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Aggregate Planning and Master Production
Scheduling (MPS)
Aggregate Planning
Overview of Aggregate Planning Aggregate planning begins with a forecast of aggregate demand for the intermediate range.
This is followed by a general plan to meet demand requirements by setting output,
employment, and finished-goods inventory or service capacities.
Managers must consider a number of plans, each of which must be examined in light of
feasibility and cost.
If a plan is reasonably good but has minor difficulties, it may be reworked.
Aggregate plans are updated periodically, often monthly, to take into account updated
forecast and other changes.
Hieratical planning system
For ExampleAt the end of the aggregate production planning
exercise, a garments manufacturer may arrive at the following plan
Produce at the rate of 9000 meters of cloth everyday during the months of January to march Increase it to 11000 meters during April to august and change the production rate 10,000 meters during September to December
Carry 10% of monthly production as inventory during the first nine months of production
Work on a one-shift basis throughout the year with 20% overtime during July to October
Aggregate Planning Inputs• Resources
• Workforce/production rate• Facilities and equipment
• Demand forecast• Policies
• Subcontracting• Overtime• Inventory levels• Back orders
• Costs• Inventory carrying• Back orders• Hiring/firing• Overtime• Inventory changes• subcontracting
Aggregate Planning OutputsTotal cost of a planProjected levels of:
InventoryOutputEmploymentSubcontractingBackordering
Aggregate Planning StrategiesProactive
• Involve demand options: Attempt to alter demand to match capacity
Reactive• Involve capacity options: attempt to alter capacity to
match demandMixed
• Some of each
Demand OptionsPricing PromotionBack ordersNew demand
Demand OptionsPricing
PromotionBack ordersNew demand
Pricing
Promotio
n
New
deman
d
Back oreder
Pricing• Pricing differential are commonly used to shift demand from peak
periods to off-peak periods, for example:• Some hotels offer lower rates for weekend stays• Some airlines offer lower fares for night travel• Movie theaters offer reduced rates for matinees• Some restaurant offer early special menus to shift some of the heavier
dinner demand to an earlier time that traditionally has less traffic.• To the extent that pricing is effective, demand will be shifted so that it
correspond more closely to capacity.• An important factor to consider is the degree of price elasticity of
demand; the more the elasticity, the more effective pricing will be in influencing demand patterns.
PromotionAdvertising and any other forms of promotion,
such as displays and direct marketing, can sometimes be very effective in shifting demand so that it conforms more closely to capacity.
Timing of promotion and knowledge of response rates and response patterns will be needed to achieve the desired result.
There is a risk that promotion can worsen the condition it was intended to improve, by bringing in demand at the wrong time.
Back orderAn organization can shift demand to other
periods by allowing back orders. That is , orders are taken in one period and deliveries promised for a later period.
The success of this approach depends on how willing the customers are to wait for delivery.
The cost associated with back orders can be difficult to pin down since it would include lost sales, annoyed or disappointed customers, and perhaps additional paperwork.
New demand• Manufacturing firms that experience seasonal demand are sometimes able to develop a demand for a complementary product that makes use of the same production process. For example, the firms that produce water ski in the summer, produce snow ski in the winter.
Aggregate Plan to Master ScheduleFor 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 Production Scheduling(MPS)
Master Production SchedulingMaster Production Schedule (MPS) - A detailed disaggregation of the aggregate production plan, listing the exact end items to be produced by a specific period.
• More detailed than APP & easier to plan under stable demand.
• Planning horizon is shorter than APP, but longer than the lead time to produce the item.
• Note: For the service industry, the master production schedule may just be the appointment log or book, where capacity (e.g., skilled labor or professional service) is balanced with demand.
Master Production Scheduling
The MPS - the production quantity to meet demand from all sources & is used for computing the requirements of all time-phased end items
System nervousness - small changes in the upper-level-production plan cause major changes in the lower-level production plan
Firms use a time fence to deal with nervousness by separating the planning horizon into –1. Firmed Segment (AKA demand time fence), from current period to
several weeks into future. Can only be altered by senior management2. Tentative segment (AKA planning time fence), from end of firmed
segment to several weeks into the future
The Master Production Scheduling Problem
MPS
Placed OrdersForecasted DemandCurrent and PlannedAvailability, eg.,•Initial Inventory,•Initiated Production,•Subcontracted quantities
Master ProductionSchedule:When & How Muchto produce for eachproduct
CapacityConsts.
CompanyPolicies
EconomicConsiderations
ProductCharact.
PlanningHorizon
Timeunit
CapacityPlanning
MPS Example: Company Operations
Mashing(1 mashing ton)
Boiling(1 brew kettle)
Fermentation(3 40-barrelferm. tanks)
Filtering(1 filter tank)
Bottling(1 bottling
station)
Grain cracking(1 millingmachine)
Fermentation Times:
Brew Ferm. TimePale Ale 2 weeksStout 3 weeksWinter Ale 2 weeksSummer Brew 2 weeksOctoberfest 8-10 weeks
Example: Implementing the Empirical Approach in Excel# Fermentors: 1 Unit Cap: 200 Shelf Life: 20
Microbrewery PerformanceWeek 0 1 2 3 4 5 6 7 8 9 10# Fermentors Req'd 0 0 0 0 0 0 0 0 0 0Feasible Loading?Min # Fermentors Req'd 2 2 2 2 2 2 2 2 2 2Fermentor Utilization 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%Total Spoilage 0 0 0 0 0 0 0 0 0 0
Pale Ale Fermentation Time: 2Week 0 1 2 3 4 5 6 7 8 9 10Demand 45 50 40 40 40 40 40 40 40 40Scheduled Receipts 200Fermentors Released 1Inventory SpoilageInventory Position 100 255 205 165 125 85 45 5 -35 -40 -40Net Requirements 35 40 40Batched Net ReceiptsScheduled ReleasesFermentors SeizedTotal Fermentors Occupied
Stout Fermentation Time: 3Week 0 1 2 3 4 5 6 7 8 9 10Demand 35 40 30 30 40 40 40 40 50 50Scheduled ReceiptsFermentors ReleasedInventory SpoilageInventory Position 150 115 75 45 15 -25 -40 -40 -40 -50 -50Net Requirements 25 40 40 40 50 50Batched Net ReceiptsScheduled ReleasesFermentors SeizedTotal Fermentors Occupied
Problem Decision Variables: Scheduled Releases
# Fermentors: 1 Unit Cap: 200 Shelf Life: 20
Microbrewery PerformanceWeek 0 1 2 3 4 5 6 7 8 9 10# Fermentors Req'd 0 0 0 0 0 1 1 0 0 0Feasible Loading?Min # Fermentors Req'd 2 2 2 2 2 2 2 2 2 2Fermentor Utilization 0% 0% 0% 0% 0% 100% 100% 0% 0% 0%Total Spoilage 0 0 0 0 0 0 0 0 0 0
Pale Ale Fermentation Time: 2Week 0 1 2 3 4 5 6 7 8 9 10Demand 45 50 40 40 40 40 40 40 40 40Scheduled Receipts 200Fermentors Released 1Inventory SpoilageInventory Position 100 255 205 165 125 85 45 5 165 125 85Net RequirementsBatched Net Receipts 200Scheduled Releases 200Fermentors Seized 1Total Fermentors Occupied 1 1
Stout Fermentation Time: 3Week 0 1 2 3 4 5 6 7 8 9 10Demand 35 40 30 30 40 40 40 40 50 50Scheduled ReceiptsFermentors ReleasedInventory SpoilageInventory Position 150 115 75 45 15 -25 -40 -40 -40 -50 -50Net Requirements 25 40 40 40 50 50Batched Net ReceiptsScheduled ReleasesFermentors SeizedTotal Fermentors Occupied
Testing the Schedule Feasibility
# Fermentors: 1 Unit Cap: 200 Shelf Life: 20
Microbrewery PerformanceWeek 0 1 2 3 4 5 6 7 8 9 10# Fermentors Req'd 0 1 1 1 0 1 2 1 1 0Feasible Loading? NOMin # Fermentors Req'd 2 2 2 2 2 2 2 2 2 2Fermentor Utilization 0% 100% 100% 100% 0% 100% 200% 100% 100% 0%Total Spoilage 0 0 0 0 0 0 0 0 0 0
Pale Ale Fermentation Time: 2Week 0 1 2 3 4 5 6 7 8 9 10Demand 45 50 40 40 40 40 40 40 40 40Scheduled Receipts 200Fermentors Released 1Inventory SpoilageInventory Position 100 255 205 165 125 85 45 5 165 125 85Net RequirementsBatched Net Receipts 200Scheduled Releases 200Fermentors Seized 1Total Fermentors Occupied 1 1
Stout Fermentation Time: 3Week 0 1 2 3 4 5 6 7 8 9 10Demand 35 40 30 30 40 40 40 40 50 50Scheduled ReceiptsFermentors ReleasedInventory SpoilageInventory Position 150 115 75 45 15 175 135 95 55 5 155Net RequirementsBatched Net Receipts 200 200Scheduled Releases 200 200Fermentors Seized 1 1Total Fermentors Occupied 1 1 1 1 1 1
The Driving Logic behind the Empirical Approach
Demand Availability: •Initial Inventory Position•Scheduled Receipts due to initiated production or subcontracting
Future inventoriesNetRequirements
Lot SizingScheduledReleases
Resource (Fermentor)Occupancy Product i
FeasibilityTesting
Master Production Schedule
ScheduleInfeasibilities
ReviseProd. Reqs
Compute FutureInventory Positions
Master Schedule The result of disaggregating the aggregate plan is a master
schedule showing the quantity and timing of specific end items for a scheduled horizon, which often covers about six to eight weeks ahead.
The master schedule shows the planned output for individual products rather than an entire product group, along with the timing of production.
It should be noted that whereas the aggregate plan covers an interval of, say, 12 months, the master schedule covers only a portion of this. In other words, the aggregate plan is disaggregated in stages , or phases, that may cover a few weeks to two or three months.
The master schedule contains important information for marketing as well as for production. It reveals when orders are scheduled for production and when completed orders are to be shipped.
• Master schedule• Determines quantities needed to meet demand
• Interfaces with• Marketing: it enables marketing to make valid delivery commitments to warehouse and final customers.
• Capacity planning: it enables production to evaluate capacity requirements
• Production planning• Distribution planning
Master
Scheduling
Beginning inventory
Forecast
Committed
Customer orders
Inputs Outputs
Projected inventory
Master production schedule
ATP: Uncommitted inventory