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Unformatted text preview: MGMT MGMT 36100 Operations Management (OM) Ch IV: Aggregate Planning 1 Aggregate Aggregate Planning
Decision
Strategic Tactical Operational OM Examples
New Plants, Capacity Expansion, … Plants, Capacity Expansion, Aggregate planning, Master Production Schedule planning, MRP, Detailed scheduling, … Objective: to develop a feasible production plan on an aggregate to level level based on demand, capacities, costs and other factors. on demand capacities costs and other factors Terminology: Planning horizon, planning strategy (chase level) constraints aggregate production plan (chase, level), constraints, aggregate production plan (basic (basic plan, adjustments, final plan). 2 Aggregate Aggregate Planning
Our approach 1. Calculate aggregate demand for each period. Ex. 1 and 2 Ex. 2. 2. Preparing aggregate plan: a) Select a strategy and obtain the basic plan. strateg b) Make adjustments to satisfy policies (constraints) to get the final plan. Ex. 3, 4, 5 and 6. Ex. 3. Prepare Budget: Break down the final plan (giving preference to Prepare Budget: Break down the final plan (giving preference to least least cost production method) and calculate costs. Ex. 6. Ex. 4. Budget improvement: Make further adjustments to improve costs (Demonstration only no questions on the exams Ex costs. (Demonstration only, no questions on the exams ). Ex. 7. Generally we will use one period = one month we will use one period one month 3 Example Example 1 Demand for 4 products for the next month is given Part (a): Calculate aggregate (demand) requirement in term of Calculate the standard product “AA” Time Time [Hrs. /unit] [Hrs /unit] AA BB CC DD 2.0 3.0 1.5 1.0 Demand [units] [units] 2000 1000 2400 1200 Demand in standard units 2.0 2.0 * 2000 / 2.0 = 2000 3.0 * 1000 / 2.0 = 1500 1.5 * 2400 / 2.0 = 1800 1.0 * 1200 / 2.0 = 600
= 5900 5900 Aggregate requirement requirement How much time do we need to meet demand for each product? product? How many standard units can we make in the same time? Part (b): What to do if capacity in standard units is 5000? What
Overtime / temporary workers / subcontract (out sourcing), produce in the prior period back order (produce in future periods) don in the prior period, back order (produce in future periods), don’t meet meet demand.
4 product? Ex.2 Ex.2 How much time do we need to meet demand for each product? How many standard units can we make in the same time? Rate Rate [unit/day] E D I 200 200 160 60 Demand [units] 3000 3000 880 120 Demand in standard units (3000 / 200) * 160 = 2400 200) 160 2400 ( 880 / 160) * 160 = 880 ( 120 / 60) 120 60) * 160 = 320 160 320
= 3600 15.0 days days 5.5 days 2.0 days days 22.5 days Aggregate requirement Production time: 3600 [units] / 160 [units/day] = 22.5 [days]. If we have 21 days available during the next month, we need to plan for the excess units. Any Any product can be a standard Back Back ordering problems: product. Customer Customer satisfaction. Lost sales. What if demand remains high? We still need the same amount of time to make all products. Will need long term solution Will need a long term solution.
5 Examples Examples 1 and 2: comparison
How much time do we need to meet demand for each product? How much time do we need to meet demand for each product? How many standard units can we make in the same time? Time [Hrs. /unit] AA BB CC DD 2.0 3.0 1.5 1.0 Demand 2000 1000 2400 2400 1200 Demand in standard units 2.0 * 2000 / 2.0 = 2000 3.0 * 1000 / 2.0 = 1500 1.5 * 2400 / 2.0 = 1800 2400 1800 1.0 * 1200 / 2.0 = 0600 5900 Demand in standard units (3000 / 200) * 160 = 2400 (880 / 160) * 160 = 0880 (120 / 60) * 160 = 0320 3600
6 Aggregate requirement Rate [unit/day] E D I 200 160 60 Demand 3000 880 120 Aggregate requirement Developing Developing Aggregate Plan.
For aggregate planning, we consider a number of periods; the agg co pe total span is called the planning horizon. For planning, we can planning use different strategies: Chase, Level or a combination. Chase, Chase Strategy: produce quantity equal to aggregate demand for each period in order to keep inventory level zero. Level Strategy: Produce quantity equal to the average requirement over the planning horizon. Policies (constraint) examples: 1. Capacity in each period may be limited. 2. No shortages may be permitted (customer satisfaction). 3. No inventory is kept. 4. Must leave certain inventory at the end of period X. 5. Must meet demand during planning horizon. 6. Hiring and firing of workers. Sometime we may have soft constraints. We try to meet these Sometime we may have soft constraints. We try to meet these constraints constraints as much as possible.
7 Example Example 3 Chase Strategy
Period Capacity Requirement Basic Plan Plan End Inventory End Inventory 1 8000 5000 5000 0 0 2 Constraints: Cannot exceed capacity. No shortages are permitted. What’s wrong with the basic plan? 4 Capacity exceeded in P3. 8000 8000 8000 What can we do? 6000 8500 4500 Shift 500 units to P1. Shift 500 units to P2. 6000 8500 4500 6000 8500 4500 Shift 500 units to P4. 0 0 0 A combination? 6500 8000 4500 500 0 0 3 Adjusted Plan 5000 Shift 500 units to P2.  Produce close to desirable period. Why? Adjusted plan is ok This is the final plan Adjusted plan is ok. This is the final plan. Requirement also means demand. Plan represents production quantity.
8 Example Example 3 . cont Level Strategy Average demand = (5000+6000+8500+4500)/4 = 6000 Inv. for period X = Inv. for (X1) + Production for X  Demand for X (XPeriod Capacity Demand Basic plan Inventory Adjust. 1 Inventory
Adjust. 2 Inventory 0 Constraints: Cannot exceed capacity. No shortages are permitted. 0 1 2 8000 8000 5000 6000 6000 6000 0 0 6500 6500 1500 2000
6500 1500 6500 2000 4 What’s wrong? 8000 8000 Shortage of 1500 in P3. Increase production by 8500 4500 Increase production by 500 6000 6000 500 in P1, P2 and P3. 3 What’s wrong? 6500 6000 We have inventory in P4. 0 1500 Generally, we want zero inventory at the end of inventory at the end of 6500 4500 planning planning horizon.
0 0 1000 1000 1500 0 Reduce P4 by 1500.
9 You could do these two adjustments in one step. Ex Ex 4: Chase
Period Requirement Basic Plan Inventory Adjusted plan plan Inventory Final Plan Inventory Constraints: No shortages. Capacity 4000. Must have at least 600 units at the end of April. Jan. 2000 1200 800 0 3400 3400 800 2200 3400 800 2200 Feb. March April 4500 4500 0 4000 4000 1700 1700 4800 4300 4800 4300 0 900 900 0 600 4000 600 4000 4000 4000 4000 May 2900 2900 0 2900 2900 600 2300 0 June 2700 2700 0 2700 2700 600 2700 0 4000 4000 800 on hand at the start of planning horizon. What’s wrong with the basic plan? wrong with the basic plan? Capacity Capacity exceeded in Feb., Mar. and Apr. Incorrect inventory: Apr. Adjustment 1: Move 500 + 800 + 300 to Jan. + Add 600 to Jan. What’s wrong with the adjusted plan? wrong with the adjusted plan? 600 left after June. Reduce 600 in May
10 Ex Ex 4. Level
Period Constraints: No shortages. Capacity 4000. Must have at least 600 units at the end of April. Average = (2000+4500+4800+4300+2900+2700 – 800)/6 = 3400 (2000+4500+4800+4300+2900+2700 3400 Jan. Feb. March 2000 4500 3400 3400 800 800 800 2200 1100 3850 3850 3850 3850 2650 2000 3850 3850 2650 2000 4800 3400 300 3850 3850 1050 3850 1050 April 4300 3400 1200 3850 3850 600 3850 600 May 2900 3400 700 3400 3400 1100 2500 200 June 2700 3400 0 3400 3400 1800 2500 0 Requirement Basic Plan Inventory Adjusted plan plan Inventory Final Plan Inventory What’s wrong with the basic plan? Negative inventory: Mar., Apr. and May & incorrect inventory for April We will start with correction for April. Action: Add 1800 units in the first 4 moths (450) each. What’s wrong with the adjusted plan? 1800 left after June. Reduce 900 each from the last two months.
11 Ex Ex 4. Level,
Alternate Alternate solution Constraints: No shortages. Capacity 4000. Must have at least 600 units at the end of April. Period Requirement Basic Plan Inventory Adjustment Adjustment I Inventory Adjustment II Inventory Final Plan Inventory 800 800 800 800 Jan. Feb. March 2000 4500 3400 3400 2200 3500 3500 3500 3500 2300 1300 3875 3875 2675 2050 3875 3875 2675 2050 2675 2050 4800 3400 3500 3500 0 3875 1125 3875 1125 1125 April 4300 3400 1200 3400 3400 900 3775 600 3775 600 600 May 2900 3400 700 3400 3400 400 3400 1100 2500 200 200 June 2700 3400 0 3400 3400 300 3400 1800 2500 0 1100 300 We will correct for March. Action: Add 100 units in the first 3 moths. Now we will correct for April. Add 375 units to first 4 months. 1800 left after June. Reduce 900 each from the last two months.
12 Example Example 5
Chase Strategy Period Capacity Demand Inventory Adjust. 1 Inventory Adjust. 2 Inventory 1 5000 4250 0 4250 0 4250 0 Constraints: Cannot exceed capacity. Inventory cannot exceed 500. Soft constraint: Avoid shortages but if you cannot avoid, keep backordering as small as possible. 2 5000 4000 4000 0 4300 300 4200 200 3 5000 4700 0 600 500 4 5000 5600 0 0 100 5 5000 4600 4600 0 4600 0 4700 0 Basic Plan 4250 4700 5600 5000 5000 5000 5000 We will first take care of capacity (with no shortages). Then we will take care of inventory (with back inventory (with back ordering). ordering). Adjust. 2 gives a feasible plan. Basic plan: Capacity exceeded in P4. Move 300 to P3, 300 to P2. Adjust 1: Excess inventory in P3. Move 100 units from P2 to P5. Move Try this problem with the level strategy.
13 Example Example 6 Do not exceed capacities. No shortages. Chase Strategy
Period Capacity Demand Basic Plan Inventory Final Plan Inventory 1 5000 5000 0 5000 0 2 6000 6000 0 6000 0 3 8000 8000 4 9000 9000 5 6000 9000 9000 0 6000 0 6 11200 11000 11000 0 11000 0 11200 11200 11200 11200 0 0 8800 11200 800 3000 Basic plan: 3000 over capacity in P5, Adjustment: move 2200 to P4 800 to P3 Adjustment: move 2200 to P4, 800 to P3. We will now calculate costs for the final plan. 14 Ex Ex 6 Chase Strategy
Unit holding cost: $60/ period Capacity Regular Overtime SubSubcontract 6000 1200 4000 Capacity in P5 0 0 6000 Unit cost $1000 $1150 $1250 Period 1 2 3 4 5 6 Total 48000 Demand 5000 6000 8000 9000 Final Plan 5000 6000 8800 11200 6000 Regular 5000 6000 6000 1200 OT  1200 4000 SC  1600 End Inventory 0 0 800 3000 Regular 5000 6000 6000 6000 OT 0 0 1380 1380 SC 0 0 2000 5000 Holding 0 0 48 180 Total 5000 6000 9428 12560 9000 11000 6000 11000 0 6000 0 1200 6000 3800 0 0 0 6000 0 1380 7500 4750 0 0 7500 12130 Costs in thousand dollars dollars 52,618
15 Example Example 6 Level Strategy: gy Do not exceed capacities. No shortages. Avg. requirement = (5000+6000+8000+9000+9000+11000) / 6 = 8000 Period Capacity Demand Basic Plan Inventory Final Plan Inventory 1 5000 8000 3000 8400 3400 2 6000 8000 5000 8400 5800 3 8000 8000 5000 8400 6200 4 9000 8000 4000 8400 5600 5 6000 9000 8000 3000 6000 2600 6 11200 11000 8000 0 8400 0 11200 11200 11200 11200 Basic plan: 2000 more than capacity in P5. Move 2000 to other periods equally (400 each period). We will now calculate costs for the final plan. will now calculate costs for the final plan
16 Ex Ex 6. Level Strategy Unit holding cost: $60/ period Period Demand Final Plan Regular OT SC End Inventory Regular OT SC Holding Total Capacity Regular Overtime SubSubcontract 6000 1200 4000 Capacity in P5 0 0 6000 Unit cost $1000 $1150 $1250 1 2 3 8000 8400 6000 1200 1200 6200 6000 1380 1500 372 9252 4 9000 8400 6000 1200 1200 5600 6000 1380 1500 336 9216 5 6 Total 48000 5000 6000 8400 8400 6000 6000 1200 1200 1200 1200 3400 5800 6000 6000 1380 1380 1500 1500 204 348 9084 9228 9000 11000 6000 8400 0 0 6000 2600 0 0 7500 156 7656 6000 1200 1200 0 6000 1380 1500 0 8880 Costs in thousand thousand dollars dollars 53,316
17 Ex Ex 6 Can we improve costs for the chase strategy budget of Ex. 5?
Unit holding cost: $60 / period
Capacity Capacity in P5 Unit cost P5 Regular Overtime SubSubcontract Period Requirement Basic plan Regular Overtime Subcontract Inventory 1 5000 5000 5000 0 0 0 2 6000 6000 6000 0 0 0 3 8000 8800 6000 1200 1600 800 6000 1200 4000 4 9000 11200 6000 1200 4000 3000 0 0 6000 5 9000 6000 0 0 6000 0 6 11000 11000 6000 1200 3800 0 $1000 $1150 $1250 Total 48000 Chase Strategy Move 1000 SC units from P3 to P1regular. Savings: $130,000 P1Move 600 SC units from P3 to P2 – overtime. Savings: $24,000 Total savings: $154,000
18 Aggregate Aggregate Planning
Additional considerations:
1. Someone has to determine production requirements before aggregating. 2. Someone has to determine capacities. Methodology:
1. Determine aggregate plan, then budget, then adjustments to improve cost. 2. Prepare a plan to minimize total cost using techniques such as li linear programming. One can consider additional costs such cost cost of backordering, cost of adding or reducing workers. The text book discusses some of these. 19 Developing Developing Aggregate Plan.
For aggregate planning, we consider a number of periods; the total span is called the planning horizon. For planning, we can planning use different strategies: Chase, Level or a combination. Chase, Chase Strategy: produce quantity equal to aggregate demand for each period in order demand for each period in order to to keep inventory level zero. Advantages Investment in inventory is low Labor utilization in high Disadvantages The cost of adjusting output rates and/or workforce levels. Level Strategy: Produce quantity equal to the average requirement over the planning requirement over the planning horizon. horizon. Advantages Stable output rates and Stable output rates and workforce workforce Disadvantages Greater inventory costs inventory costs 20 Effect Effect of set up time
There is one machine in the shop to produce two products: X, Y. Product X (standard product): 4 min/unit. Product Y: 3 min/unit Machine available: 7 hrs/day, 20 days/month or 140 hrs/month. hrs/day, We must produce X and Y in the ratio 1: 2 Preliminary Preliminary calculations: Machine Capacity in term of standard product: = 140 [hrs/month] * 60 [ min/hr] / 4 [min/unit = 2100 [units/month] 140 [hrs/month] 60 min/hr] [min/unit 2100 [units/month] Production time division between X and Y: We must produce X and Y in the ratio 1: 2. One unit of X will take 4 minutes and two units of will take minutes. Therefore, the minutes and two units of Y will take 6 minutes. Therefore, the production production time should be divided in the ratio 4:6 or 40% to 60%. Questions: Suppose there is 1 hour setup time when you change products. th ti  How should we schedule, and what will be monthly production if Part (a) We need to maximize monthly production. Part (b) We must produce both products daily. (b)
21 Example: Example: Effect of setup time setPart (a) We need to maximize monthly production. X S Y Production time per month: 139 hours, set up time 1 hour. time per month: 139 hours, set up time hour. 139 hours = 139 * 60 = 8340 minutes. 40% of 8340 = 3336 min. We can produce 3336 / 4 = 834 units of X. 60% of 8340 5004 min We can produce 5004 60% of 8340 = 5004 min. We can produce 5004 / 3 = 1668 units of Y. 1668 units of 834:1668 = 1:2 Time [Min. [Min. /unit] X Y 4.0 3.0 Production [units] 834 1668 1668 Total Production in standard units 834 (1668 * 3)/4 = 1251 (1668 3)/4 1251 2085 Machine Capacity = 2100 [units/month] of standard product.
22 Example: Example: cont.. Part (b) We must produce both products daily.
X Y S S Y X Day 1 Day 2 Production time per day: 6 hours, set up time 1 hour. Production time per month = 120 hours 120 hours = 120 * 60 = 7200 minutes. 40% of 7200 = 2880 min. We can produce 2880 / 4 = 720 units of X. 60% of 7200 = 4320 min. We can produce 4320 / 3 = 1440 units of Y. 720:1440 = 1:2 Time Production Production in [Min. /unit] /unit] X 4.0 Y 3.0 Capacity = 2100 [units] [units] 720 1440 Total standard units standard units 720 (1440 * 3)/4 = 1080 1800 In aggregate planning we may want to reduce aggregate capacit capacity by 10% to 15% to allow for set ups. 10% to 15% to allo for set
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This note was uploaded on 01/31/2011 for the course MGMT 361 taught by Professor Panwalker during the Spring '10 term at Purdue UniversityWest Lafayette.
 Spring '10
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