Aggregate Planning + Mps +capacity Planning 3h4j6d

Aggregate Planning -

Involves planning the best quantity to produce during time periods in the intermediate range horizon and planning the lowest cost method of providing the adjustable capacity to accommodate production requirements

Traditional Aggregate planning strategies concentrates on Maintaining a level workforce  Maintaining a steady output rate  Match demand period by period

Types of aggregate plans 

Level capacity plan- Maintaining a steady rate of regular-time output while

meeting variations in demand by a combination of options. Here Surplus and Shortages are allowed concentrates on Cost of hiring workers  Elimination of overtime 

Chase demand plan: Matching capacity to demand; the planned output for a period is the expected demand for that period. Here Hiring & Firing are practiced to meet demand

Sales and Operations Planning Activities  Long-range planning 



Greater than one year planning horizon Usually performed in annual increments

 Medium-range planning  

Six to eighteen months Usually with monthly or quarterly increments

 Short-range planning  

One day to less than six months Usually with weekly increments

Long range

Aggregate Planning

Process planning Strategic capacity planning

Intermediate Forecasting & demand range management

Sales and operations (aggregate) planning Sales plan

Aggregate operations plan

Manufacturing Services

Master scheduling Material requirements planning

Short range

Order scheduling

Weekly workforce and customer scheduling Daily workforce and customer scheduling

The Aggregate Operations Plan  Main purpose: Specify the optimal combination of  production rate (units completed per unit of time)  workforce level (number of workers)  inventory on hand (inventory carried from previous period)  Product group or broad category (Aggregation)  This planning is done over an intermediaterange planning period of 6 to18 months

Balancing Aggregate Demand and Aggregate Production Capacity 10000

Suppose the figure to the right represents forecast demand in units Now suppose this lower figure represents the aggregate capacity of the company to meet demand

10000 8000 8000 6000

7000 6000

5500 4500

4000

2000 0 Jan

Feb

Mar

Apr

May

Jun

9000

10000

8000

8000

What we want to do is balance out the production rate, workforce levels, and inventory to make these figures match up

6000

6000

4500

4000

Jan

Feb

4000

4000 2000 0 Mar

Apr

May

Jun

Required Inputs to the Production Planning System Competitors’ behavior External capacity

Current physical capacity

Raw material availability

Planning for production

Current workforce

Inventory levels

Market demand

External to firm

Economic conditions

Activities required for production

Internal to firm

Aggregate Planning Examples: Unit Demand and Cost Data Suppose we have the following unit demand and cost information: Demand/mo

Jan

Feb

Mar

Apr

May

Jun

4500

5500

7000

10000

8000

6000

Materials Holding costs Marginal cost of stockout Hiring and training cost Layoff costs Labor hours required Straight time labor cost Beginning inventory Productive hours/worker/day Paid straight hrs/day

$5/unit $1/unit per mo. $1.25/unit per mo. $200/worker $250/worker .15 hrs/unit $8/hour 250 units 7.25 8

Cut-and-Try Example: Determining Straight Labor Costs and Output Given the demand and cost information below, what are the aggregate hours/worker/month, units/worker, and dollars/worker? Demand/mo Jan

Feb

4500 5500

Mar

Apr

May

Jun

7000

10000

8000

6000

Productive hours/worker/day Paid straight hrs/day 22x8hrsx$8=$1408 Days/mo Hrs/worker/mo Units/worker $/worker

Jan 22 159.5 1063.33 $1,408

7.25x22

7.25 7.25x0.15=48.33 & 8 48.33x22=1063.33

Feb 19 137.75 918.33 1,216

M ar 21 152.25 1015 1,344

Apr 21 152.25 1015 1,344

M ay 22 159.5 1063.33 1,408

Jun 20 145 966.67 1,280

Chase Strategy (Hiring & Firing to meet demand) Days/m o Hrs/wo rker/m o Units/wo rker $ /wo rker

Dem and Beg. inv. Net req. Req. wo rkers Hired Fired W o rkfo rce Ending invento ry

Jan 22 1 5 9 .5 1 ,0 6 3 .3 3 $ 1 ,4 0 8

Jan 4 ,5 0 0 250 4 ,2 5 0 3 .9 9 7 3 4 0

Lets assume our current workforce is 7 workers.

First, calculate net requirements for production, or 4500-250=4250 units

Then, calculate number of workers needed to produce the net requirements, or 4250/1063.33=3.997 or 4 workers Finally, determine the number of workers to hire/fire. In this case we only need 4 workers, we have 7, so 3 can be fired.

Below are the complete calculations for the remaining months in the six month planning horizon Days/mo Hrs/worker/mo Units/worker $/worker

Demand Beg. inv. Net req. Req. workers Hired Fired Workforce Ending inventory

Jan 22 159.5 1,063 $1,408

Feb 19 137.75 918 1,216

Mar 21 152.25 1,015 1,344

Apr 21 152.25 1,015 1,344

May 22 159.5 1,063 1,408

Jun 20 145 967 1,280

Jan 4,500 250 4,250 3.997

Feb 5,500

Mar 7,000

Apr 10,000

May 8,000

Jun 6,000

5,500 5.989 2

7,000 6.897 1

10,000 9.852 3

8,000 7.524

6,000 6.207

2 8 0

1 7 0

3 4 0

6 0

7 0

10 0

Below are the complete calculations for the remaining months in the six month planning horizon with the other costs included Demand Beg. inv. Net req. Req. workers Hired Fired W orkforce Ending inventory

Material Labor Hiring cost Firing cost

Jan 4,500 250 4,250 3.997 3 4 0

Feb 5,500

Mar 7,000

Apr 10,000

May 8,000

Jun 6,000

5,500 5.989 2

7,000 6.897 1

10,000 9.852 3

8,000 7.524

6,000 6.207

2 8 0

1 7 0

6 0

7 0

10 0

Jan Feb Mar Apr May Jun $21,250.00 $27,500.00 $35,000.00 $50,000.00 $40,000.00 $30,000.00 5,627.59 7,282.76 9,268.97 13,241.38 10,593.10 7,944.83 400.00 200.00 600.00 750.00 500.00 250.00

Costs 203,750.00 53,958.62 1,200.00 1,500.00 $260,408.62

Level Workforce Strategy (Surplus and Shortage Allowed) Lets take the same problem as before but this time use the Level Workforce strategy This time we will seek to use a workforce level of 6 workers

Demand Beg. inv. Net req. W orkers P roduction Ending inventory Surplus Shortage

Jan 4,500 250 4,250 6 6,380 2,130 2,130

Below are the complete calculations for the remaining months in the six month planning horizon

Demand Beg. inv. Net req. Workers Production Ending inventory Surplus Shortage

Jan 4,500 250 4,250 6 6,380 2,130 2,130

Feb 5,500 2,130 3,370 6 5,510 2,140 2,140

Mar 7,000 2,140 4,860 6 6,090 1,230 1,230

Apr 10,000 1,230 8,770 6 6,090 -2,680

May 8,000 -2,680 10,680 6 6,380 -1,300

Jun 6,000 -1,300 7,300 6 5,800 -1,500

2,680

1,300

1,500

Note, if we recalculate this sheet with 7 workers we would have a surplus

Master Production Schedule (MPS): The result of disaggregating an aggregate plan; shows quantity and timing of specific end items for a scheduled horizon.

Master Scheduling Process Inputs

Outputs

Beginning inventory Forecast Customer orders

Projected inventory

Master Scheduling

Master production schedule Uncommitted inventory

Need for Capacity Planning Whenever the existing demand changes or addition of new products has to be made, then Capacity planning becomes a need

Capacity Planning Design includes:  Re-assessment of existing capacity  Effect of change in demand ie, effect of addition, deletion of products and their impact on existing capacity  Identifying ways of meeting desired capacity through

Better Utilisation  Higher Efficiency Overtime Adding a shift or two Adding new machinery, adding another production unit

Capacity Reduction    

Sell-off existing facilities Sell-off surplus inventories Lay off or transfer employees to other units Shut down equipment & place them as standby

Reasons for Capacity Change  A capacity shortage situation where present capacity is not enough to meet the forecast demand for the product  An excess or surplus capacity situation where the present capacity exceeds the expected future demand

Capacity Planning Market Considerations

Capacity Decisions

Resources Available Long term

Based on time horizon Short term Capacity Planning Classification Finite Based on amount of resources employed

Infinite

Capacity Planning Strategies The term Strategy is derived from the Greek word “strateg” means “ the art of the general” Alfred .D.Chandler defines Strategy as the determination of the basic long term goals and objectives of an enterprise and the adoption of the courses of action & the allocation of resources necessary for carrying out these goals Strategy levels  Corporate level  Business unit level  Functional level

Strategies Involved:  Active strategies: Objective- To smooth out the peaks and values of demand during planning horizon to obtain a smoother load on production facilities; during periods of low demand, sales can be encouraged through price cuts

 ive strategies: 1. Pure strategy- vary anyone of the factors such as work force, production rate, inventory, sub contracting, capacity utilisation.

2. Mixed strategy- Involves two or more pure strategies Strategy 1 : Vary the size of the work force in accordance with the fluctuations in demand Strategy 2 : Vary output rate keeping the same size of the work force and using overtime or idle time or short work week with reduced pay to workers. Strategy 3 : Maintaining the same level of production, keep inventory during periods of low demand and using the accumulated inventory to meet high demand in other time periods Strategy 4 : Sub-contracting work during high demand periods Strategy 5 : By varying the utilisation of capacity according to the demand to met

3. Mixed strategies to meet non- uniform demand Strategy 1 : Absorbing demand fluctuations by varying inventory level, back ordering or shifting demand Strategy 2 : Changing only the production to match with the non-uniform demand pattern Strategy 3 : Changing the size of the work force to vary the production level in accordance with demand