Aggregate Planning_Lect - Aggregate Planning 1 Planning...

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Unformatted text preview: Aggregate Planning 1 Planning Tasks and Responsibilities 2 Types of Planning Over a Types Time Horizon Time Long Range Planning Intermediate Range Planning Short Range P*Limited options lanning exist Add Facilities * Add long lead time equipment Sub-Contract Add Equipment Add Shifts Add Personnel Build or Use Inventory Schedule Jobs Schedule *ersonnel P Allocate Machinery Modify Capacity Use Capacity 3 The Production Planning Process Top Management Planning Business Planning Sales Planning Production Planning no FE E DB A C K Objectives Demands Resources Operations management Planning Resource OK? yes Bill of Materials Inventory status Routings Master Scheduling Materials Planning Capacity Planning Planning OK? yes no Products Materials Capacity Operations Management Execution Purchasing Shop Floor control Performance Measurement Parts Hours 4 Accountability Relationships of the Aggregate Plan Marketplace and Demand Demand Forecasts, orders Product Decisions Research and Technology Process Planning & Capacity Work Force Decisions Aggregate Plan for Production Raw Materials Available Master Production Schedule, and MRP systems Detailed Work Schedules External Capacity Subcontractors Inventory On Hand 5 Aggregate Planning Goals Meet demand Use capacity Use efficiently efficiently Match capacity to Match demand demand Meet inventory policy Minimize cost Labor Inventory Plant & equipment Subcontract 6 Inputs and Outputs to APP Capacity Constraints Strategic Objectives Company Policies Demand Forecasts Aggregate Production Planning Financial Constraints Size of Workforce Production per month (in units or $) Inventory Levels Units or dollars subcontracted, backordered, or lost 7 Production planning process Corporate strategies and policies Economic Political Competitive conditions Aggregate demand forecast Business Plan Aggregate Plan Master Production Schedule Establishes Operations and capacity strategy Establishes Operations capacity Establishes schedule for specific products 8 Required Inputs to the Production Planning System Planning Competitors’ behavior External capacity Raw material availability Planning for production Market demand Economic conditions External to firm Current physical capacity Current workforce Inventory levels Activities required for production Internal to firm Pure Strategies - The Extremes Level Strateg y Production rate is constant Level production - produce at constant rate & use inventory as needed to meet demand Chase Strate gy Production equals demand Chase demand - change workforce levels so that production matches demand 10 10 Level Production Demand Production Units Time 11 11 Chase Demand Demand Production Units Time 12 12 Aggregate Planning Strategies Pure Strategies Capacity Options — change capacity: changing inventory levels varying work force size by hiring or varying layoffs layoffs varying production capacity through varying overtime or idle time overtime subcontracting using part-time workers 13 13 Aggregate Planning Strategies Pure Strategies Demand Options — change demand: demand – pricing, promotion during high demand influencing backordering backordering periods periods counterseasonal product mixing 14 14 Balancing Aggregate Demand Balancing and Aggregate Production Capacity Suppose the figure to the right represents forecast demand in units Now suppose this lower figure represents the aggregate capacity of the company to meet demand What we want to do is balance out the production rate, workforce levels, and inventory to make these figures match up 10000 8000 6000 4000 2000 0 Jan 10000 8000 6000 4000 2000 0 Jan Feb Mar Apr May Jun 6000 4500 4000 4000 Feb Mar 9000 Apr May Jun 5500 4500 7000 6000 10000 8000 8000 Examples from Indian industry Automobiles Automobiles - Mahindra _different strategies strategies Two wheelers – LML Ltd (flow) Process – ACC refractories Hotels, Restaurants Services – Banking , Credit cards Airports _ flexi - counters 16 16 APP Using Pure Strategies Solved example: QUARTER Spring Summer Fall Winter Hiring cost Firing cost Inventory carrying cost Production per employee Beginning work force SALES FORECAST (LB) 80,000 50,000 120,000 150,000 = $100 per worker = $500 per worker = $0.50 pound per quarter = 1,000 pounds per quarter = 100 workers 17 17 APP Using Pure Strategies QUARTER Spring Summer Fall Winter SALES FORECAST (LB) 80,000 50,000 120,000 150,000 Level production Hiring cost = $100 per worker Firing cost = $500 per worker (50,000 + 120,000 + 150,000 + 80,000) Inventory carrying cost = $0.50 pound per quarter 4 Production per employee = 1,000 pounds per quarter Beginning = 100,000 poundsworkers work force = 100 18 18 Level Production Strategy SALES FORECAST 80,000 50,000 120,000 150,000 PRODUCTION PLAN INVENTORY 100,000 100,000 100,000 100,000 400,000 20,000 70,000 50,000 0 140,000 QUARTER Spring Summer Fall Winter Cost = 140,000 pounds x 0.50 per pound = $70,000 19 19 Chase Demand Strategy Chase QUARTER SALES PRODUCTION FORECAST PLAN WORKERS NEEDED WORKERS WORKERS HIRED FIRED Spring Summer Fall Winter 80,000 50,000 120,000 150,000 80,000 50,000 120,000 150,000 80 50 120 150 0 0 70 30 100 20 30 0 0 50 Cost = (100 workers hired x $100) + (50 workers fired x $500) = $10,000 + 25,000 = $35,000 20 20 APP Using Mixed Strategies MONTH January February March April May June DEMAND (CASES) 1000 400 400 400 400 400 MONTH July August September October November December DEMAND (CASES) 500 500 1000 1500 2500 3000 Production per employee= 100 cases per month Wage rate = $10 per case for regular production = $15 per case for overtime = $25 for subcontracting Hiring cost = $1000 per worker Firing cost = $500 per worker Inventory carrying cost = $1.00 case per month Beginning work force = 10 workers 21 21 Aggregate Planning Methods Graphical Popular & charting techniques & easy-to-understand Trial & error approach Mathematical approaches method (Mgmt Sc) Transportation 22 22 Summary: The Aggregate Operations Plan Summary: Main purpose: Specify the optimal combination Main of of production rate (units completed per unit of production time) time) workforce level (number of workers) inventory inventory on hand (inventory carried from previous period) previous Product group or broad category (Aggregation) This planning is done over an intermediaterange planning period of 6 to18 months range Key Strategies for Meeting Demand Key Chase Level Level Some combination of the two Aggregate Planning Examples: Unit Demand and Cost Data Demand Suppose we have the following unit demand and cost information: Demand/mo Jan 4500 Feb 5500 Mar 7000 Apr 10000 May 8000 Jun 6000 Materials Holding costs Marginal cost of stockout Hiring and training cost Layoff costs Labor hours required Straight time labor cost Beginning inventory Productive hours/worker/day Paid straight hrs/day $5/unit $1/unit per mo. $1.25/unit per mo. $200/worker $250/worker .15 hrs/unit $8/hour 250 units 7.25 8 Cut-and-Try Example: Determining Cut-and-Try Straight Labor Costs and Output Straight Given the demand and cost information below, what are the aggregate hours/worker/month, units/worker, and dollars/worker? Demand/mo Jan 4500 Feb 5500 Mar 7000 Apr 10000 May 8000 Jun 6000 7.25x22 Productive hours/worker/day Paid straight hrs/day 22x8hrsx$8=$14 08Days/mo Hrs/wo rker/mo Units/wo rker $ /wo rker Jan 22 1 59 .5 1 06 3 .3 3 $ 1 ,40 8 Feb 19 1 3 7.7 5 9 1 8.3 3 1 ,2 1 6 7.25 8 M ar 21 1 52 .2 5 10 1 5 1,3 4 4 Apr 21 1 52 .2 5 1015 1,3 4 4 159.5/0.15 =1063.3 M ay 22 15 9 .5 10 6 3 .33 1,4 0 8 Jun 20 145 9 66 .6 7 1,2 8 0 26 26 Chase Strategy Chase (Hiring & Firing to meet demand) Days/mo Hrs/worker/mo Units/worker $/worker Jan 22 159.5 1,063.33 $1,408 Lets assume our current workforce is 7 workers. First, calculate net requirements for production, or 4500-250=4250 units Then, calculate number of workers needed to produce the net requirements, or 4250/1063.33=3.997 or 4 workers Finally, determine the number of workers to hire/fire. In this case we only need 4 workers, we have 7, so 3 can be fired. Demand Beg. inv. Net req. Req. workers Hired Fired W orkforce Ending inventory Jan 4,500 250 4,250 3.997 3 4 0 Below are the complete calculations for the remaining months in the six month planning horizon Days/mo Hrs/worker/mo Units/worker $/worker J an 22 159.5 1,063 $1,408 Feb 19 137.75 918 1,216 Mar 21 152.25 1,015 1,344 Apr 21 152.25 1,015 1,344 May 22 159.5 1,063 1,408 Jun 20 145 967 1,280 Demand Beg. inv. Net req. Req. workers Hired Fired W orkforce Ending inventory Jan 4,500 250 4,250 3.997 3 4 0 Feb 5,500 5,500 5.989 2 6 0 Mar 7,000 7,000 6.897 1 7 0 Apr 10,000 10,000 9.852 3 10 0 May 8,000 8,000 7.524 2 8 0 Jun 6,000 6,000 6.207 1 7 0 Below are the complete calculations for the remaining months in the six month planning horizon with the other costs included Demand Beg. inv. Net req. Req. workers Hired Fired Workforce Ending inventory J an 4,500 250 4,250 3.997 3 4 0 Feb 5,500 5,500 5.989 2 6 0 Mar 7,000 7,000 6.897 1 7 0 Apr 10,000 10,000 9.852 3 10 0 May 8,000 8,000 7.524 2 8 0 Jun 6,000 6,000 6.207 1 7 0 Material Labor Hiring cost Firing cost Jan Feb Mar Apr May Jun $21,250.00 $27,500.00 $35,000.00 $50,000.00 $40,000.00 $30,000.00 5,627.59 7,282.76 9,268.97 13,241.38 10,593.10 7,944.83 400.00 200.00 600.00 750.00 500.00 250.00 Costs 203,750.00 53,958.62 1,200.00 1,500.00 $260,408.62 Level Workforce Strategy (Surplus and Shortage Allowed) Shortage Lets take the same problem as before but this time use the Level Workforce strategy This time we will seek to use a workforce level of 6 workers Demand Beg. inv. Net req. W orkers P roduction Ending inventory Surplus Shortage Jan 4,500 250 4,250 6 6,380 2,130 2,130 Below are the complete calculations for the remaining months in the six month planning horizon Jan 4,500 250 4,250 6 6,380 2,130 2,130 Feb 5,500 2,130 3,370 6 5,510 2,140 2,140 Mar 7,000 2,140 4,860 6 6,090 1,230 1,230 Apr 10,000 1,230 8,770 6 6,090 -2,680 2,680 May 8,000 -2,680 10,680 6 6,380 -1,300 1,300 Jun 6,000 -1,300 7,300 6 5,800 -1,500 1,500 Demand Beg. inv. Net req. Workers Production Ending inventory Surplus Shortage Note, if we recalculate this sheet with 7 workers we would have a surplus Below are the complete calculations for the remaining months in the six month planning horizon with the other costs included J an 4,500 250 4,250 6 6,380 2,130 2,130 Feb 5,500 2,130 3,370 6 5,510 2,140 2,140 Mar 7,000 10 4,860 6 6,090 1,230 1,230 Apr 10,000 -910 8,770 6 6,090 -2,680 2,680 Jan $8,448 31,900 2,130 Feb $7,296 27,550 2,140 Mar $8,064 30,450 1,230 Apr $8,064 30,450 3,350 May 8,000 -3,910 10,680 6 6,380 -1,300 1,300 May $8,448 31,900 1,625 Jun 6,000 -1,620 7,300 6 5,800 -1,500 1,500 Jun $7,680 29,000 1,875 Note, total costs under this strategy are less than Chase at $260.408.62 $48,000.00 181,250.00 5,500.00 6,850.00 $241,600.00 Labor Material Storage Stockout Some Production Documents Some Engineering Tolerances Assembly Drawings drawings/ assembly charts Route Sheet Work Order ECN BOM BOM Engineering Drawing Example 13/16 diameter 2-1/2 1 13/32 diameter 1/4 R 2-1/4 45° 3/8 1-5/8 13/16 13/16 5/16 Bracket Scale: FULL Drawn: J. Thomas A- 435-038 Engineering Drawings - Show Dimensions, Tolerances, etc. Dimensions, Production Documents Production Assembly Assembly Drawing Drawing Assembly chart Route sheet Work order Assembly Drawing Shows exploded view of product Head Neck End Cap Handle Assembly Chart for Assembly A Tuna Sandwich Tuna 1 Tuna Fish SA1 Tuna Assy A1 Sandwich 2 Mayonnaise FG A2 3 Bread Assembly Drawing and Assembly Chart Assembly Route Sheet Route Lists all operations Route Sheet for Bracket Machine Shear # 3 Shear # 3 Drill press Brake press Operation Shear to length Shear 45° corners Drill both holes Bend 90° Setup Time 5 8 15 10 Operation Time/Unit .030 .050 3.000 .025 Sequence 1 2 3 4 Work Order Work uthorizes producing a given item, usually to a schedule Wo ing ufacturrk Orde Man r r e pt O pe D Date © 1984-1994 T/Maker Co. : oved Appr JM A correction or modification of an correction Engineering Change Notice: Provide engineering drawing or bill of material engineering chamfer on upper edge 2-1/2 1 13/16 diameter Engineering Change Notice (ECN) (ECN) 13/32 diameter 1/4 R 2-1/4 45° 3/8 1-5/8 13/16 13/16 5/16 Bracket Scale: FULL Drawn: J. Thomas A- 435-038 MRP- Dependant demand MRP- Product Structure Tree Product Clipboard Top clip (1) Bottom clip (1) Pivot (1) Spring (1) Rivets (2) Finished clipboard Pressboard (1) Product Structure Tree Product Clipboard Level Level 0 Pressboar d (1) Clip Ass’y (1) Rivets (2) Level Level 1 Top Clip (1) Bottom Clip (1) Pivo t (1) Spring (1) Level 2 Bill-of-Material Product Structure Tree Bicycle(1) P/N 1000 Handle Bars (1) Frame Assembly (1) P/N 1001 P/N 1002 Wheels (2) P/N 1003 Frame (1) P/N 1004 Bill of Material Example © 1995 Corel Corp. Bill of Material P/N: 1000 Name: Bicycle P/N Desc Qty 1001 Handle Bars 1 1002 Frame Assy 1 1003 W heels 2 1004 Frame 1 Units Level Each 1 Each 1 Each 2 Each 2 Aggregate Planning Aggregate 1. 2. 3. 3. 4. 5. 6. Steps and techniques for aggregate planning Determine demand for each period Determine capacities for each period (regular, Determine OT, sub-contracting etc) Identify company / departmental policies that Identify are pertinent (safety stock, level workforce) are Determine unit costs - for regular time, OT, subfor Determine contracting, holding inventories, backorders, layoffs etc Develop alternative plans and compute cost for each If satisfactory plan emerges, select one that best If satisfies objectives- else repeat step 5. 48 48 Aggregate Planning – assumptions made Regular Regular capacity same in all periods (No holidays , festivals etc) holidays Cost is a linear function of unit cost and Cost number of units. (cost actually step a function) Plans are feasible – sufficient capacity / Plans inventory holding available inventory All costs associated with a decision are All represented by a lump sum or per unit cost (Actually step function) cost Cost figures can be reasonably estimated Inventory build up and withdrawal at Inventory constant rate. Backlogs for entire period. constant 49 49 Next _ MPS and MRP 50 50 Aggregate Scheduling Options Aggregate Advantages and Disadvantages Advantages Option Changing inventory levels Advantage Changes in human resources are gradual, not abrupt production changes Disadvantage Inventory holding costs; Shortages may result in lost sales Some Comments Applies mainly to production, not service, operations Varying workforce size by hiring or layoffs Avoids use of Hiring, layoff, other alternatives and training costs Used where size of labor pool is large 51 51 Advantages/Disadvantages - Continued Option Varying production rates through overtime or idle time Subcontracting Advantage Matches seasonal fluctuations without hiring/training costs Permits flexibility and smoothing of the firm's output Disadvantage Overtime premiums, tired workers, may not meet demand Loss of quality control; reduced profits; loss of future business Some Comments Allows flexibility within the aggregate plan Applies mainly in production settings 52 52 Advantages/Disadvantages - Continued Option Using part-time workers Advantage Less costly and more flexible than full-time workers Tries to use excess capacity. Discounts draw new customers. Disadvantage High turnover/training costs; quality suffers; scheduling difficult Uncertainty in demand. Hard to match demand to supply exactly. Some Comments Good for unskilled jobs in areas with large temporary labor pools Creates marketing ideas. Overbooking used in some businesses. Influencing demand 53 53 Advantage/Disadvantage - Continued Option Back ordering during highdemand periods Counterseasonal products and service mixing Advantage May avoid overtime. Keeps capacity constant Fully utilizes resources; allows stable workforce. Disadvantage Customer must be willing to wait, but goodwill is lost. May require skills or equipment outside a firm's areas of expertise. Some Comments Many companies backorder. Risky finding products or services with opposite demand patterns. 54 54 The Graphical Approach to The Aggregate Planning Aggregate Forecast the demand for each period Determine the capacity for regular time, Determine overtime, and subcontracting, for each period period Determine the labor costs, hiring and Determine firing costs, and inventory holding costs firing Consider company policies which may Consider apply to the workers or to stock levels apply Develop alternative plans, and examine Develop their total costs their 55 55 Forecast and Average Forecast Demand Production rate per working day 70 60 50 40 30 20 10 0 Jan Feb Mar Apr Level production us ing a verage monthly forecas t dem and Forecast Demand May Jun 22 20 18 21 21 22 56 56 Farnsworth’s Transportation Table Period 1 (Mar) Beginning Beginning Inventory Inventory Regular Overtime 0 100 40 700 50 70 X X X X X X 800 Period 2 (Apr) 2 42 52 50 72 150 40 700 50 50 70 50 X X x 1000 Period 3 (May) 4 44 54 74 42 52 72 40 700 50 50 70 750 Unused Unused Capacity Capacity (Dummy) 0 0 0 0 0 0 Total Capacity Total Available Available (Supply) 100 700 50 150 700 50 Period 2 Subcontra ct Regular Overtime Period 3 Period 1 Subcontra ct Regular Overtime Subcontra ct Total Total Demand Demand 0 100 150 0 0 0 700 50 130 57 57 230 2780 Comparison of Three Major Aggregate Comparison Planning Methods Planning Techniques Approaches Aspects Simple to understand, Charting/graphical Trial and methods methods Transportation Transportation method method error easy to use. Many solutions; one chosen may not be optimal Optimizatio n Management coefficient model model LP software available;permits sensitivity analysis and constraints. Linear function may not be realistic Simple, easy to implement; tries to mimic manager’s decision process; uses Heuristic 58 58 Production Planning Process - stages 59 59 ...
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This note was uploaded on 03/03/2011 for the course MARKETING 101 taught by Professor Singh during the Spring '11 term at Management Development Institute.

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