01-02-03-aggregate sales & operations planning (1)
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01-02-03-Aggregate Sales & Operations Planning (1)TRANSCRIPT
Aggregate Operations Planning
Class-1 , 2 and 3
Wish you all a very happy new year 2013 and welcome to Operations management-II
Group Structure for OM-IIGrp No. SR. NO. NAME
12PGDM-BHU001 Aastha Bansal12PGDM-BHU005 Anant Ashesh12PGDM-BHU009 Iliyas Ahmad12PGDM-BHU013 Jillam Parida12PGDM-BHU002 Aditya Anshuman Dash12PGDM-BHU006 Apurv Chaturvedi12PGDM-BHU010 Ishaan Rattanpal12PGDM-BHU014 Jubin Joseph 12PGDM-BHU003 Ajay Pratap Singh 12PGDM-BHU007 Bibhu Prasad Rath12PGDM-BHU011 Irshad Alam12PGDM-BHU015 Kunder Dhiraj Sadhu12PGDM-BHU004 Ajeet Singh Chauhan12PGDM-BHU008 Dipanjan Bhattachrya12PGDM-BHU012 Japkirat Singh Oberai12PGDM-BHU016 Lovepreet Singh12PGDM-BHU017 Megha Kulbhushan12PGDM-BHU022 Suman Sekhar Pradhan12PGDM-BHU023 Sujeet Singh12PGDM-BHU020 Siladitya Sahoo12PGDM-BHU021 Singamsetti Subba Rao12PGDM-BHU018 Shiva Krishna Padhi12PGDM-BHU019 Shivani Parashar12PGDM-BHU025 Yashraj Behera
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Aggregate Planning
• Overview of Sales and Operations Planning Activities,
• The Aggregate Operations Plan,• Aggregate Planning Techniques• Production-Planning Hierarchy• Aggregate Planning• Master Production Scheduling• Types of Production-Planning and
Control Systems
Aggregate Planning
Attempts to match the supply of and demand for a product or service by determining the appropriate quantities and timing of inputs, transformation, and outputs. Decisions made on production, staffing, inventory and backorder levels.
Operations Planning Overview
• Long-range planning– Greater than one year planning horizon– Usually with yearly increments
• Intermediate-range planning– Six to eighteen months – Usually with monthly or quarterly increments
• Short-range planning– One day to less than six months– Usually with weekly increments
Hierarchical Production PlanningForecasts neededDecision ProcessDecision Level
Annual demand byitem and by region
Allocatesproduction
among plantsCorporate
Monthly demandfor 15 months by
product type
Determinesseasonal plan by
product type
Plant manager
Monthly demandfor 5 months by
item
Determines monthlyitem production
schedules
Shopsuperintendent
Production Planning Hierarchy
Master Production Scheduling Master Production Scheduling
Production Planning and Control SystemsProduction Planning and Control Systems
Pond DrainingPond DrainingSystemsSystems
Aggregate Operations PlanningAggregate Operations Planning
PushPushSystems Systems
PullPullSystemsSystems
Focusing onFocusing onBottlenecksBottlenecks
Long-Range Capacity PlanningLong-Range Capacity Planning
Production Planning HorizonsProduction Planning HorizonsProduction Planning HorizonsProduction Planning Horizons
Master Production Scheduling Master Production Scheduling
Production Planning and Control SystemsProduction Planning and Control Systems
Pond DrainingPond DrainingSystemsSystems
Aggregate Operations PlanningAggregate Operations Planning
PushPushSystems Systems
PullPullSystemsSystems
Focusing onFocusing onBottlenecksBottlenecks
Long-Range Capacity PlanningLong-Range Capacity PlanningLong-RangeLong-Range
(years)(years)
Medium-RangeMedium-Range(6-18 months)(6-18 months)
Short-RangeShort-Range(weeks)(weeks)
Very-Short-RangeVery-Short-Range(hours - days)(hours - days)
Production Planning: Units of MeasureProduction Planning: Units of MeasureProduction Planning: Units of MeasureProduction Planning: Units of Measure
Master Production SchedulingMaster Production Scheduling
Production Planning and Control SystemsProduction Planning and Control Systems
Pond DrainingPond DrainingSystemsSystems
Aggregate Operations PlanningAggregate Operations Planning
PushPushSystems Systems
PullPullSystemsSystems
Focusing onFocusing onBottlenecksBottlenecks
Long-Range Capacity PlanningLong-Range Capacity PlanningEntire Entire
Product LineProduct Line
ProductProductFamilyFamily
SpecificSpecificProduct ModelProduct Model
Labor, Materials,Labor, Materials,MachinesMachines
Why Aggregate Planning Is Necessary
• Fully load facilities and minimize overloading and under loading
• Make sure enough capacity available to satisfy expected demand
• Plan for the orderly and systematic change of production capacity to meet the peaks and valleys of expected customer demand
• Get the most output for the amount of resources available
Aggregate Planning
• Goal: Specify the optimal combination of– production rate (units completed per unit of time)– workforce level (number of workers)– inventory on hand (inventory carried from
previous period)
Required Inputs to the Aggregate Planning System
Planning for
production
External capacity
Competitors’behavior
Raw material availability
Market demand
Economic conditions
Currentphysical capacity
Current workforce
Inventory levels
Activities required for production
Internal to firm
External to firm
Outputs
• A production plan: aggregate decisions for each period in the planning horizon about– workforce level– inventory level– production rate
• Projected costs if the production plan was implemented
Medium-Term Capacity Adjustments
• Workforce level– Hire or layoff full-time workers– Hire or layoff part-time workers– Hire or layoff contract workers
• Utilization of the work force– Overtime– Idle time (undertime) – Reduce hours worked
• . . . more
Medium-Term Capacity Adjustments
• Inventory level– Finished goods inventory– Backorders/lost sales
• Subcontract
Key Aggregate Planning Strategies
• Matching Demand (Chase Strategy)
• Level Capacity (Level Strategy)– Buffering with inventory– Buffering with backlog– Buffering with overtime or subcontracting
• Combination of two
Matching Demand Strategy
• Capacity (Production) in each time period is varied to exactly match the forecasted aggregate demand in that time period
• Capacity is varied by changing the workforce level
• Finished-goods inventories are minimal
• Labor and materials costs tend to be high due to the frequent changes
Developing and Evaluatingthe Matching Production Plan
• Production rate is dictated by the forecasted aggregate demand
• Convert the forecasted aggregate demand into the required workforce level using production time information
• The primary costs of this strategy are the costs of changing workforce levels from period to period, i.e., hirings and layoffs
Level Capacity Strategy
• Capacity (production rate) is held level (constant) over the planning horizon
• The difference between the constant production rate and the demand rate is made up (buffered) by inventory, backlog, overtime, part-time labor and/or subcontracting
Developing and Evaluatingthe Level Production Plan
• Assume that the amount produced each period is constant, no hirings or layoffs
• The gap between the amount planned to be produced and the forecasted demand is filled with either inventory or backorders, i.e., no overtime, no idle time, no subcontracting
• . . . more
Balancing Aggregate Demandand Aggregate Production Capacity
0
2000
4000
6000
8000
10000
Jan Feb Mar Apr May Jun
45005500
7000
10000
8000
6000
0
2000
4000
6000
8000
10000
Jan Feb Mar Apr May Jun
4500 4000
90008000
4000
6000
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.
Aggregate Planning Examples: Unit Demand and Cost Data
Materials Rs.5/unitHolding costs Rs.1/unit per mo.Marginal cost of stock out Rs.1.25/unit per mo.Hiring and training cost Rs.200/workerLayoff costs Rs.250/workerLabor hours required 0.15 hrs/unitStraight time labor cost Rs.8/hourBeginning inventory 250 unitsProductive hours/worker/day 7.25Paid straight hrs/day 8Present Workforce strength 7
Suppose we have the following unit demand and cost information:
Demand/mo Jan Feb Mar Apr May Jun
4500 5500 7000 10000 8000 6000
Days/Month 22 19 21 21 22 20
Determining Straight Labor Costs and Output
Jan Feb Mar Apr May JunDays/mo 22 19 21 21 22 20Hrs/worker/mo 159.5 137.75 152.25 152.25 159.5 145Units/worker 1063.3
3918.33 1015 1015 1063.33 966.67
Rs./worker 1,408 1,216 1,344 1,344 1,408 1,280
Productive hours/worker/day 7.25Paid straight hrs/day 8
Demand/mo Jan Feb Mar Apr May Jun
4500 5500 7000 10000 8000 6000
Given the demand and cost information below, what are the aggregate hours/worker/month, units/worker, and dollars/worker?
7.25x22
(7.25 x 22) / 0.15=1063.3322x8hrsxRs.8=Rs.1408
Chase Strategy(Hiring & Firing to meet demand)
JanDays/mo 22Hrs/worker/mo 159.5Units/worker 1,063.33Rs./worker Rs.1,408
JanDemand 4,500Beg. inv. 250Net req. 4,250Req. workers 3.997HiredFired 3Workforce 4
Ending inventory 0
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.
Jan Feb Mar Apr May JunDays/mo 22 19 21 21 22 20Hrs/worker/mo 159.5 137.75 152.25 152.25 159.5 145Units/worker 1,063 918 1,015 1,015 1,063 967Rs./worker Rs.1,408 1,216 1,344 1,344 1,408 1,280
Jan Feb Mar Apr May JunDemand 4,500 5,500 7,000 10,000 8,000 6,000Beg. inv. 250Net req. 4,250 5,500 7,000 10,000 8,000 6,000Req. workers 3.997 5.989 6.897 9.852 7.524 6.207Hired 2 1 3Fired 3 2 1Workforce 4 6 7 10 8 7
Ending inventory 0 0 0 0 0 0
Below are the complete calculations for the remaining months in the six month planning horizon.
Jan Feb Mar Apr May Jun
Demand 4,500 5,500 7,000 10,000 8,000 6,000
Beg. inv. 250
Net req. 4,250 5,500 7,000 10,000 8,000 6,000
Req. workers 3.997 5.989 6.897 9.852 7.524 6.207
Hired 2 1 3
Fired 3 2 1
Workforce 4 6 7 10 8 7
Ending inventory 0 0 0 0 0 0
Jan Feb Mar Apr May Jun Costs
Material(Rs.) 21,250.00 27,500.00 35,000.00 50,000.00 40,000.00 30,000.00 203,750.00
Labor 5632 7,296 9408 13,440 11264 8960 56,000.00
Hiring cost 400.00 200.00 600.00 1,200.00
Firing cost 750.00 500.00 250.00 1,500.00
262,450.00
Below are the complete calculations for the remaining months in the six month planning horizon with the other costs included.
Rs.
Level Workforce Strategy (Surplus and Shortage Allowed)
JanDemand 4,500Beg. inv. 250Net req. 4,250Workers 6Production 6,380Ending inventory 2,130Surplus 2,130Shortage
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.
Jan Feb Mar Apr May JunDemand 4,500 5,500 7,000 10,000 8,000 6,000Beg. inv. 250 2,130 2,140 1,230 -2,680 -4,300Net req. 4,250 3,370 4,860 8,770 10,680 10,300Workers 6 6 6 6 6 6Production 6,380 5,510 6,090 6,090 6,380 5,800Ending inventory 2,130 2,140 1,230 -2,680 -4,300 -4,500Surplus 2,130 2,140 1,230Shortage 2,680 4,300 4,500
Below are the complete calculations for the remaining months in the six month planning horizon.
Assumption: Shortage of a month can be made off during the next month.
Jan Feb Mar Apr May Jun4,500 5,500 7,000 10,000 8,000 6,000
250 2,130 10 1230 -2680 -4,3004,250 3,370 4,860 8,770 10,680 10,300
6 6 6 6 6 66,380 5,510 6,090 6,090 6,380 5,8002,130 2,140 1,230 -2,680 -4,300 -4,5002,130 2,140 1,230
2,680 4,300 4,500
Jan Feb Mar Apr May Jun8,448 7,296 8,064 8,064 8,448 7,68031,900 27,550 30,450 30,450 31,900 29,000 181,250.002,130 2,140 1,230
3,350 5,375 5,625
Below are the complete calculations for the remaining months in the six month planning horizon with the other costs included
Below are the complete calculations for the remaining months in the six month planning horizon with the other costs included
Note, total costs under this strategy are less than Chase at Rs. 262,450/-
Note, total costs under this strategy are less than Chase at Rs. 262,450/-
LaborMaterialStorageStockout
5,500.00
48,000.00
14,350.00
249,100.00Rs.
Aggregate Plans for Services• For standardized services, aggregate planning
may be simpler than in systems that produce products
• For customized services,– there may be difficulty in specifying the nature
and extent of services to be performed for each customer
– customer may be an integral part of the production system
• Absence of finished-goods inventories as a buffer between system capacity and customer demand
Preemptive Tactics
• There may be ways to manage the extremes of demand:– Discount prices during the valleys.... have
a sale– Peak-load pricing during the highs ....
electric utilities
Yield Management
It is the process of allocating the right type of capacity to right type of customer at the right price and time to maximize the revenue.
Yield Management
It is most effective under following situation.
• Demand can be segmented.
• Fixed cost is high and variable
cost is low.
• Inventory is perishable.
• Product can be sold in advance
• Demand is highly variable
Yield Management System
Key elements of an effective yield management system
• Pricing structure
• Handling variability in arrival
• Managing the service process
• Managing customers
Objectives of MPS• Determine the quantity and timing of
completion of end items over a short-range planning horizon.
• Schedule end items (finished goods and parts shipped as end items) to be completed promptly and when promised to the customer.
• Avoid overloading or underloading the production facility so that production capacity is efficiently utilized and low production costs result.
The rules for schedulingThe rules for scheduling
No ChangeNo Change+/- 5%+/- 5%
ChangeChange
+/- 10%+/- 10%
ChangeChange
+/- 20%+/- 20%
ChangeChange
+/- 20%+/- 20%
ChangeChangeFrozenFrozen
FirmFirm
FullFullOpenOpen
1-21-2 weeksweeks
2-42-4weeksweeks
4-64-6weeksweeks
6+ 6+ weeksweeks
Time Fences
Time Fences• The rules for scheduling:
– Do not change orders in the frozen zone– Do not exceed the agreed on percentage
changes when modifying orders in the other zones
– Try to level load as much as possible– Do not exceed the capacity of the system
when promising orders.– If an order must be pulled into level load, pull
it into the earliest possible week without missing the promise.
Developing an MPS• Using input information
– Customer orders (end items quantity, due dates)
– Forecasts (end items quantity, due dates)– Inventory status (balances, planned receipts)– Production capacity (output rates, planned
downtime)
• Schedulers place orders in the earliest available open slot of the MPS
• . . . more
Developing an MPS
• Schedulers must:– estimate the total demand for products
from all sources– assign orders to production slots– make delivery promises to customers, and– make the detailed calculations for the MPS
Example: Master Production Scheduling
Arizona Instruments produces bar code scanners for consumers and other manufacturers on a produce-to-stock basis. The production planner is developing an MPS for scanners for the next 6 weeks.
The minimum lot size is 1,500 scanners, and the safety stock level is 400 scanners. There are currently 1,120 scanners in inventory. The estimates of demand for scanners in the next 6 weeks are shown on the next slide.
• Demand Estimates
CUSTOMERS CUSTOMERS
BRANCH WAREHOUSES BRANCH WAREHOUSES
MARKET RESEARCH MARKET RESEARCH
PRODUCTION RESEARCHPRODUCTION RESEARCH
500500
200200
00
1010
11
00
5050
300300
10001000
00
00
500500
400400
22 33 44
200200
000000
300300500500
00101000
700700
6655
10001000
200200
WEEKWEEK
Example: Master Production Scheduling
• Computations
CUSTOMERS CUSTOMERS
BRANCH WAREHOUSES BRANCH WAREHOUSES
MARKET RESEARCH MARKET RESEARCH
PRODUCTION RESEARCHPRODUCTION RESEARCH
500500
200200
00
1010
11
00
5050
300300
10001000
00
00
500500
400400
22 33 44
200200
000000
300300500500
00101000
700700
6655
10001000
200200
WEEKWEEK
TOTAL DEMAND TOTAL DEMAND
BEGINNING INVENTORY BEGINNING INVENTORY
REQUIRED PRODUCTIONREQUIRED PRODUCTION
ENDING INVENTORYENDING INVENTORY
710710
11201120
00
410410 560560
15001500
410410
13501350
11601160
15001500
900900
560560
700700
12501250950950460460
46046011601160
150015001500150000
10101010 12001200
950950
Example Master Production Scheduling
• MPS for Bar Code Scanners
SCANNER PRODUCTIONSCANNER PRODUCTION 00 15001500 15001500 150015001500150000
11 22 33 44 6655
WEEKWEEK
Example Master Production Scheduling
Rough-Cut Capacity Planning
• As orders are slotted in the MPS, the effects on the production work centers are checked
• Rough cut capacity planning identifies underloading or overloading of capacity
Example: Rough-Cut Capacity Planning
Texprint Company makes a line of computer printers on a produce-to-stock basis for other computer manufacturers. Each printer requires an average of 24 labor-hours. The plant uses a backlog of orders to allow a level-capacity aggregate plan. This plan provides a weekly capacity of 5,000 labor-hours.
Texprint’s rough-draft of an MPS for its printers is shown on the next slide. Does enough capacity exist to execute the MPS? If not, what changes do you recommend?
PRODUCTIONPRODUCTION 100100 200200 200200 280280250250
11 22 33 44 55
WEEKWEEK
TOTALTOTAL
10301030
Example: Rough-Cut Capacity Planning
• Rough-Cut Capacity Analysis
PRODUCTIONPRODUCTION 100100 200200 200200 280280250250
11 22 33 44 55
WEEKWEEK
TOTALTOTAL
10301030
LOADLOAD 24002400 48004800 48004800 6720672060006000 2472024720
CAPACITYCAPACITY 50005000 50005000 50005000 5000500050005000 2500025000
UNDERUNDER or or OVEROVER LOAD LOAD 26002600 200200 200200 1720172010001000 280280
Example: Rough-Cut Capacity Planning
• Rough-Cut Capacity Analysis– The plant is underloaded in the first 3
weeks (primarily week 1) and it is overloaded in the last 2 weeks of the schedule.
– Some of the production scheduled for week 4 and 5 should be moved to week 1.
Example: Rough-Cut Capacity Planning
Demand Management• Review customer orders and promise shipment of
orders as close to request date as possible• Update MPS at least weekly.... work with Marketing
to understand shifts in demand patterns• Produce to order..... focus on incoming customer
orders• Produce to stock ..... focus on maintaining finished
goods levels• Planning horizon must be as long as the longest
lead time item
Types of Production-Planningand Control Systems
• Pond-Draining Systems
• Push Systems
• Pull Systems
• Focusing on Bottlenecks
Pond-Draining Systems• Emphasis on holding inventories (reservoirs) of
materials to support production
• Little information passes through the system
• As the level of inventory is drawn down, orders are placed with the supplying operation to replenish inventory
• May lead to excessive inventories and is rather inflexible in its ability to respond to customer needs
• Suited for random demand, all types of production.
Push Systems• Use information about customers, suppliers, and
production to manage material flows• Flows of materials are planned and controlled by a
series of production schedules that state when batches of each particular item should come out of each stage of production
• Can result in great reductions of raw-materials inventories and in greater worker and process utilization than pond-draining systems
• Best suited for job shop
Pull Systems• Look only at the next stage of production and
determine what is needed there, and produce only that
• Raw materials and parts are pulled from the back of the system toward the front where they become finished goods
• Raw-material and in-process inventories approach zero
• Successful implementation requires much preparation
• Best suited for repetitive manufacturing
Focusing on Bottlenecks
• Bottleneck Operations– Impede production because they have less
capacity than upstream or downstream stages– Work arrives faster than it can be completed– Binding capacity constraints that control the
capacity of the system
• Optimized Production Technology (OPT)
• Synchronous Manufacturing
Synchronous Manufacturing
• Operations performance measured by– throughput (the rate cash is generated by
sales)– inventory (money invested in inventory), and– operating expenses (money spent in
converting inventory into throughput)
• . . . more
Synchronous Manufacturing
• System of control based on: – drum (bottleneck establishes beat or pace for
other operations)– buffer (inventory kept before a bottleneck so
it is never idle), and– rope (information sent upstream of the
bottleneck to prevent inventory buildup and to synchronize activities)
Bradford Manufacturing Planning Plant Production
1,000 case units.
1st (1-13) 2nd (14-26) 3rd (27-39) 4th (40-52) 1st (Next Year)
Forecast Demand 2,000 2,200 2,500 2,650 2,200
Ending Inventory Target 338 385 408 338
Quarter (Week Numbers)
Planning Data Numbers Units of measure
Initial number of employees 60 employees
Emplyees per line 6
Standard production rate (each line) 450 Cases per hour
Employee pay rate $20.00 per hour
Overtime pay rate $30.00 per hour
Standard hours per shift 7.5 hours
Maximum overtime per day 2 hours
Inventory carrying cost $1.00 per case (per year)
Stockout cost $2.40 per case
Employee hiring and training cost $5,000.00 per employee
Employee layoff cost $3,000.00 per employee
Bradford Manufacturing Planning Plant Production
Aggregate Plan1st (1-13) 2nd (14-26) 3rd (27-39) 4th (40-52)
Lines run 10 10 11 11Overtime hours per day 0 0 1 0
Beginning Inventory 200.0 393.8 387.5 622.4Production 2,193.8 2,193.8 2,734.9 2,413.1Expected Demand 2,000.0 2,200.0 2,500.0 2,650.0Ending Inventory 393.8 387.5 622.4 385.5
Deviation from Inventory Target 55.3 2.9 214.7 47.0Employees 60 60 66 66
Cost of PlanLabor Regular Time $624,000 $624,000 $686,400 $686,400Labor Overtime $0 $0 $128,700 $0Hiring and Training $0 $0 $30,000 $0Layoff $0 $0 $0 $0Inventory Carry Cost $13,822 $721 $53,671 $11,760Stockout Cost $0 $0 $0 $0
Quarter Budget $637,822 $624,721 $898,771 $698,160
$2,859,474
Quarter (Week Numbers)
Total Cost of Plan
Class Assignment
Submission Deadline – 11-1-2013, 3.30PM (Through Email)Full Marks – 10 marks ( Weightage 2 marks )
Class AssignmentThe central terminal at the Blue Dart Company receives air freight from aircraft arriving from all over India and redistributes it to aircraft for shipment to all Indian destinations. The company guarantees overnight shipment of all parcels, so enough personnel must be available to process all cargo as it arrives. The company now has 24 employees working in the terminal. The forecasted demand for warehouse workers for the next seven month is 24, 26, 30, 28, 24 and 24. It costs Rs.2000 to hire and Rs.3500 to layoff each worker. If overtime is used to supply labour beyond the present workforce straight-time capacity, it will cost the equivalent of Rs.2600 more for each additional worker needed. Should the company use a level capacity with overtime or a matching demand plan for the next six months ?