IES 303 Chapter 14: Aggregate Planning

1. IES 303 Chapter 14: Aggregate Planning Week 9 January 5, 2006 • Learning Objectives: • Understand the concepts and methods of aggregate planning • Formulate and solve capacity planning problem

2. Aggregate Plan Aggregate Plan: A statement of a company’s __________ _________, _____________, and_________holding based on estimates of customer requirements and capacity limitations Service Industry • _______________ • Regarding staffs and labor related factors Manufacturing Industry • _______________ • Regarding production rates and inventory

3. Aggregate Production Planning (APP) • Determines resource capacity to meet demand • For intermediate time horizon, 6-12 months • Not feasible to build new facility • May be feasible to hire/lay off workers, overtime, or subcontract • _______________ OR _______________

4. Business or annual plan Production or staffing Plan (Aggregate Plan) MPS or workforce schedule How should an aggregate plan fit with other plans? Figure 14.1

5. Operations Distribution and marketing Current machine capacities Customer needs Plans for future capacities Demand forecasts Workforce capacities Competition behavior Current staffing level Materials Accounting and finance Aggregate Supplier capabilities Cost data plan Storage capacity Financial condition Materials availability of firm Engineering Human resources New products Labor-market conditions Product design changes Training capacity Machine standards Aggregate Plan – Managerial Inputs

6. Aggregate plan Aggregate Plan – Outputs Aggressive Alternatives Complementary Products Competitive Pricing Reactive Alternatives

7. Aggregate Planning Objectives • Minimize Costs/Maximize Profits • Maximize Customer Service • Minimize Inventory Investment • Minimize Changes in Production Rates • Minimize Changes in Workforce Levels • Maximize Utilization of Plant and Equipment

8. Demand Units Time Examples of Capacity Adjustment to Meet Demand • Producing at a constant rate and using inventory to absorb fluctuations in demand • Hiring and firing workers to match demand • Maintaining resources for high demand levels • Increase or decrease working hours (overtime and undertime) • Subcontracting work to other firms • Using part-time workers • Providing the service or product at a later time period (backordering)

9. Planning Strategies • ____________________ • Match demand during the planning horizon by either • Vary workforce or vary output rate • ____________________ • Maintain a constant workforce level or constant output rate during the planning horizon • Constant workforce or constant output rate • ____________________ • Combined several strategies PURE STRATEGIES

10. ______________ ___________ Demand Demand Production Production Units Units Time Time Pure Strategy What are pros / cons of these strategies?

11. TABLE 14.1 PLANNING STRATEGIES FOR AGGREGATE PLANS Possible Alternatives Possible Alternatives Strategy during Slack Season during Peak Season 1. Chase #1: vary workforce Layoffs Hiringlevel to match demand 2. Chase #2: vary output Layoffs, undertime, Hiring, overtime,rateto match demand vacations subcontracting 3. Level #1: constant No layoffs, building No hiring, depletingworkforcelevel anticipation inventory, anticipation inventory, undertime, vacations overtime, subcontracting, backorders, stockouts 4. Level #2: constant Layoffs, building antici- Hiring, depleting antici-outputrate pation inventory, pation inventory, over- undertime, vacations time, subcontracting, backorders, stockouts

12. Aggregate Planning Costs • _______________________ • _______________________ • _______________________ • _______________________ • _______________________

13. Ex 1 Candy Company Given the following costs and quarterly sales forecasts of a candy company, compare the two strategies: Strategy 1: Level production with constant workforce level Strategy 2: Chase production by varying workforce level

14. Transportation Method • A method of LP • Gather all cost info into one matrix • Try to obtain the lowest cost alternative

15. Notations It = inventory at the end of period t (I0 = beginning inventory) h = holding cost per unit per period, r = regular production cost per unit, o = overtime cost per unit, u = undertime cost per unit s = subcontracting cost per unit, b = backordering cost per unit per period Rt = regular-time capacity in period t Ot = overtime capacity in period t St = subcontracting capacity in period t Dt= forecasted demand for period t U = total unused capacities

16. Tableau Method • Step 1: Put all capacities from the total capacity column into the unused capacity column. Next, put unit costs in each of the small boxes • Step 2: In column 1 (period 1), allocate as much production as you can to the cell with the lowest cost but do not exceed the unused capacity in that row or the demand in that column. • Step 3: Subtract your allocation from the unused capacity for the row. This quantity must never be negative.

17. Tableau Method (Cont’d) • Step 4: If there is still some demand left, repeat step 2, allocating as much production as possible to the cell with the next-to-lowest cost. Repeat until the demand is satisfied. • Step 5: Repeat steps 2 through 4 for periods 2 and beyond. Take each column separately before proceeding to the next. Be sure to check all cells with unused capacity for the cell with the lowest cost in a column.

18. Ex 2: Transportation Method Given the following costs and quarterly sales forecasts, use the transportation method to design a production plan. What is the total cost of the plan?