an optimal aggregate plan
Instructor Slides 11-23
Trial-and-Error Technique Assumptions
1. The regular output capacity is the same in all periods
2. Cost is a linear function composed of unit cost and number of units
3. Plans are feasible
4. All costs are associated with a decision option can be represented by a lump sum
5. Cost figures can be reasonably estimated and are constant for the planning period
6. Inventories are built up and drawn down at a uniform rate throughout each period
7. Backlogs are treated as if they exist the entire period
Instructor Slides 11-24
Cumulative Graph
Instructor Slides 11-25
Mathematical TechniquesLinear programming modelsSimulation models
Computerized models that can be tested under different scenarios to identify acceptable solutions to problems
Instructor Slides 11-26
Aggregate Planning in Services Hospitals:
Aggregate planning used to allocate funds, staff, and supplies to meet the demands of patients for their medical services
Airlines: Aggregate planning in this environment is complex due to the
number of factors involved Capacity decisions must take into account the percentage of
seats to be allocated to various fare classes in order to maximize profit or yield
Restaurants: Aggregate planning in high-volume businesses is directed
toward smoothing the service rate, determining workforce size, and managing demand to match a fixed capacity
Can use inventory; however, it is perishable
Instructor Slides 11-27
Aggregate Planning in ServicesThe resulting plan in services is a time-phased
projection of service staff requirementsAggregate planning in manufacturing and
services is similar, but there are some key differences related to:1. Demand for service can be difficult to predict2. Capacity availability can be difficult to predict3. Labor flexibility can be an advantage in services4. Services occur when they are rendered
Instructor Slides 11-28
Disaggregation
AggregatePlan
Disaggregation
MasterSchedule
Instructor Slides 11-29
Disaggregating the Aggregate Plan
Master schedule: The result of disaggregating an aggregate planShows quantity and timing of specific end
items for a scheduled horizon
Instructor Slides 11-30
Master SchedulingThe heart of production planning and
control It determines the quantity needed to meet demand
from all sources It interfaces with
MarketingCapacity planningProduction planningDistribution planning
Provides senior management with the ability to determine whether the business plan and its strategic objectives will be achieved
Instructor Slides 11-31
The Master SchedulerThe master scheduler’s duties:
Evaluating the impact of new ordersProviding delivery dates for ordersDeals with problems
Evaluating the impact of production or delivery delaysRevising master schedule when necessary because of
insufficient supplies or capacityBring instances of insufficient capacity to the attention
of relevant personnel so they can participate in resolving conflicts
Instructor Slides 11-32
Time Fences
Period
“frozen”(firm orfixed)
“slushy”somewhat
firm
“liquid”(open)
1 2 3 4 5 6 7 8 9
Instructor Slides 11-33
The Master Scheduling Process
Beginning inventory
Forecast
Customer orders
Inputs Outputs
Projected inventory
Master production schedule
Uncommitted inventory
MasterProductionSchedule
Instructor Slides 11-34
Master Scheduling ProcessThe master production schedule (MPS) is one of
the primary outputs of the master scheduling process Once a tentative MPS has been developed, it must be validated
Rough cut capacity planning (RCCP) is a tool used in the validation process Approximate balancing of capacity and demand to test the
feasibility of a master schedule
Involves checking the capacities of production and warehouse facilities, labor, and vendors to ensure no gross deficiencies exist that will render the MPS unworkable
Instructor Slides 11-35
MPS – Forecasts and Customer Orders
Instructor Slides 11-36
MPS – Projected On Hand
Instructor Slides 11-37
Determining MPS and Projected On Hand
Week
Inventory from Previous Week
Requirements
Inventory before MPS
(70)MPS
Projected Inventory
1 64 33 31 31
2 31 30 1 1
3 1 30 -29 + 70 = 41
4 41 30 11 11
5 11 40 -29 + 70 = 41
6 41 40 1 1
7 1 40 -39 + 70 = 31
8 31 40 -9 + 70 = 61
Instructor Slides 11-38
Adding MPS and Projected On Hand to the MPS
Instructor Slides 11-39
Available-to-Promise
Instructor Slides 11-40