1. Aggregate Planning

2. Production and Operations Planning Production Process Design Long Term Capacity Planning Aggregate Planning Forecast Master Production Schedule Demand Material Requirements Planning Individual Order Scheduling

3. The main idea behind aggregate planning Aggregate planning Translates business plans into rough labor schedules and production plans

4. Issues to Consider for Aggregate Planning Production rate: “aggregate units” per worker per unit time Workforce level: available workforce in terms of hours Actual Production: Production rate x Workforce level Inventory: Units carried over from previous periods Costs: production, changing workforce, inventory

5. What does aggregate planning do? Given an aggregate demand forecast, determine production levels, inventory levels, and workforce levels, in order to minimize total relevant costs over the planning horizon Given the number of variables, there is not a single optimal solution!

6. Aggregate Planning Strategies • Chase strategy: match production rate to production requirements by varying the workforce (no inventory buildup or shortage allowed) • Level strategy: keep aconstant workforce who work at maximum capacity (inventorywill vary from period to period); workforce level chosen such that the total requirement over the planning horizon can be exactly met • Stable workforce: keep aconstant workforce who work at maximum capacity; outsource in order to match production and requirements (no inventory buildup or shortage allowed); workforce level chosen such that they can exactly satisfy the requirements in the period with the minimum requirement level

7. Example: CA&J Company… Costs Inventory Labor

8. First step: Analyze the requirements… Production requirement = Forecast – Beginning Inventory Ending Inventory = Beginning Inventory + Production Requirement – Forecast

9. First step: Analyze the requirements…

10. Plan 1: Chase strategy (variable workforce)

11. Plan 1: Chase strategy

12. Plan 1: Chase strategy

13. Plan 2: Level strategy

14. Plan 2: Level strategy Number of workers required = Total hours required over planning horizon/(8*total days) = 38,000/(8*125) = 38. This is the no. of workers for each month

15. Plan 2: Level strategy

16. Plan 3: Stable strategy with outsourcing

17. Plan 3: Stable strategy with outsourcing Number of workers = enough workers to cover requirements in April = 900*5/(21*8) = 27 workers (this is the no. of workers for each month)

18. Plan 3: Stable strategy with outsourcing

19. Comparison Chase Level Stable

20. “Sensitivity Analysis” WHAT IF… … outsourcing costs increase or decrease? … the holding costs are higher? … the hiring costs are lower? … the firing costs are higher? We can always plug the data in and re-calculate the costs