aggregate planning
TRANSCRIPT
Alternatives
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TotalCapacity
UnusedCapacity
Requirements
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Subcontract
Overtime
Regular time
Subcontract
Overtime
Regular time
Subcontract
Overtime
Regular time
Subcontract
Overtime
Regular time
Beginning
inventory
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Aggregate PlanningAggregate Planning
Production Planning HorizonsProduction Planning Horizons
Master Production Scheduling Master Production Scheduling
Production Planning and Control SystemsProduction Planning and Control Systems
Aggregate PlanningAggregate Planning
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 Measure
Master Production SchedulingMaster Production Scheduling
Production Planning and Control SystemsProduction Planning and Control Systems
Aggregate PlanningAggregate Planning
Long-Range Capacity PlanningLong-Range Capacity PlanningEntire Entire
Product LineProduct Line
ProductProductFamilyFamily
SpecificSpecificProduct ModelProduct Model
Labor, Materials,Labor, Materials,MachinesMachines
The long term plan is defined at the corporate level. These
decisions are more strategic. This activity is often referred
to as "strategic planning". The following needs to be
addressed in a strategic plan
which market segment ?
how to reach it ?
which plant / facility ?
which prodn policy ? (make to order, make to stock etc.)
which prodn system ? (cellular, job shop, mixed etc.)
Steps in Aggregate Steps in Aggregate PlanningPlanning
Define an aggregate unit
An aggregate unit, such as the labor hour or the machine
hour must be selected in order to translate the demand
for the different products into the same units. This unit
must be related to the capacity you want to plan
(machine or manpower).
EEstimate aggregate demand (over 12-24 months)
Here we need the monthly forecast for all the products for
the period considered (the intermediate term). These
forecasts are translated into aggregate units.
Determine an aggregate production plan;
On the basis of this demand, we can select the best
production plan.
Aggregate Planning ObjectivesAggregate Planning Objectives
Minimize Costs/Maximize ProfitsMinimize Costs/Maximize Profits
Maximize Customer ServiceMaximize Customer Service
Minimize Inventory InvestmentMinimize Inventory Investment
Minimize Changes in Production RatesMinimize Changes in Production Rates
Minimize Changes in Workforce LevelsMinimize Changes in Workforce Levels
Maximize Utilization of Plant and EquipmentMaximize Utilization of Plant and Equipment
Managerial InputsManagerial Inputs
Aggregate plan
Aggregate plan
Demand forecasts
Managerial InputsManagerial Inputs
Cost data Accounting and financeAggregate
plan
Demand forecasts
Managerial InputsManagerial Inputs
Labor-market conditions Training capacity
Human resources
Cost data Accounting and financeAggregate
plan
Demand forecasts
Managerial InputsManagerial Inputs
New products Product design changes Machine standards
EngineeringLabor-market conditions Training capacity
Human resources
Cost data Accounting and financeAggregate
plan
Demand forecasts
Managerial InputsManagerial 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
EngineeringLabor-market conditions Training capacity
Human resources
Cost data Accounting and financeAggregate
plan
Demand forecasts
Managerial InputsManagerial Inputs
Determine requirements for planning horizon
Aggregate Planning ProcessAggregate Planning Process
Determine requirements for planning horizon
Identify alternatives, constraints, and costs
Aggregate Planning ProcessAggregate Planning Process
Aggregate Planning ProcessAggregate Planning Process
Determine requirements for planning horizon
Identify alternatives, constraints, and costs
Prepare prospective plan for
planning horizon
Determine requirements for planning horizon
Identify alternatives, constraints, and costs
Prepare prospective plan for
planning horizon
Is the plan acceptable?
Aggregate Planning ProcessAggregate Planning Process
Determine requirements for planning horizon
Identify alternatives, constraints, and costs
Prepare prospective plan for
planning horizon
Is the plan acceptable?
NoNo
Aggregate Planning ProcessAggregate Planning Process
Determine requirements for planning horizon
Identify alternatives, constraints, and costs
Prepare prospective plan for
planning horizon
Implement and update the plan
Is the plan acceptable?
NoNo
YesYes
Aggregate Planning ProcessAggregate Planning Process
Determine requirements for planning horizon
Identify alternatives, constraints, and costs
Prepare prospective plan for
planning horizon
Move aheadto next
planning session
Implement and update the plan
Is the plan acceptable?
NoNo
YesYes
Aggregate Planning ProcessAggregate Planning Process
Regular-Time CostsRegular-Time Costs
Overtime CostsOvertime Costs
Hiring and Hiring and
Layoff CostsLayoff Costs
Inventory Inventory
Holding CostsHolding Costs
Backorder and Stockout CostsBackorder and Stockout Costs
Aggregate Planning CostsAggregate Planning Costs
Production PlanProduction Plan
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RequirementsRequirements
Production PlanProduction Plan
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Production planProduction plan
RequirementsRequirements
Production PlanProduction Plan
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Production planProduction plan
RequirementsRequirements
InventoryInventoryaccumulationaccumulation
Production PlanProduction Plan
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InventoryInventoryconsumptionconsumption
Production planProduction plan
RequirementsRequirements
InventoryInventoryaccumulationaccumulation
Three Methods of Aggregate PlanningThree Methods of Aggregate Planning
Level StrategyLevel Strategy - Constant Work Force, and as demand - Constant Work Force, and as demand
changes Vary Only Inventory & Stock outschanges Vary Only Inventory & Stock outs
Chase StrategyChase Strategy - as demand changes, hire and layoff to - as demand changes, hire and layoff to
produce the units required. Some inventory also has to be produce the units required. Some inventory also has to be
accounted for, because of rounding errorsaccounted for, because of rounding errors
Mixed StrategyMixed Strategy - use any or all of the production variables - use any or all of the production variables
to determine the lowest cost planto determine the lowest cost plan
Production VariablesProduction Variables
As demand changes these are the things management can As demand changes these are the things management can
change to meet the changing demand. These variables change to meet the changing demand. These variables
include:include:
Number of workersNumber of workers - More or less workers by hiring and layoff - More or less workers by hiring and layoff
changes the number of units one can producechanges the number of units one can produce
Inventory Inventory - If you have additional capacity now, produce extra - If you have additional capacity now, produce extra
units and store them in inventory to satisfy increasing demand units and store them in inventory to satisfy increasing demand
in the futurein the future
Production VariablesProduction Variables
Stock out -Stock out - This is negative inventory. If demand is more than This is negative inventory. If demand is more than
you can produce, use a stock out and satisfy demand in the you can produce, use a stock out and satisfy demand in the
future when capacity exceeds demand. future when capacity exceeds demand.
Attempt should be such that stock outs do not occur in the last Attempt should be such that stock outs do not occur in the last
period of any aggregate plan. period of any aggregate plan.
SSubcontracting ubcontracting - Pay some other business to produce extra - Pay some other business to produce extra
units needed.units needed.
Overtime -Overtime - Ask employees to produce more units by working, Ask employees to produce more units by working,
for example, more than the normal eight hours/day or 40 for example, more than the normal eight hours/day or 40
hours/week.hours/week.
LEVEL STRATEGYLEVEL STRATEGY
Example 1Example 1
Level Strategy for ServicesLevel Strategy for Services Dock Aisle
DockDock AisleAisle
TIME PERIODTIME PERIOD
11 22 33 44 55 66 TotalTotal
Requirement*Requirement* 66 1212 1818 1515 1313 1414 7878
Current employment = 10 part-time empCurrent employment = 10 part-time emp * Number of part-time employees* Number of part-time employees
Level Strategy for ServicesLevel Strategy for Services
DockDock AisleAisle
1.1. No more than 10 new hires in any periodNo more than 10 new hires in any period2.2. No backorders are permittedNo backorders are permitted3.3. Overtime can not exceed 20% of regular-time capacityOvertime can not exceed 20% of regular-time capacity4.4. The following costs can be assigned:The following costs can be assigned:
Regular-time wageRegular-time wage 2,000/period at 20 2,000/period at 20 hours/weekhours/week
Overtime wagesOvertime wages 150% of regular-time150% of regular-timeHiringHiring 1,000/person1,000/personLayoffsLayoffs 500/person500/person
Level Strategy for ServicesLevel Strategy for Services
TIME PERIODTIME PERIOD
11 22 33 44 55 66 TotalTotal
Requirement*Requirement* 66 1212 1818 1515 1313 1414 7878
Current employment = 10 part-time empCurrent employment = 10 part-time emp * Number of part-time employees* Number of part-time employees
Dock Aisle
TIME PERIODTIME PERIOD
11 22 33 44 55 66 TotalTotal
Requirement*Requirement* 66 1212 1818 1515 1313 1414 7878
Current employment = 10 part-time clerksCurrent employment = 10 part-time clerks
1.1. No more than 10 new hires in any periodNo more than 10 new hires in any period2.2. No backorders are permittedNo backorders are permitted3.3. Overtime can not exceed 20% of regular-time capacityOvertime can not exceed 20% of regular-time capacity4.4. The following costs can be assigned:The following costs can be assigned:
Regular-time wageRegular-time wage 2,000/period at 20 2,000/period at 20 hours/weekhours/week
Overtime wagesOvertime wages 150% of regular-time150% of regular-timeHiringHiring 1,000/person1,000/personLayoffsLayoffs 500/person500/person
Peak Requirement
Level Strategy for ServicesLevel Strategy for Services
Dock Aisle
TIME PERIODTIME PERIOD
11 22 33 44 55 66 TotalTotal
Requirement*Requirement* 66 1212 1818 1515 1313 1414 7878
Current employment = 10 part-time clerksCurrent employment = 10 part-time clerks
1.1. No more than 10 new hires in any periodNo more than 10 new hires in any period2.2. No backorders are permittedNo backorders are permitted3.3. Overtime can not exceed 20% of regular-time capacityOvertime can not exceed 20% of regular-time capacity4.4. The following costs can be assigned:The following costs can be assigned:
Regular-time wageRegular-time wage 2,000/period at 20 2,000/period at 20 hours/weekhours/week
Overtime wagesOvertime wages 150% of regular-time150% of regular-timeHiringHiring 1,000/person1,000/personLayoffsLayoffs 500/person500/person
Peak Requirement
1.20w = 18 employees in peak period
Level Strategy for ServicesLevel Strategy for Services
Dock Aisle
TIME PERIODTIME PERIOD
11 22 33 44 55 66 TotalTotal
Requirement*Requirement* 66 1212 1818 1515 1313 1414 7878
Current employment = 10 part-time clerksCurrent employment = 10 part-time clerks
1.1. No more than 10 new hires in any periodNo more than 10 new hires in any period2.2. No backorders are permittedNo backorders are permitted3.3. Overtime can not exceed 20% of regular-time capacityOvertime can not exceed 20% of regular-time capacity4.4. The following costs can be assigned:The following costs can be assigned:
Regular-time wageRegular-time wage 2,000/period at 20 2,000/period at 20 hours/weekhours/week
Overtime wagesOvertime wages 150% of regular-time150% of regular-timeHiringHiring 1,000/person1,000/personLayoffsLayoffs 500/person500/person
Peak Requirement
1.20w = 18 employees in peak period
w = = 15 employees18
1.20
Level Strategy for ServicesLevel Strategy for Services
1 2 3 4 5 6
Requirement 6 12 18 15 13 14 78
level 15 15 15 15 15 15 90 180000undertime 9 3 0 0 2 1 15
overtime 0 0 3 0 0 0 3 9000Hires 5 0 0 0 0 0 5 5000Fires 0 0 0 0 0 0 0 0
194000
CostTIME PERIOD
Total
LEVEL STRATEGYLEVEL STRATEGY
Example 2Example 2
Know the demandKnow the demand
We would have to know each forecast value for the time We would have to know each forecast value for the time
period of our aggregate plan. Consider the following period of our aggregate plan. Consider the following
forecasting information.forecasting information.
Month J anuary Feb. March April May June
Forecast 1,800 1,500 1,100 900 1,100 1,700
Safety stockSafety stock
Its purpose is to satisfy demand when demand is greater than Its purpose is to satisfy demand when demand is greater than
what we expect ( the forecasted value).what we expect ( the forecasted value).
A very simple method based on company policy can be used to A very simple method based on company policy can be used to
calculate safety stock. For eg. The safety stock value could be calculate safety stock. For eg. The safety stock value could be
25% of the forecasted value for that period.25% of the forecasted value for that period.
Month J anuary Feb. March April May June
Forecast 1,800 1,500 1,100 900 1,100 1,700
Safety Stock 450 375 275 225 275 425
The The beginning inventorybeginning inventory value (in this case for Jan.) would have value (in this case for Jan.) would have
to be known before we could continue. In some cases one can to be known before we could continue. In some cases one can
assume the value is zero to continue with calculations. assume the value is zero to continue with calculations.
The remaining beginning inventory values are determined from The remaining beginning inventory values are determined from
the safety stock in the previous period.the safety stock in the previous period.
Month J anuary Feb. March April May June
Forecast 1,800 1,500 1,100 900 1,100 1,700
Safety Stock 450 375 275 225 275 425
Beginning Inventory
400
Production RequiredProduction Required is determined by adding the forecast plus is determined by adding the forecast plus
the safety stock and subtracting the beginning inventory for the safety stock and subtracting the beginning inventory for
each period: each period:
FORECAST + SAFETY STOCK - BEGINNING INVENTORYFORECAST + SAFETY STOCK - BEGINNING INVENTORY
J anuary Feb. March April May June
Forecast 1,800 1,500 1,100 900 1,100 1,700
Safety Stock 450 375 275 225 275 425
Beginning Inventory
400 450 375 275 225 275
Required Production
1,850 1,425 1,000 850 1,150 1,850
Starting Conditions Starting Conditions
Storage or inventory holding Cost = Rs. /unit-monthStorage or inventory holding Cost = Rs. /unit-month
Standard Pay Rate = Rs. /hourStandard Pay Rate = Rs. /hour
Overtime Rate = Rs. /hourOvertime Rate = Rs. /hour
Cost of Stockout = Rs. /unit-monthCost of Stockout = Rs. /unit-month
Cost of Subcontracting = Rs. /unitCost of Subcontracting = Rs. /unit
Hiring and Training Cost = Rs. /personHiring and Training Cost = Rs. /person
Layoff Costs = Rs. /personLayoff Costs = Rs. /person
Worker-hours/unit = Worker-hours/unit = hrs/unithrs/unit
Manufacturing Cost = Rs.Manufacturing Cost = Rs.
Beginning Work Force = No. of workers Beginning Work Force = No. of workers
Storage CostStorage Cost (Inventory holding cost)(Inventory holding cost) = Rs. /unit-month = Rs. /unit-month
Each unit that is held in inventory for one month will cost us Each unit that is held in inventory for one month will cost us
some amount. This cost includes the costs ofsome amount. This cost includes the costs of
storage spacestorage space
administrative costsadministrative costs
lost income (cost of capital) from having this item sitting in lost income (cost of capital) from having this item sitting in
inventoryinventory
Standard Pay RateStandard Pay Rate = Rs. /hour = Rs. /hour
This is the hourly wage rate for direct labor. This is the hourly wage rate for direct labor.
Overtime RateOvertime Rate = Rs. /hour = Rs. /hour
Often when employees work more than the regular time, they are Often when employees work more than the regular time, they are
paid at a higher pay rate for the addition hours. This higher pay paid at a higher pay rate for the addition hours. This higher pay
rate is usually 1.5 times the Standard pay rate. rate is usually 1.5 times the Standard pay rate.
Eg. If regular rate is 60/hrEg. If regular rate is 60/hr
1.5 times Rs. 60 = Rs. 90 /hr1.5 times Rs. 60 = Rs. 90 /hr
Cost of Stockout (back order)Cost of Stockout (back order) = Rs. /unit-month = Rs. /unit-month
This is our cost if we fail to satisfy demand. This cost includes This is our cost if we fail to satisfy demand. This cost includes
the cost of:the cost of:
PenaltiesPenalties
Possible loss of sale if customer buys from an other businessPossible loss of sale if customer buys from an other business
Possible loss in future sales Possible loss in future sales
Loss of good will Loss of good will
Administrative cost for keeping track of back-ordered Administrative cost for keeping track of back-ordered
customers.customers.
Cost of SubcontractingCost of Subcontracting = Rs. /unit = Rs. /unit
Cost of having an other business produce one unit of product to Cost of having an other business produce one unit of product to
meet the demand.meet the demand. This is gThis is given as a marginal cost or as a total iven as a marginal cost or as a total
cost. cost.
Marginal CostMarginal Cost : the cost in addition (above and beyond) our cost : the cost in addition (above and beyond) our cost
to produce that same unit (the manufacturing cost). to produce that same unit (the manufacturing cost).
Total CostTotal Cost : the amount the other business would receive for : the amount the other business would receive for
producing one unit. producing one unit.
Hiring and Training CostHiring and Training Cost = Rs. /person = Rs. /person
This is the cost to add another employee to our work force. This This is the cost to add another employee to our work force. This
includes the cost of:includes the cost of:
advertisingadvertising
interviewing and selectioninterviewing and selection training andtraining and
less than full productivity for the new employee during the training less than full productivity for the new employee during the training
periodperiod
Layoff CostsLayoff Costs = Rs. /person = Rs. /person
This includes the cost of:This includes the cost of:
Severance paySeverance pay
Increases in unemployment insuranceIncreases in unemployment insurance
Negative reactions by remaining workers because of Negative reactions by remaining workers because of
uncertainties about their futuresuncertainties about their futures
Worker-hours/unitWorker-hours/unit
This is the direct labor content of the product being This is the direct labor content of the product being
manufactured. It can be used for cost calculations.manufactured. It can be used for cost calculations.
For eg. For eg.
If wage rate is Rs. 60/hr and it takes 5 hrs/unitIf wage rate is Rs. 60/hr and it takes 5 hrs/unit
Direct labor cost/unit is 5 hours/unit X 60/hour = Rs. 300/unitDirect labor cost/unit is 5 hours/unit X 60/hour = Rs. 300/unit
As a comparison; if we produce one unit using overtime, the As a comparison; if we produce one unit using overtime, the
cost would be 5 hours/unit X 90/hour = Rs. 450/unit. cost would be 5 hours/unit X 90/hour = Rs. 450/unit.
The difference (450 - 300) Rs. 150 is the marginal cost of The difference (450 - 300) Rs. 150 is the marginal cost of
producing a unit on overtime.producing a unit on overtime.
Beginning Work ForceBeginning Work Force
This is the number of production workers we have when we This is the number of production workers we have when we
start aggregate planning If we want to produce more units start aggregate planning If we want to produce more units
than this work force can produce on regular time, than we than this work force can produce on regular time, than we
would need to hire additional workers and pay the hiring and would need to hire additional workers and pay the hiring and
training costs for those new employeestraining costs for those new employees
The first question is “The first question is “How many workers?How many workers?””
J anuary Feb. March April May June
Forecast 1,800 1,500 1,100 900 1,100 1,700
Safety Stock 450 375 275 225 275 425
Beginning Inventory
400 450 375 275 225 275
Days in a month
22 19 21 21 22 20
Required Production
1,850 1,425 1,000 850 1,150 1,850
Cum Prodn 1,850 3,275 4,275 5,125 6,275 8,125
How many workers?How many workers?
8,125 units need to be produced during Jan. - June8,125 units need to be produced during Jan. - June
Assume that each unit requires 5 labor hoursAssume that each unit requires 5 labor hours and e and each worker ach worker
works 8 hours/dayworks 8 hours/day
The 6-month period Jan. - June includes 125 work daysThe 6-month period Jan. - June includes 125 work days
(8,125 units X 5 hours/unit) / (8 hours/person day X 125 days) = (8,125 units X 5 hours/unit) / (8 hours/person day X 125 days) =
40.6 persons40.6 persons
40.6 is rounded up (to 41), because if we round down we will not 40.6 is rounded up (to 41), because if we round down we will not
produce the required 8125 units.produce the required 8125 units.
Cumulative ProducedCumulative Produced
These values are calculated from the formula:These values are calculated from the formula:
(number of workers X hours/day X number of days)(number of workers X hours/day X number of days) / / (5 (5
hours/unit)hours/unit)
For Jan.: For Jan.:
(41 workers X 8 hours/day X 22 days) / (5 hours/unit) = 1443.2 (41 workers X 8 hours/day X 22 days) / (5 hours/unit) = 1443.2
and rounding normally to 1443.and rounding normally to 1443.
For Feb the only difference is 41 cumulative days in place of 22. For Feb the only difference is 41 cumulative days in place of 22.
The result is 2689.6 and rounded to 2690The result is 2689.6 and rounded to 2690
J anuary Feb. March April May June
Forecast 1,800 1,500 1,100 900 1,100 1,700
Safety Stock 450 375 275 225 275 425
Beginning Inventory
400 450 375 275 225 275
Days in a month
22 19 21 21 22 20
Cum Days 22 41 62 83 105 125
Required Production
1,850 1,425 1,000 850 1,150 1,850
Cum req Prod
1,850 3,275 4,275 5,125 6,275 8,125
Actual Cum Prod
1443 2690 4067 5445 6888 8200
Excess 0 0 0 320 613 75
Shortage 407 585 208 0 0 0
1,000
2,500
4,000
5,500
7,000
8,500
10,000
0 1 2 3 4 5 6 7
Quarter
Cu
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Req cum prodn Act cum prod
Excess or (Short)Excess or (Short)
= (Cumulative Production Required) - (Cumulative Produced)= (Cumulative Production Required) - (Cumulative Produced)
Shortage CostsShortage Costs
This cost is the number short in any period X the stock out costThis cost is the number short in any period X the stock out cost
For Jan it is (407 units) X stock out costFor Jan it is (407 units) X stock out cost
Storage CostsStorage Costs
This cost is the number excess in any period X the storage costThis cost is the number excess in any period X the storage cost
For April it is (320 units) X shortage costFor April it is (320 units) X shortage cost
If we have 36 workers in the beginning of the planning horizon,If we have 36 workers in the beginning of the planning horizon,
Hiring CostHiring Cost = =
(41 required workers – 36 available workers) X hiring cost (41 required workers – 36 available workers) X hiring cost
Lay-off CostLay-off Cost = 0 = 0
Total CostTotal Cost = storage + shortage + hiring + Lay-off = storage + shortage + hiring + Lay-off
Chase StrategyChase Strategy
Workers RequiredWorkers Required
From the Beginning Information and Starting Conditions we From the Beginning Information and Starting Conditions we
know:know: 1,850 units need to be produced during Jan.1,850 units need to be produced during Jan.
Each unit requires 5 labor hoursEach unit requires 5 labor hours Each worker works 8 hours/dayEach worker works 8 hours/day
The month of Jan. has 22 work daysThe month of Jan. has 22 work days
(1850 units) X (5 hours/unit) / (8 hours/person-day) X (22 days) = (1850 units) X (5 hours/unit) / (8 hours/person-day) X (22 days) =
52.56 persons52.56 persons
52.56 is rounded up (to 53), because if we round down we will 52.56 is rounded up (to 53), because if we round down we will
not produce the required 1850 units. not produce the required 1850 units.
Remember that a chase strategy doesn't allow stock outsRemember that a chase strategy doesn't allow stock outs
Units ProducedUnits Produced
In Jan. if each person works 8 hours each of the 22 days, the In Jan. if each person works 8 hours each of the 22 days, the
number of worker hours available to produce products will be:number of worker hours available to produce products will be:
(53 people) X (8 hours/day) X (22 days) = 9328 worker hours(53 people) X (8 hours/day) X (22 days) = 9328 worker hours
The number of units that can be produced in Jan. will be the The number of units that can be produced in Jan. will be the
total worker-hours available in Jan. divided by the number of total worker-hours available in Jan. divided by the number of
worker-hours required for each unit. For Jan.:worker-hours required for each unit. For Jan.:
(9328 worker hours) / (5 worker hours/unit) = 1865.6 units(9328 worker hours) / (5 worker hours/unit) = 1865.6 units
We can round it to We can round it to 18661866
Workers HiredWorkers Hired
People Hired is the number of additional people needed to People Hired is the number of additional people needed to
meet the demand. For Jan. it is the difference between 53 meet the demand. For Jan. it is the difference between 53
(people required in Jan.) and the 36 people at the start.(people required in Jan.) and the 36 people at the start.
53 - 36 = 1753 - 36 = 17
Hiring CostHiring Cost
In Jan. company hired 17 additional employees. In Jan. company hired 17 additional employees.
The cost of hiring 17 people is 17 X Hiring costThe cost of hiring 17 people is 17 X Hiring cost
People Laid OffPeople Laid Off
This is similar to people hired. It is the number of fewer workers This is similar to people hired. It is the number of fewer workers
we need as demand declines. we need as demand declines.
For Feb., it is For Feb., it is 53 - 47 = 6.53 - 47 = 6.
Layoff CostLayoff Cost
The cost of Laying Off 6 people is 6 X lay-off costThe cost of Laying Off 6 people is 6 X lay-off cost
Ending InventoryEnding Inventory
Ending inventory is the number of cumulative unused units at the Ending inventory is the number of cumulative unused units at the
end of any one month. Cumulative means we need to consider end of any one month. Cumulative means we need to consider
not only what happens this month, but also what happened the not only what happens this month, but also what happened the
previous month.previous month.
Prod. People Units People People EndingReg. Req. Prod. Hired LaidOff Inv.
Jan. 1,850 53 1866 17 16Feb. 1,425 47 1429 0 6 20
March 1,000 30 1008 0 17 28April 850 25 840 0 5 18
Inventory CostInventory Cost
Number of units in Ending Inv. for any one month Number of units in Ending Inv. for any one month xx holding Cost holding Cost
The beginning inventory for Jan. is 0. We need 1850 units and The beginning inventory for Jan. is 0. We need 1850 units and
we produce 1866. The difference (1866 - 1850 = we produce 1866. The difference (1866 - 1850 = 1616) is the Ending ) is the Ending
Inv. for Jan.Inv. for Jan.
For Feb. one needs to consider the inventory in the previous For Feb. one needs to consider the inventory in the previous
month (month (1616 for Jan.) for Jan.)
In Feb. with 47 people one can produce 1429 units. In Feb. with 47 people one can produce 1429 units.
1429 is 4 more than than the production required (1425). 1429 is 4 more than than the production required (1425).
These 4 additional units added to Jan. Ending Inv. gives These 4 additional units added to Jan. Ending Inv. gives 2020 units units
of Ending Inv. in Feb.of Ending Inv. in Feb.
ExampleExample
2.5 hrs/gallon2.5 hrs/gallon
65 days/quarter65 days/quarter
8 hrs/day8 hrs/day
Hiring cost = 1000Hiring cost = 1000
Firing cost = 2000Firing cost = 2000
Inventory carrying cost = 50 per gallon per quarter Inventory carrying cost = 50 per gallon per quarter
Stock out cost = 100 per gallon per quarterStock out cost = 100 per gallon per quarter
Starting work force = 200Starting work force = 200
Product Q1 Q3 Q3 Q4
A 2500 12500 7500 7500B 7500 20000 20000 7000C 30000 25000 27500 33000
Find the following for Level and Chase strategiesFind the following for Level and Chase strategies
No. of workers required per dayNo. of workers required per day
Units produced per quarterUnits produced per quarter
Beginning and end inventoriesBeginning and end inventories
Inventory costsInventory costs
Stock out costsStock out costs
Hire and lay-off costsHire and lay-off costs
Quarter Q1 Q3 Q3 Q4
Req Production
40000 57500 55000 47500
Master Production Scheduling
Objectives of MPS
• Determine the quantity and timing of completion of end Determine the quantity and timing of completion of end
items over a short-range planning horizon.items over a short-range planning horizon.
• Schedule end items (finished goods and parts shipped as Schedule end items (finished goods and parts shipped as
end items) to be completed promptly and when promised to end items) to be completed promptly and when promised to
the customer.the customer.
• Avoid overloading or under-loading the production facility Avoid overloading or under-loading the production facility
so that production capacity is efficiently utilized and low so that production capacity is efficiently utilized and low
production costs result. production costs result.
Independent Demand
Dependent Demand
PARENTPARENT
COMPONENTSCOMPONENTS
Master Production Scheduling
1,2001,500
Aggregate Production Plan shows the total quantity of
bicycles
100300Mountain bike
450450500500Hybrid bike
100100100100Road bike
Master Production Schedule Shows the specific type and quantity of bike to be
produced
87654321Weeks
FebruaryJanuaryMonths
Master Production Scheduling
Master Production Scheduling
Arizona Instruments produces bar code scanners for Arizona Instruments produces bar code scanners for
consumers and other manufacturers on a produce-to-stock consumers and other manufacturers on a produce-to-stock
basis. The production planner is developing an MPS for basis. The production planner is developing an MPS for
scanners for the next 6 weeks.scanners for the next 6 weeks.
The minimum lot size is 1,500 scanners, and the safety The minimum lot size is 1,500 scanners, and the safety
stock level is 400 scanners. There are currently 1,120 stock level is 400 scanners. There are currently 1,120
scanners in inventory. The estimates of demand for scanners in inventory. The estimates of demand for
scanners in the next 6 weeks are shown on the next slide.scanners in the next 6 weeks are shown on the next slide.
Demand EstimatesDemand 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
Master Production Scheduling
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
Master Production Scheduling
SCANNER PRODUCTIONSCANNER PRODUCTION 00 15001500 15001500 150015001500150000
11 22 33 44 6655
WEEKWEEK
Master Production Scheduling
• As orders are slotted in the MPS, the effects on the As orders are slotted in the MPS, the effects on the
production work centers are checkedproduction work centers are checked
• Rough cut capacity planningRough cut capacity planning identifies under-loading or identifies under-loading or
overloading of capacityoverloading of capacity
Rough Cut Capacity Planning
Texprint Company makes a line of computer printers on a Texprint Company makes a line of computer printers on a
produce-to-stock basis for other computer manufacturers. Each produce-to-stock basis for other computer manufacturers. Each
printer requires an average of 24 labor-hours. The plant uses a printer requires an average of 24 labor-hours. The plant uses a
backlog of orders to allow a level-capacity aggregate plan. This backlog of orders to allow a level-capacity aggregate plan. This
plan provides a weekly capacity of 5,000 labor-hours.plan provides a weekly capacity of 5,000 labor-hours.
Texprint’s rough-draft of an MPS for its printers is shown on the 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 next slide. Does enough capacity exist to execute the MPS? If
not, what changes do you recommend?not, what changes do you recommend?
Rough Cut Capacity Planning
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
Rough Cut Capacity Planning
• Rough-Cut Capacity AnalysisRough-Cut Capacity Analysis
– The plant is under-loaded in the first 3 weeks (primarily The plant is under-loaded in the first 3 weeks (primarily
week 1) and it is overloaded in the last 2 weeks of the week 1) and it is overloaded in the last 2 weeks of the
schedule.schedule.
– Some of the production scheduled for week 4 and 5 Some of the production scheduled for week 4 and 5
should be moved to week 1.should be moved to week 1.
Rough Cut Capacity Planning
MPS rules
– Do not change orders in the frozen zoneDo not change orders in the frozen zone
– Do not exceed the agreed on percentage changes when Do not exceed the agreed on percentage changes when
modifying orders in the other zonesmodifying orders in the other zones
No ChangeNo Change+/- 5%+/- 5%
ChangeChange
+/- 10%+/- 10%
ChangeChange
+/- 20%+/- 20%
ChangeChange
+/- 20%+/- 20%
ChangeChange
FrozenFrozen
1-21-2 weeksweeks 2-42-4
weeksweeks4-64-6
weeksweeks
6+ 6+ weeksweeks
MPS rules
– Try to level load as much as possibleTry to level load as much as possible
– Do not exceed the capacity of the system when Do not exceed the capacity of the system when
promising orders.promising orders.
– If an order must be pulled into level load, pull it into the If an order must be pulled into level load, pull it into the
earliest possible week without missing the promise.earliest possible week without missing the promise.