Aggregate PlanningAggregate Planning

Learning ObjectivesLearning Objectives Explain what aggregate planning is and how it is

useful. Identify the variables decision makers have to work

with in aggregate planning and some of the possible strategies they can use.

Describe some of the graphical and quantitative techniques planners use.

Prepare aggregate plans and compute their costs.

Planning HorizonPlanning Horizon

Aggregate planning: Intermediate-range capacity planning, usually covering 2-3 to 12-18 months.

Shortrange

Intermediate range

Long range

Now 2 or 3 months 12 or 18 months

Meet demand maximize customer service Use capacity efficiently (minimize changes in workforce Meet inventory policy minimize inventory Minimize cost maximize profit

Labor Inventory Plant & equipment Subcontract Backorder / stockout costs

Aggregate Planning GoalsAggregate Planning Goals

13-5

Planning SequencePlanning Sequence

Business PlanEstablishes operationsand capacity strategiesEstablishes operationsand capacity strategies

Aggregate planEstablishes

operations capacityEstablishes

operations capacity

Master schedule Establishes schedulesfor specific products

Establishes schedulesfor specific products

Corporatestrategies

and policies

Economic,competitive,and political conditions

Aggregatedemand

forecasts

LinkagesLinkages Marketing:

when will products be available ? Lead times ? Excess inventory (good time for a sale?)

Accounting and Finance: cash flows- will we be making more than we are selling? do we have to finance inventory? when will suppliers need to be paid?

Human resources timing of hiring, firing and training

Information Systems what to track linkages to other supply chain members

Resources Workforce/production

rates Facilities & equipment

Demand forecast Policies of workforce

Subcontracting Overtime Back orders

Costs Inventory carrying Back orders Hiring/firing Overtime Inventory changes Subcontracting

Aggregate Planning InputsAggregate Planning Inputs

Total cost of a planProjected levels of inventory

InventoryOutputEmploymentSubcontractingBackordering

Aggregate Planning OutputsAggregate Planning Outputs

Aggregate Planning StrategiesAggregate Planning Strategies

Level Strategy

Chase Strategy

Production equals

demand

Production rate is constant

Mixed Strategy

Examples of Pure Chase and Pure Level StrategiesExamples of Pure Chase and Pure Level Strategies

Level capacity strategy: Maintaining a steady rate of regular-

time output while meeting variations in demand by a combination of options.

Chase demand strategy: Matching capacity to demand; the

planned output for a period is set at the expected demand for that period.

Aggregate Planning StrategiesAggregate Planning Strategies

Level StrategyLevel Strategy Maintain stable machine capacity and workforce levels with a constant

output rate Shortages and surpluses result in fluctuations in inventory levels over

time Inventories that are built up in anticipation of future demand or

backlogs are carried over from high to low demand periods Better for worker morale Large inventories and backlogs may accumulate Should be used when inventory holding and backlog costs are

relatively low

1.Determine demand for each period

2.Determine capacities for each period

3. Identify policies that are pertinent

4.Determine units costs

5.Develop alternative plans and costs

6.Select the best plan that satisfies objectives. Otherwise return to step 5.

Techniques for Aggregate PlanningTechniques for Aggregate Planning

Cumulative GraphCumulative Graph

Average InventoryAverage Inventory

Mathematical TechniquesMathematical Techniques Linear programming

Simulation models

ExamplesExamples

Controlling the Cost of Labor Controlling the Cost of Labor in Service Firmsin Service Firms

Seek: Close control of labor hours to ensure quick

response to customer demand On-call labor resource that can be added or

deleted to meet unexpected demand Flexibility of individual worker skills to permit

reallocation of available labor Flexibility of individual worker in rate of output

or hours of work to meet demand

Yield ManagementYield Management

The aggregate planning process of allocating resources to customers at prices that will maximize yield (revenue)

Used where businesses have: perishable inventory service or product can be sold in advance demand fluctuates capacity is relatively fixed demand can be segmented variable costs are low and fixed costs are high

Examples – airlines, hotels, cruise lines, etc.

Making Yield Management WorkMaking Yield Management Work

Multiple pricing structures must be feasible and appear logical

Manage forecasts of use and duration of use Manage the changes in demand.

Disaggregating the aggregate planDisaggregating the aggregate plan

AggregatePlanning

Disaggregation

MasterSchedule

For a short planning range 2-4 months: Master schedule: The result of

disaggregating an aggregate plan; shows quantity and timing of specific end items for a scheduled horizon.

Rough-cut capacity planning: Approximate balancing of capacity and demand to test the feasibility of a master schedule.

Master SchedulingMaster Scheduling

Master schedule: Determines quantities needed to meet demand Interfaces with

Marketing Capacity planning Production planning Distribution planning

Master Scheduler:– Evaluates impact of new orders– Provides delivery dates for

orders– Deals with problems

» Production delays» Revising master schedule» Insufficient capacity

Master Scheduling ProcessMaster Scheduling Process

MasterScheduling

Beginning inventory

Forecast

Customer orders

Inputs Outputs

Projected inventory

Master production schedule

Uncommitted inventory

Time Fences in MPSTime Fences in MPS

Period

“frozen”(firm orfixed)

“slushy”somewhat

firm

“liquid”(open)

1 2 3 4 5 6 7 8 9

SummarySummaryAggregate planning reconciles conflicting needs and objectives Aggregate plan specifies time-phased production rates, workforce levels and inventory holdingsAggregation:

products / services are grouped into families labor may be grouped along family lines or by skills time may be aggregated (quarters, etc.)

Two basic planning options: changing capacity and changing demandAggregate planning strategies:

Level – constant workforce or production level Chase – vary production to equal demand