371 13 capacity planning

8/14/2019 371 13 Capacity Planning

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IN THE NAME OF ALLAH THE MOSTBENIFICIEN THE MOST MERCIFUL


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Group Members Shahid Iqbal

ME2-2002 Farhan Shahzad

ME2-2012 Gulraiz Khan

ME2-2017 Muhammad Asadullah

ME2-2025


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Ca pacity pla nning o rAg gregate Pl annin g


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Aggregate Production Planning (APP)

Determines resource capacity to meet

demand

For intermediate time horizon, 6-12 months

Not feasible to build new facility

May be feasible to hire/lay off workers,

overtime, or subcontract Adjusting capacity OR managing demand


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How should an aggregate plan fit with other plans?

Businessor annualplan

MPS orworkforceschedule

Productionor staffing

Plan (Aggregate Plan)


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Aggregate Plan Managerial Inputs

Supplier capabilities

Storage capacity

Materials availability

Materials

Current machine capacities

Plans for future capacities

Workforce capacities

Current staffing level

Operations

New products

Product design changes

Machine standards

Engineering

Labor-market conditions

Training capacity

Human resources

Cost data

Financial condition

of firm

Accounting and finance

Aggregate

plan

Customer needs

Demand forecasts

Competition behavior

Distribution and marketing


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Aggregate Plan Outputs

Units ordollars

subcontracted

Size ofWorkforce and

Workforce Adjustment

Productionper month

(in units or $)

InventoryLevels

Aggregate

plan

Units or dollarsOf Backlogs,

backorders , orstockout

Reactive Alternatives

ComplementaryProducts

CompetitivePricing

Aggressive Alternatives


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Aggregate Planning Objectives Minimize Costs/Maximize Profits

Maximize Customer Service

Minimize Inventory Investment

Minimize Changes in Production Rates

Minimize Changes in Workforce Levels Maximize Utilization of Plant and Equipment


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Examples of CapacityAdjustment to Meet

Demand

1. Producing at a constant rate and using inventory to absorbfluctuations in demand

2. Hiring and firing workers to match demand

3. Maintaining resources for high demand levels

4. Increase or decrease working hours (overtime and undertime)

5. Subcontracting work to other firms

6. Using part-time workers

7. Providing the service or product at a later time period(backordering)

Demand

Units

Time


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Planning Strategies Chase Strategies

Match demand during the planning horizon byeither

Vary workforce or vary output rate

Level Strategies Maintain a constant workforce level or

constant output rate during the planning

horizon Constant workforce or constant output rate

Mixed Strategies Combined several strategies

PURE

STRATEGIES


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Pure Strategy

Level Production

Production

Demand

Units

Time

Chase Demand

Production

Demand

Units

Time


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PLANNING STRATEGIES FOR AGGREGATE PLANS

Possible Alternatives Possible Alternatives

Strategy during Slack Season during Peak Season

4. Level #2: constant Layoffs, building antici- Hiring, depleting antici-

outputrate pation inventory, pation inventory, over-

undertime, vacations time, subcontracting,

backorders, stockouts

1. Chase #1: vary workforce Layoffs Hiring

level to match demand2. Chase #2: vary output Layoffs, undertime, Hiring, overtime,

rateto match demand vacations subcontracting

3. Level #1: constant No layoffs, building No hiring, depleting

workforcelevel anticipation inventory, anticipation inventory,

undertime, vacations overtime, subcontracting,

backorders, stockouts


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Aggregate Planning Costs Regular-Time Costs

Overtime Costs

Hiring and

Layoff Costs Inventory

Holding Costs

Backorder and Stockout Costs


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Ex 1 Candy CompanyGiven the following costs and quarterly sales forecasts of a candy

company, compare the two strategies:

Strategy 1: Level production with constant workforce level

Strategy 2: Chase production by varying workforce level

80,000

50,000

120,000

150,000

Spring

Summer

Fall

Winter

Sale Forecast(LB)

Quarter $100 per worker

$500 per worker

$0.50 per pound per

quarter1000 pounds perquarter

100 workers

Hiring cost

Firing cost

Inventory carrying cost

Production rate peremployee

Beginning workforce


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TransportationMethod

A method of LP

Gather all cost info into onematrix

Try to obtain the lowest costalternative


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Tableau Method

Step 1: Put all capacities from the total capacity columninto the unused capacity column. Next, put unit costs ineach of the small boxes

Step 2: In column 1 (period 1), allocate as muchproduction as you can to the cell with the lowest cost butdo not exceed the unused capacity in that row or thedemand in that column.

Step 3: Subtract your allocation from the unused capacityfor the row. This quantity must never be negative.


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Step 4: If there is still some demand left, repeat step 2,allocating as much production as possible to the cell with thenext-to-lowest cost. Repeat until the demand is satisfied.

Step 5: Repeat steps 2 through 4 for periods 2 and beyond. Takeeach column separately before proceeding to the next. Be sure tocheck all cells with unused capacity for the cell with the lowestcost in a column.

Tableau Method (Contd)


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Farnsworth's Production, Demand,Capacity, and Cost Data

100 tiresBeginning

inventory

130150150Subcontracting

505050Overtime

700700700Regular

7501000800DemandCapacity:

MayApr.Mar.

Sales Period


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Cost

Regular time = $40 per tire

Overtime = $50 per tire

Subcontracting = $70 per tire

Carrying Cost = $2 per tire per month


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27802307501000800Total Demand

130 0

130

70Subcontra

50 0 50

50

Overtime

700 0 49

700

Regular3

150 0

100

72 70

50

Subcontra

50 0 52 50

50

Overtime

7000 42 40

700

Regular2

150 0 74 72

150

70Subcontra

50 0 54 52

50

50Overtime

700 044 42 40

700

Regular1

100 0 4 20

100

Beginning inventory

Unused

Capacity

Period 3

(May)

Period 2

(Apr.)

Period 1

(Mar.)

Total Capacity

Available

(supply)

Demand ForSupply Form


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Aggregate Planning in Services

Aggregate planning may be easier than inmanufacturing for services like

Restaurants

Hospitals

National chains of small service firms

Airline industries etc


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Controlling the cost of Labor inservices is critical

As it is the primary planning vehicle involving :

Close scheduling of labor hours (quick response)

On Call labor resources (unexpected demand)

Flexibility of individual worker skills Individual worker flexibility in rate of out put


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END THANK U

371 13 capacity planning

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