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Aggregate Planning

Aggregate Planning. This Chapter explores: An overview of operations planning techniques The hierarchical planning process Aggregate production planning Production planning strategies Applications: pure and mixed strategies Master Production Scheduling. Operations Planning Overview.

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Aggregate Planning

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  1. Aggregate Planning • This Chapter explores: • An overview of operations planning techniques • The hierarchical planning process • Aggregate production planning • Production planning strategies • Applications: pure and mixed strategies • Master Production Scheduling

  2. Operations Planning Overview • Long-range planning • Greater than one year planning horizon • Intermediate-range planning • Six to nine months • Short-range planning • One day to less than six months 1 year 6 months 1 week

  3. Weekly Workforce & Customer Scheduling Daily Workforce & Customer Scheduling Major Operations Planing Activities Process Planning Long Range Strategic Capacity Planning Aggregate Planning Medium Range Manufacturing Services Master Production Scheduling Material Requirements Planning Order Scheduling Short Range

  4. Chapter 7: Schedule Management

  5. Some Definitions • Process planning is selecting specific processes and technologies to produce a product or service. • Strategic capacity planning is the determination of the long-term capabilities of the system. • Aggregate planning involves translating long-term forecasted demand into specific production rates and the corresponding labor requirements for the intermediate term Production rates Long-term demand Aggregate Planning Labor requirements

  6. Hierarchical Production Planning Decision Level Decision Process Forecasts needed Allocates production among plants Annual demand by item and by region Corporate Determines seasonal plan by product type Monthly demand for 15 months by product type Plant manager Determines monthly item production schedules Monthly demand for 5 months by item Shop superintendent

  7. Aggregate Production Planning • Goal: Specify the optimal combination of • production rate (units/time) • workforce level (how many workers?) • inventory on hand (unsold product from previous runs)**the three items above are the basic controllable variables for production planning • Product group or broad category (Aggregation) • Medium-Range: 6-18 months

  8. Example: Factors Complicating Aggregate Planning at Henry Ford Clinic • High degree of demand variability • average number of occupied beds in 1991 was 770 • in one 8-week period an average of 861 beds was occupied • in another 8-week period an average of 660 beds were occupied • number of beds occupied could change by as may as 146 beds in less than two weeks

  9. Complicating Factors continued • Large penalty for not being able to admit HMO patients • lost revenue • must pay other hospital for patient’s stay • a simple obstetrics case cost $5,000 • Tight labor market for RNs • 12 to 16 weeks to recruit and train nurses at cost of $7,600 • Cost of 8-bed modules exceeds $35,000/ month

  10. Importance of Aggregate Planning • Without sufficiently long-term view may make short-term decisions that hurt the organization in the long-term • For example, shortly after Henry Ford Hospital reduced staff, it determined the staff was needed • New staff was recruited • Both staff reduction and recruiting costs incurred

  11. Extremely Difficult Decision • Demand can shift by more than 16% in a two-week period • Takes 12 - 16 weeks and costs $7,600 a piece to recruit new nurses • By time staff hired, demand may have shifted again

  12. Extremely Difficult Decision continued • If don’t have enough staff, cost $5,000 per patient turned away (simple cases) • Cost of one idle 8-bed module is $35,000/month or $420,000/year

  13. The Aggregate Plan • Approximate schedule of overall operations that will satisfy demand forecast at minimum cost • Planning horizon often a year or more and broken into monthly or quarterly periods • Purpose is to minimize short-sighted effects • Work with aggregate units and resources

  14. The Aggregate Plan continued • Equivalent units • Relevant costs • hiring and layoff costs • inventory and backorder costs • wages and overtime charges • subcontracting costs • Major cost categories are: production costs (direct, fixed and variable); production changes (hiring, firing, training); inventory holding costs; backlog costs.

  15. The Production Plan • Result of managerial iteration and changes to aggregate plan • Often disaggregated one level into major output groups: E.G. • Aggregate Plan: number of automobiles to be produced in each of the upcoming 12 months • Production Plan: number of compacts, mid-size, full-size, light trucks, and minivans to produce in each of the upcoming 12 months

  16. Aggregate Planning Example Keepdry, a small manufacturing company (200 employees), produces umbrellas. The company, founded in 1991 produces the following three product lines: 1) the Executive Line, 2) the Durable Line and 3) the Compact line shown in the following figure. .... Executive Line Durable Line Compact Line

  17. Aggregate Demand(Executive Line) Number of working days: Jan 22 Feb 19 Mar 21 Apr 21 May 22 Jun 20 ....

  18. Aggregate Planning: Some Key Strategies for Meeting Demand – Pure Plans • Chase • Stable Workforce--Variable Work Hours • Level ....

  19. Cost Information Materials $5/unit Holding costs $1/unit per month Marginal cost of stockout $1.25/unit per month Hiring and training cost $200/worker Layoff costs $250/worker Labor hours required .15 hrs/unit Straight time labor cost $8/hour Beginning inventory 250 units ....

  20. Costs of Production Plans Costs of four plans will be considered with the following assumptions: • Plan 1: Exact production; vary workforce • Plan 2: Constant workforce; vary inventory • Plan 3: Constant low workforce; subcontract • Plan 4: Constant workforce; overtime

  21. Determining Straight Labor Costs and Output ....

  22. Chase Strategy(Hiring & Firing) Beginning workforce level: 7 employees 4250 / 1173 (i.e. normal production rate per worker) ....

  23. ....

  24. ....

  25. Materials $5/unit Holding costs $1/unit per mo. Marginal cost of stockout $4/unit per mo. Hiring and training cost $200/worker Layoff costs $250/worker Labor hours required .15 hrs/unit Straight time labor cost $8/hour Beginning inventory 250 units Beginning workforce level 7 employees ....

  26. ....

  27. Level Production(Surplus and Shortage Allowed) Beginning workforce level: 6 employees ....

  28. ....

  29. ....

  30. Chapter 7: Schedule Management

  31. The Master Schedule • Point where actual orders are incorporated into scheduling system • Aggregate outputs broken down into individual end items • “It is the time-phased plan specifying how many and when the firm plans to build each end item.” • Show mattress example …

  32. MPS Activities: Check for the Following Problems • Does schedule meet production plan? • Does schedule meet demand forecasts? • Are there priority or capacity conflicts? • Are other constraints violated? • Does schedule conform to policy? • Does schedule conform to laws and rules? • Does schedule provide flexibility?

  33. Rough-Cut Capacity Planning • Feasibility check of master production schedule • Historical ratios of loads placed on workcenters used • Workloads assumed to fall in period end items demanded

  34. Priority Planning • What materials are needed when • Feasibility check of master production schedule to make sure all materials will be available when needed • Determine when order is needed and schedule backwards from that date • Material Requirements Planning (MRP) systems often used

  35. Capacity Requirement Planning (CRP) • Inventory control system and master schedule used to determine required capacity over planning horizon • Load reports generated for each work center • Inventory and lead times considered

  36. Loading • Deciding which jobs to assign to which work centers • Often some equipment or workers better for certain jobs

  37. Sequencing • After jobs assigned to work centers, order in which to process the jobs must be decided • Sequencing can have impact on timeliness of job completions • Priority rules often used

  38. Detailed (Short-Term) Scheduling • Detailed schedules itemizing specific jobs, times, materials developed • Typically done for only a few days in advance

  39. Dispatching • All previous activities are planning activities • Dispatching is the physical release of a work order from production planning

  40. Expediting • Task of getting job done on time once it is released to the shop floor • Special tags used to identify hot jobs

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