4-Aggregate_Planning_Part_II - A GGREGATE PLANNING(AP SALES...

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AGGREGATE PLANNING (AP) / SALES & OPERATIONS PLANNING (S&OP) PART II
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Costs Inventory-Related Costs: Holding & Shortage (Backorder) Costs Shortage Costs: Costs arise as a result of negative inventory level. Expressed in terms of money per unit short per planning period. Shortages can occur when forecasted demand exceeds the system capacity or when demands are higher than anticipated. A unit that is ordered and not delivered on time, but later on, due to shortage is called a backorder. Assumed to be linear. Include special record keeping and handling of backordered items, and loss of revenue and goodwill. Spring 2010 2 IE 324 – AP / S&OP 
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Costs Production-rate change costs: (Smoothing Costs) Arise as a result of changing the production levels from one period to the next Most important cost: Cost of changing size of workforce, include hiring and firing Hiring Costs: advertise, interview & train new hires Firing Costs: severance pay, morale decline & loss of goodwill Both costs are assumed to be linear function of the number of employees hired or fired. Spring 2010 3 IE 324 – AP / S&OP 
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Costs Idle time cost: Underutilization of workforce or idle time Ignored unless an extra expense is incurred during idleness Units supplied as input to another process Additives to preserve the status of a tank Aggregate plans are made with the help of a cost-sensitive performance measure. Spring 2010 4 IE 324 – AP / S&OP 
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Primary issues in Aggregate Planning Forecasts : D 1 , D 2 , ..., D T over periods (weeks, months, quarters) are often taken as deterministic . Smoothing : refers to costs resulting from changing production and workforce levels from period to period. Levelling resources (labor, funding), production. Example: a dairy farm and its products. It is costly to fluctuate milk output. Spring 2010 5 IE 324 – AP / S&OP 
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Primary issues in Aggregate Planning Bottlenecks : inability to respond to sudden changes in demand as a result of capacity restrictions. Example: demand in one month is unusually high, no sufficient capacity to meet that demand. One contribution of AP is to improve effectiveness with the bottlenecks. Example: molding capacity in casting, storage space in frozen food. Spring 2010 6 IE 324 – AP / S&OP 
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Primary issues in Aggregate Planning Planning horizon : “planlama ufku” (T). Specified in advance. Its choice is critical.
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