McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved.

1313

Aggregate Planning

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Learning ObjectivesLearning Objectives

Explain what aggregate planning is and how it is useful.

Identify the variables decision makers have to work with in aggregate planning and some of the possible strategies they can use.

Describe some of the graphical and quantitative techniques planners use.

Prepare aggregate plans and compute their costs.

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Planning HorizonPlanning Horizon

Aggregate planning: Intermediate-range capacity planning, usually covering 2 to 12 months.

Shortrange

Intermediate range

Long range

Now 2 months 1 Year

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Short-range plans (Detailed plans) Machine loading Job assignments

Intermediate plans (General levels) Employment Output

Long-range plans Long term capacity Location / layout

Overview of Planning LevelsOverview of Planning Levels

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Planning SequencePlanning Sequence

Business Plan Establishes operationsand capacity strategies

Aggregate plan Establishesoperations capacity

Master schedule Establishes schedulesfor specific products

Corporatestrategies

and policies

Economic,competitive,and political conditions

Aggregatedemand

forecasts

Figure 13.1

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Aggregate PlanningAggregate Planning Begin with forecast of aggregate demand Forecast intermediate range General plan to meet demand by setting

Output levels Employment Finished goods inventory level

Production plan is the output of aggregate planning

Update plan periodically – rolling planning horizon always covers the next 12 – 18 months

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Resources Workforce Facilities

Demand forecast Policies

Subcontracting Overtime Inventory levels Back orders

Costs Inventory carrying Back orders Hiring/firing Overtime Inventory changes Subcontracting

Aggregate Planning InputsAggregate Planning Inputs

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Total cost of a plan Projected levels of inventory

Inventory Output Employment Subcontracting Backordering

Aggregate Planning OutputsAggregate Planning Outputs

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Aggregate Planning StrategiesAggregate Planning Strategies Proactive

Alter demand to match capacity Reactive

Alter capacity to match demand Mixed

Some of each

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Pricing

Promotion

Back orders

New demand

Demand OptionsDemand Options

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Hire and layoff workers Overtime/slack time Part-time workers Inventories Subcontracting

Capacity OptionsCapacity Options

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Aggregate Planning StrategiesAggregate Planning Strategies

Maintain a level workforce

Maintain a steady output rate

Match demand period by period

Use a combination of decision variables

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Basic StrategiesBasic Strategies

Level capacity strategy: Maintaining a steady rate of regular-time

output while meeting variations in demand by a combination of options.

Chase demand strategy: Matching capacity to demand; the

planned output for a period is set at the expected demand for that period.

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Chase ApproachChase Approach

Advantages Investment in inventory is low

Labor utilization in high

Disadvantages The cost of adjusting output rates and/or

workforce levels

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Level ApproachLevel Approach Advantages

Stable output rates and workforce

Disadvantages Greater inventory costs

Increased overtime and idle time

Resource utilizations vary over time

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1.Determine demand for each period

2.Determine capacities for each period

3. Identify policies that are pertinent

4.Determine units costs

5.Develop alternative plans and costs

6.Select the best plan that satisfies objectives. Otherwise return to step 5.

Techniques for Aggregate Techniques for Aggregate PlanningPlanning

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Cumulative GraphCumulative Graph

1 2 3 4 5 6 7 8 9 10

Cumulativeproduction

CumulativedemandC

umul

ativ

e ou

tput

/dem

and

Figure 13.3

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Average InventoryAverage Inventory

Averageinventory

Beginning Inventory + Ending Inventory2

=

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Mathematical TechniquesMathematical Techniques

Linear programming: Methods for obtaining optimal solutions to problems involving allocation of scarce resources in terms of cost minimization.

Simulation models: Computerized models that can be tested under different scenarios to problems.

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Summary of Planning Summary of Planning TechniquesTechniques

Technique Solution Characteristics Graphical/charting Heuristic (trial

and error) Intuitively appealing, easy to understand; solution not necessarily optimal.

Linear programming

Optimizing Computerized; linear assumptions not always valid.

Simulation Heuristic (trial and error)

Computerized models can be examined under a variety of conditions.

Table 13.7

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Services occur when they are rendered

Demand for service can be difficult to predict

Capacity availability can be difficult to predict

Labor flexibility can be an advantage in services

Aggregate Planning in ServicesAggregate Planning in Services

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Aggregate Plan to Master ScheduleAggregate Plan to Master Schedule

AggregatePlanning

Disaggregation

MasterSchedule

Figure 13.4

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Master schedule: The result of disaggregating an aggregate plan; shows quantity and timing of specific end items for a scheduled horizon.

Rough-cut capacity planning: Approximate balancing of capacity and demand to test the feasibility of a master schedule.

Disaggregating the Aggregate Disaggregating the Aggregate Plan Plan

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Master SchedulingMaster Scheduling

Master schedule Determines quantities needed to meet

demand Interfaces with

Marketing Capacity planning Production planning Distribution planning

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Master SchedulerMaster Scheduler

Evaluates impact of new orders Provides delivery dates for orders Deals with problems

Production delays Revising master schedule Insufficient capacity

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Master Scheduling ProcessMaster Scheduling Process

MasterScheduling

Beginning inventory

Forecast

Customer orders

Inputs OutputsProjected inventory

Master production schedule

Uncommitted inventory

Figure 13.6

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Projected On-hand InventoryProjected On-hand Inventory

Projected on-handinventory

Inventory fromprevious week

Current week’srequirements

-=

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Projected On-hand InventoryProjected On-hand Inventory

64 1 2 3 4 5 6 7 8Forecast 30 30 30 30 40 40 40 40Customer Orders (committed) 33 20 10 4 2Projected on-hand inventory 31 1 -29

JUNE JULY

Beginning Inventory

Customer orders are larger than forecast in week 1

Forecast is larger than Customer orders in week 2

Forecast is larger than Customer orders in week 3

Figure 13.8

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Time FencesTime Fences

Time Fences – points in timethat separate phases of a master schedule planninghorizon.

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Time Fences in MPSTime Fences in MPS

Period

“frozen”(firm orfixed)

“slushy”somewhat

firm

“liquid”(open)

Figure 13.12

1 2 3 4 5 6 7 8 9

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Solved Problems: Problem 1Solved Problems: Problem 1