Aggregate Planning Operations Management Dr Ron Lembke Learning

Aggregate Planning Operations Management Dr. Ron Lembke

Learning Objectives l l l Describe planning Distinguish the types of plans Define aggregate scheduling Relate aggregate scheduling to the overall planning process Explain aggregate scheduling options Develop aggregate schedules

Example You’ve started a new company. You’ve developed 2 production plans: Month Forecast Plan 1 Plan 2 Jan 900 800 Feb 700 800 Mar 800 800 You estimate 1 worker can make 100 units per month. Which plan do you use? How many workers do you hire? How do you meet demand?

Planning l Setting goals & objectives l l Determining steps to achieve goals l l Example: Hire more workers Setting start & completion dates l l Example: Meet demand within the limits of available resources at the least cost Example: Begin hiring in Jan. ; finish, Mar. Assigning responsibility

Types of Plans Management Level High Long-Range Facility location Top Executives Operations Managers Short-Range Low Dispatching Today Intermediate-Range Aggregate plans 3 months Supervisors 1 year 18 months 5 years

Aggregate Scheduling l Production quantity & timing of production for intermediate future l l Usually 3 to 18 months into future Combines (‘aggregates’) production l Expressed in common units Example: Hours, dollars, equivalents (e. g. , FTE students) l Time to make ‘average’ product l

Relationships of Aggregate Schedule Forecast & Firm Orders Material Requirements Planning Aggregate Production Planning Resource Availability Work force Inventory Subcontractors Master Production Scheduling No, modify CRP, MRP, or MPS Capacity Requirements Planning Realistic? Yes Shop Floor Schedules

Aggregate Level Scheduling Aggregate Schedule: Month Jan Feb Mar Apr May No. of Chips 600 650 620 630 640 © 1995 Corel Corp.

Aggregate Schedule Example Aggregate Schedule: Month Jan Feb Mar Apr May No. of Chips 600 650 620 630 640 Master Production Schedule: Month Jan Feb Mar Apr May P 4 1. 5 ghz 300 200 310 300 340 P 4 1. 7 ghz 300 450 310 330 300

Aggregate Scheduling Goals l l Meet demand Use capacity efficiently Meet inventory policy Minimize cost l l Labor Inventory Plant & equipment Subcontract

Aggregate Scheduling Options Capacity n n n Inventory Hire or layoff Overtime or idle Subcontract Part-time workers Outsource Demand l l l Promotion & price Back ordering Counterseasonal product mixing

Costs l “Smoothing” costs: l l l Hiring: advertise, interview, train Firing: severance, bad morale, future hiring Holding costs - charged on inv At end Shortage costs Labor costs / overtime, materials Subcontracting / outsourcing

Aggregate Scheduling Strategies l Level scheduling strategy l l l Produce same amount every day Keep work force level constant Vary non-work force capacity or demand Often results in lowest production costs Chase strategy l Hire / Fire workers to make production capacity meet necessary production

Aggregate Scheduling Strategies l Mixed strategy l Combines 2 or more aggregate scheduling options Overtime Price Mixed Strategy Inventory Subcontract

Aggregate Scheduling Methods l Graphical & charting techniques l l l Popular & easy-to-understand Trial & error approach Mathematical approaches l l l Linear Programming Simulation More involved, but usually better answers

JC Company p. 292 l l Materials Cost: $100/unit Labor: 5 hours per unit, $4/hr RT, $6/hr OT l l l Subcontract $20/unit ($120 - $100 matl savings) Holding cost $1. 5/unit/mo Stockout cost $5/unit/mo Hiring cost $200 Firing cost $250 Starting inventory 400 units, safety stock 25%

Exhibit 11. 3 l l Goal of 25% of sales as “safety stock” For planning, assume safety stock never used

Hire and Fire, no OT: Plan 1 l l Start with workers needed for month 1 May have too many at end

Constant Workforce: Plan 2 l l l Total D = 8, 000 units 5*8, 000 = 40, 000 hours 125 days total = 1, 000 hrs 40, 000/1, 000 = 40 workers No penalty missing safety stock

Subcontract: Plan 3 l l April has lowest demand 21 days * 8 hrs = 168 850*5/168 = 25. 3 workers Subcontract rest

Constant Workers with OT: 4 l l l Find # workers to do all except biggest mos in RT Trial and error Not enough safety stock

Linear Programming Parameters CH = hiring cost CF = firing cost CI = Inv. Cost CR = reg production CO = Ovt. Cost CI = idle cost CS = subcontract nt = days in period t K = daily prod. I 0 = Inventory to start W 0 = workers to start Dt = Demand for t

Variables It = Inventory for t Wt = workers for t Ht = hired in t Ft = fired in t Pt= production for t l All must be >= 0 Ot = Overtime Ut = idle time St = subcontracted

Constraints Workforce conservation Wt = Wt-1 + Ht - Ft l Units Conervation It = It-1 + Pt + St - Dt l Production and workforce level Pt= K*nt*Wt + Ot - Ut Each of these must be satisfied for all t l

LP Formulation

LP Considerations l l l LP can be modified to include minimum inv. level each period Negative inventory can be allowed Care needed when rounding

Conclusion l l Described role of aggregate planning Described types of plans Explained aggregate scheduling options Developed aggregate schedules l l Chase, Level, and Hybrid Linear Programming