aggplanning - pkb
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Aggregate OperationsPlanning
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Aggregate Operations
PlanningAggregate (Production or Operations)
Planning is Concerned With DeterminingThe Quantity And Timing Of ProductionFor The Intermediate Future, Often From
Three To 18 Months Ahead.
The Goal is To Minimize Costs Over The
Planning Period.
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Other Objectives May Be To Minimize
Fluctuations In The Work Force OrInventory Levels in accordance with
company policies.
Based on the planning horizon, We can
divide plans into 3 general categories:
Aggregate Operations
Planning
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Process planning
Strategic capacity
planning
Sales and operations
(aggregate) planning
Sales
plan
Aggregateoperations
plan
Supply network
planning
Forecasting and
demand management
Master scheduling
Material requirements
planning
Order scheduling
Vehicle capacity
planning
Vehicle loading
Vehicle dispatching
Warehouse
receipt
planning
Weeklyworkforce
scheduling
Daily workforce
scheduling
Manufacturing Logistics Services
Long
range
Medium
range
Short
range
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Aggregate Operations
Planning
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Capacity Decisions Hierarchy
LinkagesFacilities
Planning
AggregatePlanning
Scheduling
Time FrameFacilities Planning
Aggregate PlanningScheduling
Time
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The Heart Of The Medium Range
Planning Is The Aggregate Production
(or Operations) Plan.
In Aggregate Planning, Given The
Demand Forecast, Production Capacity,
Inventory Levels, Size Of Work Force,And Other Inputs,
The Planner Has To Select The Rate Of
Output For The Next 3 To 18 Months.
Aggregate Operations
Planning
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Aggregation refers to the idea offocusing on overall capacity, rather
than individual products or services.
Aggregation is done according to:
Products Labour
Time
Aggregation
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An Example of Aggregation
Model
No.
Labour-hours
Required
Selling
PriceA5532 4.2 $ 285
K4242 4.9 345
L9898 5.1 395L3800 5.2 425
M2624 5.4 525
M3880 5.8 725
If Product Mix is stable with percentages as32%, 21%, 17%, 14%, 10% and 6% respectively,Then define a standard model with labour-hours
= (0.32x4.2) + (0.21x4.9) + (0.17x5.1) + (0.14x5.2) + (0.10x5.4)+ (0.06x5.8)
= 4.856 labour-hours per unit
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Here, Operations Manager Makes
Decisions About Intermediate Range
Capacity Without Getting Into Details Of
Specific Products, Parts, Or People.
Later, He/She Deals With Financial
Data, Personnel, Capacity, AndAvailability Of Raw Material As Well.
An Example of Aggregation
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As an intermediate type planning, The
aggregate plan interacts with both long
range strategies, AND short-term
planning activities.
An Example of Aggregation
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Required Inputs to the Production Planning System
Planningfor
production
External
capacity
Competitorsbehavior
Raw materialavailability
Marketdemand
Economic
conditions
Current
physical
capacity
Current
workforce
Inventory
levels
Activities
required
for
production
External
to firm
Internal
to firm
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Relationships Of AggregatePlan
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Aggregate production planning
involves managing...
Work force levels- the number ofworkers required for production.
Production rates - the number of unitsproduced per time period.
Inventory levels - the balance ofunused units carried forward from the
previous period.
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Common Objectives ofAggregate Planning
MINIMIZE:cost, inventory levels, changes in work
force levels, use of overtime, use ofsubcontracting, changes in production
rates, changes in production rates,
plant/personnel idle time
MAXIMIZE:profits, customer service
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Methods of InfluencingDemand
Price Incentives
ReservationsBacklogs
Complementary Products or
Services
Advertising/promotion
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Methods of InfluencingSupply
Hiring/firing workers
Overtime/slack time
Part time/temporary labour
Subcontracting
Cooperative arrangements
Inventories
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Aggregate ProductionPlanning Strategies
Chase strategy
production rates or work force levels are
adjusted to match demand requirements over
planning horizon
Level strategy
constant production rate or work force level is
maintained over planning horizon
Mixed strategy
both inventory level changes and work force
level changes occur
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Strategies In AggregatePlanning
There are several ways for
improving the effectiveness in the
aggregate planning process:
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Strategies In AggregatePlanning
1. Changing Inventory Levels
This is to Increase Inventory During
Periods Of Low Demand To Meet High
Demand in Future Periods.
However, By doing this, Costs Of Storage
and Handling Increases.
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Strategies In AggregatePlanning
2. Varying Work Force Size By Hiring Or
Layoffs
This is to Hire Or Lay Off Workers To Meet
Production Rates.
In this option, Often New Employees
Need To Be Trained.
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Strategies In AggregatePlanning
3. Varying Production Rates Through
Overtime Or Idle Time.
There is always a Limit For Overtime.
Costs also Increase.
S
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Strategies In AggregatePlanning
4. Subcontracting
Costly, Opens Doors To Competitors,
Hard To Find Perfect Subcontractor.
S i I A
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Strategies In AggregatePlanning
5. Using Part Time Workers
e.g., Fast Food Restaurants
St t i I A t
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Strategies In AggregatePlanning
6. Influencing Demand Through Advertising,
Promotion, And Price Cuts.
For example, Weekend Discounts At
Hotels and Airlines.
St t i I A t
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Strategies In AggregatePlanning
7. Back Ordering at High Demand Periods.
Back ordering means That A Firm
Promises To Deliver a Product In A Later
Date. Many Auto Dealers Purposely Back
Order.
St t i I A t
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Strategies In AggregatePlanning
8. Counterseasonal Product Mixing
This is To Develop A Product Mix Of
Counterseasonal Items.
For example, Companies That Make Both
Furnaces And Air Conditioners.
A t P d ti
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Aggregate ProductionPlanning Variable Costs
Hiring/firing costs
Overtime/slack time costs
Part time/temporary labor costs
Subcontracting costs
Cooperative arrangements costsInventory carrying costs
Backorder or stock out costs
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St t i I A t
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Strategies In AggregatePlanning
Although Each Of These Strategies Might
Produce A Cost Effective Aggregate Plan,
A Combination Of Them Often Works
Best.
But The Optimal Plan Is Not Always
Possible.
M th d F A t
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Methods For AggregatePlanning
1. Graphical And Charting Methods
2. Mathematical Approaches
A) Linear ProgrammingB) Linear Decision Rules
C) Management Coefficient Model
D) SimulationE) Search Decision Rules
G hi l A d Ch ti
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Graphical And ChartingMethods
- This is a Trial And Error Approach.
- It Does Not Guarantee Optimal Production
Plan.
- It is Easy To Apply And Understand. It
includes following steps:
G hi l A d Ch ti
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Graphical And ChartingMethods
1- Determine Demand In Each Period
2- Determine Capacities Of Regular Time,Overtime, And Subcontractor Each Period
3- Find Labour Costs, Hiring/Layoff Costs,And Inventory Costs
4- Consider Company Policies That May
Apply To The Workers Or To StockLevels.
5- Develop Alternative Plans And Find TheirTotal Costs.
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Level demand: plotted cumulatively
Build Inv.
Deplete Inv.
Cumulative amount
0
1000
2000
3000
4000
5000
6000
7000
Jan Feb Mar A ril Ma June
Production
Demand
B i R l ti hi
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Basic Relationships
Workforce
Number of
workers in a
period =
Number of
workers at end
of previous
period +
Number of
new workers
at start of the
period -
Number of
laid off
workers at
start of the
period
Inventory
Inventory at
the end of a
period =
Inventory at end
of the previous
period +
Production in
current
period -
Amount used to
satisfy demand
in current
period
Cost
Cost for a
period =
Output Cost
(Reg+OT+Sub) +
Hire/Lay Off
Cost + Inventory Cost +
Back-order
Cost
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Graphical
AndChartingMethods
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Determining the OptimalMixed Strategy
Try multiple attempts with differentscenarios
ORUse Linear Programming (LP)or in some cases the TransportationMethod
We can use LP to address manyproduction planning & distributionproblems.
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Transportation Method
1 900 1000 100 500
2 1500 1200 150 5003 1600 1300 200 500
4 3000 1300 200 500
Regular production cost per unit $20
Overtime production cost per unit $25
Subcontracting cost per unit $28
Inventory holding cost per unit per period $3
Beginning inventory 300 units
EXPECTED REGULAR OVERTIME SUBCONTRACT
QUARTER DEMAND CAPACITY CAPACITY CAPACITY
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Transportation Tableau
UnusedPERIOD OF PRODUCTION 1 2 3 4 Capacity Capacity
Beginning 0 3 6 9
Inventory 300 300
Regular 600 300 100 1000
Overtime 100 100
Subcontract 500
Regular 1200 1200
Overtime 150 150
Subcontract 250 250 500
Regular 1300 1300
Overtime 200 200
Subcontract 500 500
Regular 1300 1300
Overtime 200 200
Subcontract 500 500
Demand 900 1500 1600 3000 250
1
2
3
4
PERIOD OF USE
20 23 26 29
25 28 31 34
28 31 34 37
20 23 26
25 28 31
28 31 34
20 23
25 28
28 31
20
25
28
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Aggregate Planning forServices
1. Most services cant be inventoried
2. Demand for services is difficult to predict
3. Capacity is also difficult to predict
4. Service capacity must be provided at the
appropriate place and time
5. Labour is usually the most constraining resource
for services6. For service companies, aggregate planning
results in staffing plans that call for changing the
number of employees or subcontracting.
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DisAggregation
The Output of Aggregate Planning is a
Production Schedule for family groupings
of products.
For example, It tells us how many cars to
make, But it does not indicate how many
of them Should be two-doors, and how
many will be four doors.
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DisAggregation
A manufacturer firm needs moreinformation to operate.
We must know what quantities will be
produced for each type of product ANDwhat time.
The process of Breaking the Aggregate
Plan down into Greater Detail is calledDisAggregation.
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DisAggregation
Later, Disaggregation results in MasterProduction Schedule (MPS). This schedulespecifies:
1) The sizing and timing of specific itemproduction quantities,
2) The sizing and timing of manufactured orpurchased components,
3) The sequence of individual orders or jobs,and
4) The short-term allocation of resources to
individual operations.
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Master Production Schedule
MPS specifies what is to be made AND
when.
Many organizations First establish a
Master Production Schedule, AND Then
Fix the Near-term Portion of the plan.
(This portion is called Frozen)
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Master Production Schedule
After freezing the plan, Only changes
beyond the Fixed Schedule are permitted.
MPS is a STATEMENT OF
PRODUCTION, It is Not a Forecast.
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Master Production Schedule
Depending on the type of operation,Master Schedule can be expressed interms of:
Either
1) An end item in a make-to-stockcompany, or
2) A customer order in a make-to-order(job-
shop) company, or
3) Modules in an assemble-to-ordercompany.
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Master Production Schedule
For example, A Master Production
Schedule for two Products (A and S) might
be as follows: