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Aggregate Planning in Operations Management: Strategies and Applications

This module focuses on the essential aspects of aggregate planning within operations management, highlighting its significance in effective production strategy. Students will learn to discuss and evaluate various aggregate planning strategies, considering factors like production rates, workforce levels, and inventory. Key topics include yield management and the trade-offs of capacity, market demand, and associated costs. By the end of the course, participants will understand how to minimize total costs while meeting production and demand needs efficiently, ultimately enhancing their project management skills.

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Aggregate Planning in Operations Management: Strategies and Applications

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  1. Operations Management as a Competitive Weapon Module: Aggregate Planning

  2. OM Course Framework 3. Dependability - Project Management - JIT 1. Cost - Design & Selection 4. Flexibility - Inventory - Supply Chain - Location - Forecasting - Aggregate Planning 2. Quality - TQM - SQC Module: Aggregate Planning

  3. Learning Objectives At the end of this module, each student will be able to: • Discuss aggregate planning • Evaluate aggregate planning strategies • Discuss yield management Module: Aggregate Planning

  4. 1. Aggregate Planning • Provides the quantity and timing of production for intermediate future • Uses (‘aggregate’) production • Involves capacity and demand variables • Why: Key interface to capital budgeting process Module: Aggregate Planning

  5. Aggregate Planning Goal • For each period in the planning horizon, specify the appropriate combination of • production rate • workforce level • inventory level • Minimize sum of individual period’s total costs 6 Module: Aggregate Planning

  6. - + + 2. AP Basic Strategies • Level capacity: • Chase demand: Module: Aggregate Planning

  7. Other Considerations ChaseLevel Basic Cost: $ ?? $ ?? Hire & Fire  - Plant & Equipment  Inventory -  Total: $ ????? $ ????? Module: Aggregate Planning

  8. 3. Yield Management Objective: Allocate Capacity Customers Price Time  Maximize Revenue Module: Aggregate Planning

  9. Typical Characteristics 1. Capacity 2. Markets 3. Inventory 4. Purchase 5. Demand Module: Aggregate Planning

  10. Example Module: Aggregate Planning

  11. Solution Procedure: Marginal Cost CuUnderestimated demand (Cont. margin) [Denied reservation; have room] “spoilage” CoOverestimated demand (Alternative cost) [Have reservation; no room] “walked” “spill” Module: Aggregate Planning

  12. 2 * Co = 2*200 = $400 7 * Cu = 7*80 = $560 Solution Procedure: Marginal Cost Example: Cu = $80 Co = $200 Suppose we arbitrarily plan on 2 no-shows. Module: Aggregate Planning

  13. 1,200 1,000 ) 800 Expected Total Cost ($ 600 400 200 0 0 1 2 3 4 5 6 7 8 9 10 Planned No-Shows Solution Procedure: Marginal Cost Module: Aggregate Planning

  14. Solution Procedure: Marginal Cost Rule: Add no-shows as long as total expected cost is decreasing. OR: P(Co) > (1 – P)Cu Stocking level  Cu / (Co + Cu) Module: Aggregate Planning

  15. Solution Procedure: Marginal Cost Cu = $80; Co = $200; SL= 80/ (80 + 200) = 0.286 Module: Aggregate Planning

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