AGGREGATE PLANNING

Done by,Hriday Borajunaidayushisubhashinichiranjeeviphanindrareddy

AGGREGATE PLANNINGAggregate planning is an operational activity that does an aggregate plan for the production process,to give an idea to management as to what quantity of materials and other resources are to be procured and when, so that the total cost of operations of the organization is kept to the minimum over that period.

STRATEGIES• Level Production• Chase Demand• Peak Demand : Staffing for high levels of customer service.• Overtime and Undertime : adjusting working hours to

meet demand.• Subcontracting : Lets outside companies complete the work• Part-Time workers

• Backlogs: Accumulated customer orders to be completed at a later date.

• Backordering : ordering an item that is temporarily out of stock

• Lost sales : forfeited sales for out-of-stock items.

Techniques for Aggregate planning1. Pure Strategies:-

Varying only one capacity variable in aggregate planning, determining cost and feasibility and selecting low cost plan.It has 2 strategies:-a) Level Productionb) Chase Demand

Level ProductionProducing at a constant rate and using inventory as needed to meet demand

Problem on Level Demand1. Mama’s Stuffin’ is a popular food item during the

fall and winter months, but is marginal in the spring and summer. Use the level production demand forecast and costs to determine the planning strategy for Mama’s Stuffin’:

Regular production cost $30 per palletHolding cost $2 per palletBeginning workforce 10 workersProduction rate 200 pallets /worker per monthHiring cost $5000 per workerFiring cost $8000 per worker

Solution:

MONTH DEMAND FORECAST

March 1500

April 1200

May 1000

June 900

July 800

August 1500

September 2000

October 2500

November 8500

December 7000

January 4000

February 3000

solution

• 2) Rowley Apparel, the manufacturer of the famous “Race-A-Rama ” swimwear line, needs help planning their production for next year. Demand for swimwear follows a seasonal pattern, as shown .Given the following cost and demand forecast, use level production strategy with backorders when need to plan the strategy.Beginning Workforce 8 workers Subcontract unlimitedOvertime 2,000units /monthProduction rate /worker 250units/monthRegular wage rate $15 per rate Overtime wage rate $25 per rateSubcontract cost $30per unitHiring cost $100 per workerFiring cost $200 per workerHolding costs 0.50per unit

/monthBackordering costs $10 per unit/month

Solution:

January 800

Febuary 600

March 500

April 2500

May 2500

June 3000

July 4000

August 3000

September 1000

October 800

November 750

December 3000

Chase DemandChanging workforce levels such that production matches demand.

Problem on Chase Demand1. ‘Bits and Pieces’ is a popular food item during the fall and

winter months, but is marginal in the spring and summer. Use the chase demand forecast and costs to determine the planning strategy for Bits and Pieces :

Overtime capacity per month regular productionRegular production cost $30 per palletOvertime production cost $40 per palletHolding cost $2 per palletBeginning workforce 10 workersProduction rate 200 pallets per worker per monthHiring cost $5000 per workerFiring cost $8000 per worker

Solution:

MONTH DEMAND FORECAST

March 1500

April 1200

May 1000

June 900

July 800

August 1500

September 2000

October 2500

November 8500

December 7000

January 4000

February 3000

2) Slopes & Sleds (S&S) makes skis, snowboards, and high-end sledding equipment. As shown below the demand for its products is highly seasonal. The company employs 10 workers who can each produce 200 units of various equipment per month. The cost of production is $8 per unit, overtime $12, and subcontracting $16. Overtime is limited to regular production each period. Subcontracting is unlimited. Hiring and firing costs are $500 per worker. Inventory holding costs are $2 per month. Given the estimates of demand below, create an aggregate production plan for Slopes & Sleds using Chase demand

Solution

MONTH DEMAND

January 6400February 7000

March 1500April 500May 600June 1400July 1600

August 2000September 1400

October 1500November 5200December 6900

2. Mixed Strategy:-Varying two or more capacity factors to determine a feasible production plan. e.g production and labour.

Problem on mixed strategy1. Quantum Corporation is a popular toy manufacturing

company which has demand during the fall and winter months, but is marginal in the spring and summer. Use the mixed strategy demand forecast and costs to determine the planning strategy for Quantum Corporation:

Overtime capacity per month 300 unitsSubcontracting capacity unlimited per monthRegular production cost $10 per unitOvertime production cost $15 per unitSubcontracting cost $25 per unitHolding cost $1 per unitBeginning workforce 10 workersProduction rate 100 units per worker per monthHiring cost $1000 per workerFiring cost $500 per worker

Solution:

MONTH DEMAND FORECAST

January 1000

February 400

March 400

April 400

May 400

June 400

July 500

August 500

September 1000

October 1500

November 2500

December 3000

2) BIoway,Inc, manufacturer of medical supplies, uses aggregate planning to set labor and inventory levels for the year, while a variety of items are produced a standard kit composed of basic supplies is used for planning purposes .Demand varies with seasonal illness and a quarterly ordering policies of hospitals. Average worker at Bloway can produce 1,000 kits a month at a cost of 9$ per kit during overtime production hours,and $10 a kit during overtime production. Completed kits can also be purchased from outside suppliers at $12 each .Inventory carrying cost are $2per kit per month. Overtime is limited to regular production, subcontracting is unlimited. Due to high quality standards and extensive training, hiring and firing costs are $1500 per worker. Bioway currently employees 25 workers. Given the demand forecast below, develop a six month aggregate production plan for Bioway using mixed strategy where the current workforce is suplimemented with overtime and subcontracting as needed. Overtime cannot exceed the maximum regular time .Excess staff is let go when not needed. New employees brought on until the maximum of 25 employees are obtained. Requirements over 25 employees will adressed with subcontractors .

Month Demand

April 50,000

May 27,000

June 18000

July 78,000

Aujust 46,000

September 15,000

Solution:

Collaborative Planning

Sharing information and synchronizing production across the supply chain.

Consensus is first reached on the sales forecast and then on the production plan.

Available-To-PromiseThe quantity of items that can be promised to the customer ,i.e, the difference between the planned production and customer orders already received.

ATP in period 1 = (On-hand quantity + MPS in period 1) – ( CO until the next period of planned production)

ATP in period n = (MPS in period n) – (CO until the next period of planned production)

Q1) Complete the available-to-promise table below

On Hand=10 Period

1 2 3 4 5 6

Forecast 100 100 100 100 100 100Customer

Orders 25 50 137 72 23 5Master

Production Schedule 100 100 100 100 100 100

Available-to-Promise

On Hand=30 Period

1 2 3 4 5 6

Forecast 100 50 100 50 100 50Customer

Orders 75 50 116 73 45 23Master

Production Schedule 100 50 100 50 100 50

Available-to-Promise

• First Period (On hand+Masters production schedule)-Customers Orders (30+100)-75 =55• 2nd period (Masters production schedule)-Customers Orders (50-50)=0• 3rd Period (100-116)= -16+16=0(take 16 from the first period)• 4th Period (50-73)= -23+23=0 (take 23 from first period)• 5th period (100-45)= 55• 6th period (50-23)=27

Q2)How many units are available-to-promise in period 1? Period 4?

On Hand= 60 Period

1 2 3 4 5 6

Forecast 50 100 100 100 100 50Customer

Orders 85 125 95 85 45 15Master

Production Schedule 250 250

Available-to-Promise

• ATP in period 1 = ( In hand +Scheduled Production Unit)-(Customers

Orders) = (60+250) – (185+125+95) = 5• ATP in period 4= Scheduled Production Unit- Customers Orders =250-(85+45+15) =105

Q3)How many B’s are available-to-promise in week 2? How soon could you fill an order for 250 B’s?

On Hand=10 Period

1 2 3 4 5 6

Forecast 100 100 100 100 100 100Customer

Orders 25 50 137 72 23 5Master

Production Schedule 100 100 100 100 100 100

Available-to-Promise

On Hand=10 Period

1 2 3 4 5 6

Forecast 100 100 100 100 100 100Customer

Orders 25 50 137 72 23 5Master

Production Schedule 100 100 100 100 100 100

Available-to-Promise

ATP in period 1 = ( In hand +Scheduled Production Unit)-(Customers Orders) =10 + 100 -25=85ATP in period 2 (Scheduled Production Unit)-(Customers Orders) 100-50=50ATP in period 3 =100-137=-37(we shall take 37 from period two since there is a shortage of 37 units, hence in

period 2 the 13 units will be left.

ATP in period 4 =100-72=28ATP in period 5 =100-23=77ATP in period 6 =100-5=95

Q4) Complete the available-to-promise row in the following matrix

On Hand=10 Period

1 2 3 4 5 6

Forecast 100 100 100 100 100 100Customer

Orders 25 50 137 72 23 5Master

Production Schedule 100 100 100 100 100 100

Available-to-Promise

On Hand=100 Period

1 2 3 4 5 6

Forecast 50 100 50 100 50 100Customer

Orders 50 125 75 175 45 15Master

Production Schedule 200 200

Available-to-Promise

• First Period (In Hand+Master production schedule)-(Customers Orders until

the next orders of planned production) (100+200)-(50+125+75)=50-35=15• Fourth Period (Master production schedule)-(Customers Orders)(200)-(175-45-15)= -35+35=0 (take 35 which is excess from the

first period)