Unit 3

Scheduling Operations Chapter 12: Aggregate Planning

Lesson 40 - AGGREGATE PLANNING FOR SERVICE ORGANIZATIONS Learning Objectives After reading this lesson you will be able to understand Master plan Scheduling Aggregate planning in the context of service organization

My dear friends, today we shall learn to extend the concepts learnt during the previous

lectures to service organizations. Service organizations can also use aggregate planning. The typical service operation, however, is make – to – order than make-to-stock. Consequently, finished goods are not available for responding to demand fluctuations. Instead, backlogs of customer requests can be increased or decreased to utilize capacity at desired levels. The following example shows how a city's parks and recreation department could use the alternatives of full-time employees, part-time employees, and subcontracting to meet its commitment to provide a service to the city.

Tucson Parks and Recreation Department has an operation and maintenance budget of $9.760.000. The department is responsible for developing and maintaining open space, all public recreational programs, adult sports leagues, golf courses, tennis courts, pools, and so forth. There are 336 full-time-equivalent employees (FTEs). Of these, 216 are full-time permanent personnel who provide the administration and year-round maintenance to ail areas. The remaining 120 FTE positions are staffed with part-timers; about three-quarters or them are used during the summer and the remaining quarter in the fall, winter. and spring seasons. The three-fourths (or 90 FTE positions) show up as approximately 800 part-time summer jobs: lifeguards, baseball umpires, and instructors in summer programs for children. Eight hundred part-time jobs came from 90 FTEs because many last only for a month or two, while the FTEs are a year long.

Currently, the only parks and recreation work subcontracted amounts to less than $100,000. This is for the golf and tennis pros and for grounds maintenance at the libraries and veterans' cemetery.

Because of the nature of city employment, the probable bad public image, and civil service rules, the option to hire and fire full-time help daily or weekly to meet seasonal demand is out of the question. However, temporary part-time help is authorized and traditional. Also, it is virtually impossible to have regular (full-time) staff for all the summer jobs. During the summer months, the approximately 800 part-time employees are staffing many programs that occur simultaneously, prohibiting level scheduling over a norma140-hour week. A wider variety of skills are required (such as umpires, coaches, lifeguards, and teachers of ceramics, guitar, karate, belly dancing, and yoga) than can be expected from full-time employees. Three options are open to the department in its aggregate planning: 1 The present method, which is to maintain a medium-level full-time staff and schedule work during

off-seasons (such as rebuilding baseball fields during the winter months) and to use part-time help during peak demands.

2 Maintain a lower level of staff over the year and subcontract all additional work presently done by full-time staff (still using part-time help).

3 Maintain an administrative staff only and subcontract all work, including part-time help. (This would entail contracts to landscaping firms and pool maintenance companies as well as to newly created private firms to employ and supply part-time help.)

The common unit of measure of work across all areas is full-time equivalent jobs or employees.

For example, assume in the same week that 30 lifeguards worked 20 hours each, 40 instructors worked 15 hours each, and 35 baseball umpires worked 10 hours each. This is equivalent to (30 x 20) + (40 x 15) + (35 x 10) = 1,550 -:- 40 = 38.75 FTE positions for that week. Although a considerable amount of workload can be shifted to off-season, most of the work must be done when required.

Full-time employees consist of three groups: (1) the skeleton group of key department personnel coordinating with the city, setting policy, determining budgets, measuring performance, and so forth; (2) the administrative group of supervisory and office personnel who are responsible for or whose jobs are directly linked to the direct-labor workers; and (3) the direct-labor workforce of 116 full-time positions. These workers physically maintain the department's areas of responsibility, such as cleaning up, mowing golf greens and ball fields. trimming trees, and watering grass. Cost information needed to determine the best alternative strategy is

FULL time DIRECT LABOR EMPLOYEES• average wage rate • Fringe benefits • Administrative costs

$ 4.45 per hour 17 % of wage rate 20 % of wage rate

PART TIME EMPLOYEES • average wage rate • Fringe benefits • Administrative costs

$ 4.03 PER HOUR 11 % OF WAGE RATE 25 % OF WAGE RATE.

subcontracting at full time fobs $ 1.) million Subcontracting all part time jobs $ 1.85 million.

Table 16 Actual Requirement for full Time Direct Employees and Full Time equivalent Part Time Employee.

JAN. FEB MAR. APR. MAY JUNE JULY AUG. SE

P OCT. Nov. Dee. TOTAL

ays 22 20 21 22 21 20 21 21 21 23 18 22 252

Fuli-time employees 66 28 130 go 195 290 325 92 45 32 29 60

- - - - - -- - - - - - - Fuli-time

days. 1.452 560 2,730 1.980 4.095 5.800 6,825 1.932 .945 736 5221.320 28.897 Full-time equivalent part-time

employees 41 75 72 68 72 302 576 72 0 68 84 27 FTE days 902 1.500 1.512 1.496 1.512 6.040 12.096 1,512 0 1.564 1.512 594 30.240

Full Time days are derived by multiplying the number of days in each month by the number of workers.

Full Time equivalent employees

red

FTE part time

100 requi

Monthly Requirement for full time direct labors Employees ( other than Key Personnel) and Full Time equivalent Part time employees.

June and July are the peak demand seasons in Tucson. Table 16 and graph10 show the high requirements for June and July personnel. The part-time help reaches 576 full-time equivalent positions (although in actual numbers, this is approximately 800 different employees). After a low fall and winter staffing level, the demand shown as "full-time direct" reaches 130 in March (when grounds are reseeded and fertilized) and then increases to a high of 325 in July. The present method levels this uneven demand over the year to an average of 116 fu-time year-round employees by early scheduling of work. As previously mentioned, no attempt is made to hire and layoff fuil-time workers to meet this uneven demand. Table 11 shows the cost calculations for all three alternatives. Exhibit 12 compares the total costs for each alternative. From this analysis, it appears that the department is already using the lowest-cost alternative (Alternative1)

Three Possible Plans for the Parks and RecreationDepartment

Alternative 1: Maintain 116 full-time regular direct workers, Schedule work during off-seasons to level workload throughout the year. Continue to use 120 full-time equivalent (FTE) part-time employees to meet high demand periods,

COSTS 252 HOURS ADMINISTRAT

IVE (EMPLO

YEES WAGES FRINGE BENEFITS

COST (FULL -TIME,

X DAYS X

(FULL -TIME, $4.45;

(FULL-TIME,17%;

20%; PART-TIME,

8 HOURS)

PART-TIME. $4.03)

PART-TIME,l1%) 25%)

233,856 $1,040,659 $176,912 $208.132

241,920 974.938 107.243 243.735 $2,015.597 $284,155 $451.867

116 full-time regular employees 120 part-time employees

252 Total cost = $2.751,619

Alternative 2: Maintain 50 full-time regular direct workers and the present 120 FTEpart-time employees. Subcontract jobs releasing 66 full-time regular employees. Subcontract Cost. $1,100.000,

hours administrat

ive

(employees wages fringe

benefits cost (full-

time.

days per year x days x (full-time,

$4.45; (full-time.

17%; 20%; part-

time, subcontr

.ct

cost (exhibit 13.7) 8 hours) part-time,

$4.03) part-

time,l1%) 2s%) cost

50 full-time employ

ees 252 100,800 $ 448,560 $ 76.255 $ 89.712

252 241.920 974.938 107.243 243,735

120 fte part-time employees

subcontracting

cost $1.100.000

- - -

total cost = $3,040.443 $1.423.498 $183.498 $333.447 $1,100.000

Alternative 3: Subcontract all jobs previously performed by 116 full-time regular employees. Subcontract cost $1.600,000. Subcontract all jobs previously performed by 120 FTE part-time employees. Subcontract cost $1.850.000.

.

0 full-time employees 0 part-time employees Subcontract full-time jobs Subcontract part-time jobs

Total cost

$1,600,000 1.850,000

$3.450.000

.

$3..150,000_

Table 12 Comparison of Costs for All Three Alternatives

ALTERNATIVE 1: 116 FULL-TIME DIRECT-LABOR EMPLOYEES. 120 FULL-TIME

ALTERNATIVE 2: 50 FULL-TIME DIRECT-LABOR EMPLOYEES. 120 FULL-TIME EQUIVALENT PART-TIME EMPLOYEES, SUBCONTRACTING

ALTERNATIVE 3: SUBCONTRACTING JOBS FORMERLY PERFORMED BY 116 DIRECT-LABOR FULL-TIME EMPLOYEES AND 120 FTE PART-TIME EMPLOYEES

Wages Fringe benefits

Administrative costs Subcontracting. Full Time Jobs

Subcontracting. Part Time Jobs

TOTAL COSTS

$1.423.498 183.498 333.447 1,100,000 3,040,443

$1.600,000 1.850.000 3,450,000

$2.015.597 . 284,155

451,867 2,751,619

Problem 1

Level Strategy with Overtime and Under time

The Barberton Municipal Division of Road Maintenance is charged with road repair in the city of Barberton and surrounding area. Cindy Kramer, road maintenance director, must submit a staffing plan for the next year based on a set schedule for repairs and on the city budget. Kramer estimates that the labor hours required for the next four quarters are 6,000, 12,000, 19,000, and 9,000, respectively. Each of the 11 workers on the work force can contribute 520 hours per quarter. Overtime is limited to 20 percent of the regular-time capacity in any quarter. Subcontracting is not permitted.

a. Find a level work-force plan that allows no delay in road repair and minimizes under time. Overtime can be used to its limits in any quarter.

Quarter 1 2 3 4 TotalRequirement (hrs) 6,000 12,000 19,000 9,000 46000Workforce level (workers)

Undertime (hours) Overtime (hours) Productive time (hours) Hires (workers) Layoffs (workers)

b. Payroll costs are $6,240 in wages per worker for regular time worked up to 520 hours, with an overtime pay rate of $18 for each overtime hour. Although unused overtime capacity has no cost, unused regular time is paid at $12 per hour. The cost of hiring a worker is $3,000, and the cost of laying off a worker is $2,000. What is the cost of your level work-force plan?

Costs Productive time Undertime Overtime Hires Layoffs Total Cost

Chase Strategy with Hiring and Layoffs

a. Now use a chase strategy for the Barberton Municipal Division that varies the work-force level without using overtime. Undertime should be minimized, except for the minimal amount mandated because the quarterly requirements are not integer multiples of 520 hours.

Quarter 1 2 3 4 TotalRequirement (hrs) 6,000 12,000 19,000 9,000 46000Workforce level (workers) Undertime (hours) Overtime (hours) Productive time (hours) Hires (workers) Layoffs (workers)

b. What is the total cost of this plan?

Costs Productive time Undertime Overtime Hires Layoffs Total Cost

Problem 2

Bob Carlton’s golf camp estimates the following work-force requirements for its services over the next two years.

Quarter 1 2 3 4 5 6 7 8 Demand 4200 6400 3000 4800 4400 6240 3600 4800

Each certified instructor puts in 480 hours per quarter regular time and can work an additional 120 hours overtime. Regular-time wages and benefits cost Carlton $7,200 per

employee per quarter for regular time worked up to 480 hours, with an overtime cost of $20 per hour. Unused regular time for certified instructors is paid at $15 per hour. There is no cost for unused overtime capacity. The cost of hiring, training, and certifying a new employee is $10,000. Layoff costs are $4,000 per employee. Currently, eight employees work in this capacity.

a. Find a level work-force plan that allows for no delay in service and minimizes undertime. What is the total cost of this plan?

b. Use a chase strategy that varies the work-force level without using overtime or undertime. What is the total cost of this plan?

c. Can you propose a better plan?

Problem 3

The Cranston Telephone Company employs workers who lay telephone cables and perform various other construction tasks. The company prides itself on good service and strives to complete all service orders within the planning period in which they are received.

Each worker puts in 600 hours of regular time per planning period and can work as much as an additional 100 hours overtime. The operations department has estimated the following workforce requirements for such services over the next four planning periods:

Planning Period 1 2 3 4 Demand (hours) 21,000 18,000 30,000 12,000

Cranston pays regular-time wages of $6,000 per employee per period for any time worked up to 600 hours(including undertime). The overtime pay rate is $15 per hour over 600 hours. Hiring, training, and outfitting a new employee costs $8,000. Layoff costs are $2,000 per employee. Currently, 40 employees work for Cranston in this capacity. No delays in service, or backorders, are allowed.

a. Develop a level workforce plan that uses only the overtime and undertime alternatives. Maximize the use of overtime during the peak period so as to minimize the workforce level and amount of undertime.

b. Prepare a chase strategy without using overtime and undertime. c. Propose an effective mixed-strategy plan.

With that, we have come to the end of today’s discussions. I hope it has been an enriching and satisfying experience.