Chapter 11 Aggregate Planning and Master Scheduling Chapter

Chapter 11 Aggregate Planning and Master Scheduling

Chapter 11: Learning Objectives v You should be able to: Ø Explain what aggregate planning is and how it is useful Ø Identify the variables decision makers have to work with in aggregate planning and some of the possible strategies they can use Ø Describe some of the graphical and quantitative techniques planners use Ø Prepare aggregate plans and compute their costs Ø Describe the master scheduling process and explain its importance 11 -2

Aggregate Planning v Aggregate planning Ø Intermediate-range capacity planning that typically covers a time horizon of 2 to 18 months Ø Useful for organizations that experience seasonal, or other variations in demand Ø Goal: o Achieve a production plan that will effectively utilize the organization’s resources to satisfy demand 11 -3

Sales and Operations Planning v Some organizations use the term sales operations and planning rather than aggregate planning Ø Sales and operation planning o Intermediate-range planning decisions to balance supply and demand, integrating financial and operations planning o Since the plan affects functions throughout the organization, it is typically prepared with inputs from sales, finance, and operations 11 -4

Overview of Planning Levels (chapter numbers shown) Long-Range Plans Intermediate Plans Short-Range Plans Long-term capacity} 5 Location} 8 Layout} 6 Product design} 4 Work system design} 7 (This Chapter) General levels of: • Employment • Output • Finished-goods inventories • Subcontracting • Backorders Detailed plans: • Production lot size} 13 • Order quantities} 13 • Machine loading} 16 • Job assignments} 16 • Job sequencing} 16 • Work schedules} 16 11 -5

The Planning Sequence 11 -6

Aggregation v The plan must be in units of measurement that can be understood by the firm’s nonoperations personnel Ø Ø 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 11 -7

Dealing with Variation v Most organizations use rolling 3, 6, 9 and 12 month forecasts Ø Forecasts are updated periodically, rather than relying on a once-a-year forecast Ø This allows planners to take into account any changes in either expected demand or expected supply and to develop revised plans 11 -8

Dealing with Variation v Strategies to counter variation: Ø Maintain a certain amount of excess capacity to handle increases in demand Ø Maintain a degree of flexibility in dealing with changes o Hiring temporary workers o Using overtime Ø Wait as long as possible before committing to a certain level of supply capacity o Schedule products or services with known demands first o Wait to schedule other products until their demands become less uncertain 11 -9

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) 11 -10

Aggregate Planning Inputs v Resources Ø Workforce/production rates Ø Facilities and equipment v Demand forecast v Policies Ø Ø Ø Workforce changes Subcontracting Overtime Inventory levels/changes Back orders � Costs � Inventory carrying � Back orders � Hiring/firing � Overtime � Inventory changes � subcontracting 11 -11

Aggregate Planning Outputs v Total cost of a plan v Projected levels of Ø Ø Ø Inventory Output Employment Subcontracting Backordering 11 -12

Demand Options v Pricing Ø Used to shift demand from peak to off-peak periods Ø Price elasticity is important v Promotion Ø Advertising and other forms of promotion v Back orders Ø Orders are taken in one period and deliveries promised for a later period 11 -13

Supply Options v Hire and layoff workers v Overtime/slack time v Part-time workers v Inventories v Subcontracting 11 -14

Aggregate Planning Pure Strategies v Level capacity strategy: Ø Maintaining a steady rate of regular-time output while meeting variations in demand by a combination of options: o inventories, overtime, part-time workers, subcontracting, and back orders v Chase demand strategy: Ø Matching capacity to demand; the planned output for a period is set at the expected demand for that period. 11 -15

Uneven Demand Two Strategies: 11 -16

Chase Approach v Capacities are adjusted to match demand requirements over the planning horizon Ø Advantages o Investment in inventory is low o Labor utilization in high Ø Disadvantages o The cost of adjusting output rates and/or workforce levels 11 -17

Level Approach v Capacities are kept constant over the planning horizon v Advantages Ø Stable output rates and workforce v Disadvantages Ø Greater inventory costs Ø Increased overtime and idle time Ø Resource utilizations vary over time 11 -18

Workers and inventory 11 -19

Estimating Cost 11 -20

Techniques for Aggregate Planning v General procedure: Ø Determine demand for each period Ø Determine capacities for each period Ø Identify company or departmental policies that are pertinent Ø Determine unit costs Ø Develop alternative plans and costs Ø Select the plan that best satisfies objectives. Otherwise return to step 5. 11 -21

Trial-and-Error Techniques v Trial-and-error approaches consist of developing simple table or graphs that enable planners to visually compare projected demand requirements with existing capacity v Alternatives are compared based on their total costs v Disadvantage of such an approach is that it does not necessarily result in an optimal aggregate plan 11 -22

Trial-and-Error Technique Assumptions v The regular output capacity is the same in all periods v Cost is a linear function composed of unit cost and number of units v Plans are feasible v All costs are associated with a decision option can be represented by a lump sum v Cost figures can be reasonably estimated and are constant for the planning period v Inventories are built up and drawn down at a uniform rate throughout each period v Backlogs are treated as if they exist the entire period 11 -23

Cumulative Graph 11 -24

Mathematical Techniques v Linear programming models v Simulation models Ø Computerized models that can be tested under different scenarios to identify acceptable solutions to problems 11 -25

Aggregate Planning in Services v Hospitals: Ø Aggregate planning used to allocate funds, staff, and supplies to meet the demands of patients for their medical services v Airlines: Ø Aggregate planning in this environment is complex due to the number of factors involved Ø Capacity decisions must take into account the percentage of seats to be allocated to various fare classes in order to maximize profit or yield v Restaurants: Ø Aggregate planning in high-volume businesses is directed toward smoothing the service rate, determining workforce size, and managing demand to match a fixed capacity Ø Can use inventory; however, it is perishable 11 -26

Aggregate Planning in Services v The resulting plan in services is a time-phased projection of service staff requirements v Aggregate planning in manufacturing and services is similar, but there are some key differences related to: Ø Ø Demand for service can be difficult to predict Capacity availability can be difficult to predict Labor flexibility can be an advantage in services Services occur when they are rendered 11 -27

Disaggregation Aggregate Plan Disaggregation Master Schedule 11 -28

Disaggregating the Aggregate Plan v Master schedule: Ø The result of disaggregating an aggregate plan Ø Shows quantity and timing of specific end items for a scheduled horizon 11 -29

Master Scheduling v The heart of production planning and control Ø It determines the quantity needed to meet demand from all sources Ø It interfaces with o o Marketing Capacity planning Production planning Distribution planning Ø Provides senior management with the ability to determine whether the business plan and its strategic objectives will be achieved 11 -30

The Master Scheduler v The master scheduler’s duties: Ø Evaluating the impact of new orders Ø Providing delivery dates for orders Ø Deals with problems o Evaluating the impact of production or delivery delays o Revising master schedule when necessary because of insufficient supplies or capacity o Bring instances of insufficient capacity to the attention of relevant personnel so they can participate in resolving conflicts 11 -31

Time Fences Period 1 2 “frozen” (firm or fixed) 3 4 5 “slushy” somewhat firm 6 7 8 9 “liquid” (open) 11 -32

The Master Scheduling Process Inputs Outputs Beginning inventory Forecast Customer orders Projected inventory Master Production Schedule Master production schedule Uncommitted inventory 11 -33

Master Scheduling Process v The master production schedule (MPS) is one of the primary outputs of the master scheduling process Ø Once a tentative MPS has been developed, it must be validated v Rough cut capacity planning (RCCP) is a tool used in the validation process Ø Approximate balancing of capacity and demand to test the feasibility of a master schedule Ø Involves checking the capacities of production and warehouse facilities, labor, and vendors to ensure no gross deficiencies exist that will render the MPS unworkable 11 -34

MPS – Forecasts and Customer Orders 11 -35

MPS – Projected On Hand 11 -36

Determining MPS and Projected On Hand Week Inventory from Previous Week Requirements Inventory before MPS 1 64 33 31 31 2 31 30 1 1 30 -29 4 41 30 11 5 11 40 -29 6 41 40 1 7 1 40 -39 + 70 = 31 8 31 40 -9 + 70 = 61 (70) MPS + 70 Projected Inventory = 41 11 + 70 = 41 1 11 -37

Adding MPS and Projected On Hand to the MPS 11 -38

Available-to-Promise 11 -39