PRODUCTION AND OPERATIONS MANAGEMENT Ch 14 Aggregate Scheduling

PRODUCTION AND OPERATIONS MANAGEMENT Ch. 14: Aggregate Scheduling POM - J. Galván 1

Learning Objectives 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 POM - J. Galván 2

Aggregate Planning Requires Logical overall unit for measuring sales and outputs Forecast for intermediate planning period in these aggregate units Method for determining costs Model that combines forecasts and costs so that scheduling decisions can be made POM - J. Galván 3

Planning Setting goals & objectives • Example: Meet demand within the limits of available resources at the least cost Determining steps to achieve goals • Example: Hire more workers Setting start & completion dates • Example: Begin hiring in Jan. ; finish, Mar. Assigning responsibility POM - J. Galván 4

Planning Horizons Short-range plans Job assignments Ordering Job scheduling Dispatching Responsible: Operations managers, supervisors, foremen Today 3 Months Responsible: Operations managers Intermediate-range plans Sales planning Production planning and budgeting Setting employment, inventory, subcontracting levels Analyzing operating plans 1 year Responsible: Top executives Long-range plans R&D New product plans Capital expenses Facility location, expansion 5 years Planning Horizon POM - J. Galván 5

Types of Plans Management Level High Long-Range Facility location Top Executives Intermediate-Range Aggregate plans Operations Managers Short-Range Low Dispatching Today 3 months Supervisors 1 year POM - J. Galván 18 months 5 years 6

Relationships of the Aggregate Plan Marketplace and Demand Research and Technology Product Decisions Demand Forecasts, orders Work Force Process Planning & Decisions Raw Materials Available Aggregate Plan for Production Inventory On Hand Master Production Schedule External Capacity Detailed Work Schedules POM - J. Galván Priority Planning & Scheduling Plant Capacity 7

What’s Needed for Aggregate Planning A mathematically based aggregate planning model requires considerable: • time problem definition model development model verification model application • expertise people who understand the problem people who understand both the modeling process, and the specific model • money to pay for all of the above often requires funding for several people for several months! POM - J. Galván 8

Aggregate Scheduling Provides the quantity and timing of production for intermediate future • Usually 3 to 18 months into future Combines (‘aggregates’) production • Often expressed in common units Example: Hours, dollars, equivalents (e. g. , FTE students) Involves capacity and demand variables POM - J. Galván 9

Aggregate Scheduling Goals Meet demand Use capacity efficiently Meet inventory policy Minimize cost • • Labor Inventory Plant & equipment Subcontract POM - J. Galván 10

Aggregate Planning Strategies Pure Strategies Capacity Options — change capacity: • • • changing inventory levels varying work force size by hiring or layoffs varying production capacity through overtime or idle time subcontracting using part-time workers POM - J. Galván 11

Aggregate Planning Strategies Pure Strategies Demand Options — change demand: influencing demand • backordering during high demand periods • counterseasonal product mixing • POM - J. Galván 12

Aggregate Planning Options Advantages and Disadvantages Option Advantage Disadvantage Some Comments Changing INVENTORY levels Changes in inventories are gradual, not abrupt production changes Inventory holding costs; shortages Applies mainly to resulting in lost production, not sale may occur if service settings demand increases Varying WORKFORCE SIZE by hiring or layoffs Avoids use of other alternatives Hiring, layoff, and training costs POM - J. Galván Used where many unskilled people seek extra income 13

Advantages/Disadvantages continued Option Varying PRODUCTION RATES through overtime or idle time Advantage Disadvantage Some Comments Overtime Matches seasonal Allows flexibility premiums, tired fluctuations without within the workers, may not hiring/training costs aggregate plan meet demand Permits flexibility SUBCONTRACTING and smoothing of the firm's output POM - J. Galván Loss of quality control; reduced profits; loss of future business Applies mainly in production settings 14

Advantages/Disadvantages continued Advantage Disadvantage Some Comments Using PARTTIME WORKERS Less costly and more flexible than full-time workers High turnover/training costs; quality suffers; scheduling difficult Good for unskilled jobs in areas with large temporary labor pools Influencing DEMAND Tries to use excess capacity. Discounts draw new customers. Uncertainty in demand. Hard to match demand to supply exactly. Creates marketing ideas. Overbooking used in some businesses. Option POM - J. Galván 15

Advantage/Disadvantage continued Option BACK ORDERING during highdemand periods COUNTER SEASONAL products and service mixing Advantage Disadvantage Some Comments May avoid overtime. Keeps capacity constant Customer must be Many companies willing to wait, but backlog. goodwill is lost. Fully utilizes resources; allows stable workforce. Risky finding May require skills products or or equipment services with outside a firm's opposite demand areas of expertise. patterns. POM - J. Galván 16

Aggregate Scheduling Strategies Mixed strategy • Combines 2 or more aggregate scheduling options Level scheduling strategy • • Produce same amount every day Keep work force level constant Vary non-work force capacity or demand options Often results in lowest production costs POM - J. Galván 17

Aggregate Scheduling Methods Graphical & charting techniques Popular & easy-to-understand • Trial & error approach • Mathematical approaches • • Transportation method Linear decision rule Management coefficients model Simulation POM - J. Galván 18

The Graphical Approach to Aggregate Planning Forecast the demand for each period Determine the capacity for regular time, overtime, and subcontracting, for each period Determine the labor costs, hiring and firing costs, and inventory holding costs Consider company policies which may apply to the workers or to stock levels Develop alternative plans, and examine their total costs POM - J. Galván 19

Comparison of Aggregate Planning Methods Techniques Charting/graphical methods Transportation method Management coefficient model Approaches Trial and error Optimization Aspects Simple to understand, easy to use. Many solutions; one chosen may not be optimal LP software available; permits sensitivity analysis and constraints. Linear function may not be realistic Heuristic POM - J. Galván Simple, easy to implement; tries to mimic manager’s decision process; uses regression 20

Controlling the Cost of Labor in Service Firms Close control of labor hours to ensure quick response to customer demand Some form of-on-call labor resource that can be added or deleted to meet unexpected demand Flexibility of individual worker skills to permit reallocation of available labor Individual worker flexibility in rate of output or hours of work to meet demand POM - J. Galván 21