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CHAPTER 14 AGGREGATE PLANNING

CHAPTER 14 AGGREGATE PLANNING. Outline Aggregate Planning Issues Costs Two Strategies Chase Strategy Level Strategy Optimization. Hierarchy of Production Decisions. Master Production Schedule. April. May. 1. 2. 3. 4. 5. 6. 7. 8. Ladder-back chair. 150. 150. Kitchen chair.

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CHAPTER 14 AGGREGATE PLANNING

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  1. CHAPTER 14AGGREGATE PLANNING Outline • Aggregate Planning • Issues • Costs • Two Strategies • Chase Strategy • Level Strategy • Optimization

  2. Hierarchy of Production Decisions

  3. Master Production Schedule April May 1 2 3 4 5 6 7 8 Ladder-back chair 150 150 Kitchen chair 120 120 Desk chair 200 200 200 200 Aggregate production plan 790 550 for chair family

  4. Materials Requirement Planning Back slats Seat cushion Leg supports Seat-frame boards Back legs Front legs

  5. Issues in Aggregate Planning • Smoothing • Hiring, firing workers • Bottleneck problems • Sharp change in demand • Planning horizon • Inaccurate forecasts are associated with too large horizon and planning may be ineffective with too small horizon • Nature of Demand • Forecasts are usually wrong!

  6. Aggregate Production Planning • Input • Demand forecast • Level of resources • Relevant cost information • Output • Aggregate production quantities • production, inventory, backorder • Level of resources needed • Workforce, overtime, machine capacity level, subcontracting

  7. Costs in Aggregate Planning • Smoothing costs • Hiring and firing costs • Inventory holding costs • Cost of capital, storage, insurance, losses • Shortage costs • Backorder, lost sales

  8. Costs in Aggregate Planning • Production costs • Straight time costs • Labor costs, regular time ($/hour) • Overtime and subcontracting costs • Labor costs, overtime costs ($/hour) • Cost of subcontracting ($/unit or $/hour)

  9. Smoothing Costs

  10. Inventory Holding and Shortage Costs

  11. A Feasible Aggregate Plan

  12. Constraints • Limits on overtime • Limits on layoffs • Limits on capital available • Limits on stockouts and backorders

  13. Two Simple Strategies Demand • Chase strategy • Zero inventory, no holding cost, no shortages • Zero inventory is difficult to achieve Units Production Time

  14. Two Simple Strategies Demand Production Units Time • Level strategy • Stable workforce, no hiring/firing, no overtime, • no subcontract

  15. Optimization • Linear Programming • Excel Solver • Difficulty • Integer variables: number of workers

  16. Example • Develop a production plan and calculate the annual cost for a firm whose demand forecast is fall, 10, 000; winter, 8,000; spring 7,000; summer, 12,000. Inventory at the beginning of fall is 500 units. At the beginning of fall you currently have 30 workers, but you plan to hire temporary workers at the beginning of summer and lay them off at the end of summer. In addition, you have negotiated with the union an option to use the regular workforce on overtime during winter or spring if the overtime is necessary to prevent stock-outs at the end of those quarters. Overtime is not available during fall. (Continued...)

  17. Example Relevant costs are: hiring, $100 for each temp; layoff, $200 for each worker laid off; inventory holding, $5 per unit-quarter; backorder, $10 per unit; straight time, $5 per hour; overtime $8 per hour. Assume that the productivity is 0.5 units per worker hour, with eight hours per day and 60 days per season. • Develop a production plan using (1) all the constraints as stated (2) chase strategy, no overtime, work hours not flexible (3) chase strategy, no overtime, flexible hours (self study)

  18. Example (4) Suppose that a level strategy will be used without any overtime. What is the minimum number of workers required to avoid shortages? Develop a production plan using the minimum number of workers required to avoid shortages. (5) Assuming that the shortages are allowed and that 6 new workers will be hired in the beginning of the fall term develop a production plan using level strategy and no overtime (self study) (6) Assuming that the overtime will be used in fall and winter to prevent shortages and that 7 new workers will be hired in the beginning of the fall term, develop a production plan using level strategy with overtime (self study)

  19. Example Problem 1: The original problem

  20. Example Problem 1: The original problem Total

  21. Example (Chase) Problem 2: Chase, no overtime, work hours not flexible

  22. Example (Chase) Problem 2: Chase, no overtime, work hours not flexible Total

  23. Example (Chase) Problem 3: Chase, no overtime, flexible hours

  24. Example (Level) Problem 4: Constant workforce, no overtime, no shortages

  25. Example (Level) Problem 4: Constant workforce, no overtime, no shortages Total

  26. Example (Level) Problem 5: Constant 36 workers, no overtime, shortages allowed

  27. Example (Level) Problem 5: Constant 36 workers, no overtime, shortages allowed

  28. Example (Level) Problem 6: Constant 37 workers, overtime to prevent shortages

  29. Example (Level) Problem 6: Constant 37 workers, overtime to prevent shortages

  30. Reading and Exercises • Chapter 14 Pages 558-571 • Problems 4,5

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