[ppt]production and operations management: …sureten/(aggregate planning)5.ppt · web...
TRANSCRIPT
Aggregate Planning
©The McGraw-Hill Companies, Inc., 2004
2
Aggregate Planning
• Aggregate planning– Intermediate-range capacity planning that
typically covers a time horizon of 2 to 18 months– Useful for organizations that experience
seasonal, or other variations in demand– Goal:
• Achieve a production plan that will effectively utilize the organizations’ resources to satisfy demand
©The McGraw-Hill Companies, Inc., 2004
3
Sales and Operations Planning
• Some organizations use the term sales operations and planning rather than aggregate planning– Sales and operation planning
• Intermediate-range planning decisions to balance supply and demand, integrating financial and operations planning
• Since the plan affects functions throughout the organization, it is typically prepared with inputs from sales, finance, and operations
©The McGraw-Hill Companies, Inc., 2004
4
Planning Levels
©The McGraw-Hill Companies, Inc., 2004
5
Planning Tasks and Responsibilities
Planning Horizon
Shortrange
Intermediate range
Long range
Now 6 months 18 months
Master scheduling
Material requirements planning
Order schedulingWeekly workforce andcustomer scheduling
Daily workforce and customer scheduling
Process planning
Strategic capacity planning
Sales and operations (aggregate) planning
Longrange
Intermediaterange
Shortrange
ManufacturingServices
Sales plan Aggregate operations plan
Forecasting & demand management
©The McGraw-Hill Companies, Inc., 2004
8
The Planning Sequence
Business Plan Establishes operationsand capacity strategies
Aggregate Plan Establishesoperations capacity
Master Schedule Establishes schedulesfor specific products
Corporatestrategies
and policies
Economic,competitiveand politicalconditions
Aggregate demandforecasts
Operations Planning Activities
• Long-range planning– Greater than one year planning horizon– Usually performed in annual increments
• Medium-range planning– Six to eighteen months – Usually with monthly or quarterly increments
• Short-range planning– One day to less than six months– Usually with weekly increments
©The McGraw-Hill Companies, Inc., 2004
10
Aggregation
• The plan must be in units of measurement that can be understood by the firm’s non-operations personnel
• Aggregate units of output per month
• Dollar value of total monthly output
• Total output by factory
• Measures that relate to capacity such as labor hours
©The McGraw-Hill Companies, Inc., 2004
11
Dealing with Variation
• Most organizations use rolling 3, 6, 9 and 12 month forecasts– Forecasts are updated periodically, rather than
relying on a once-a-year forecast
©The McGraw-Hill Companies, Inc., 2004
12
Dealing with Variation
• Strategies to counter variation:– Maintain a certain amount of excess capacity to handle
increases in demand– Maintain a degree of flexibility in dealing with changes
• Hiring temporary workers• Using overtime
– Wait as long as possible before committing to a certain level of supply capacity• Schedule products or services with known demands first• Wait to schedule other products until their demands become less
uncertain
©The McGraw-Hill Companies, Inc., 2004
13
Overview of Aggregate Planning
©The McGraw-Hill Companies, Inc., 2004
14
Demand and Supply
• Aggregate planners are concerned with the– Demand quantity
• If demand exceeds capacity, attempt to achieve balance by altering capacity, demand, or both
– Timing of demand• Even if demand and capacity are approximately equal,
planners still often have to deal with uneven demand within the planning period
Aggregate Production Planning (APP)
Matches market demand to company resources Plans production 6 months to 18 months in
advance Expresses demand, resources, and capacity in
general terms Develops a strategy for economically meeting
demand Establishes a company-wide game plan for
allocating resources
Balancing Aggregate Demandand Aggregate Production Capacity
0
2000
4000
6000
8000
10000
Jan Feb Mar Apr May Jun
45005500
7000
10000
8000
6000
0
2000
4000
6000
8000
10000
Jan Feb Mar Apr May Jun
9000 90009900
88009500 9500
Suppose the figure to the right represents forecast demand in units
Now suppose this lower figure represents the aggregate capacity of the company to meet demand
What we want to do is balance out the production rate, workforce levels, and inventory to make these figures match up
Aggregate Plan: Relationships
AggregatePlan for
Production
DemandForecasts,
orders
MasterProduction
Schedule, and MRP systems
Detailed WorkSchedules
ExternalCapacity
Subcontractors
Inventory OnHand
Raw MaterialsAvailable
Work Force
Marketplaceand Demand
Research andTechnology
ProductDecisions
ProcessPlanning & Capacity
Decisions
Inputs and Outputs to APP
CompanyPolicies
StrategicObjectives
CapacityConstraints
Units or dollarssubcontracted,
backordered, or lost
Size ofWorkforce
Productionper month
(in units or $)
InventoryLevels
FinancialConstraints
DemandForecasts
AggregateProductionPlanning
Resources• Workforce/production rates• Facilities and equipment
Demand forecastPolicies
• Workforce changes• Subcontracting• Overtime• Inventory levels/changes• Back orders
Common unit for measuring outputs
Costs• Inventory carrying• Back orders• Hiring/firing• Overtime• Inventory changes• Subcontracting
Aggregate Planning Inputs
©The McGraw-Hill Companies, Inc., 2004
20
Aggregate Planning Outputs
• Total cost of a plan• Projected levels of
– Inventory– Output (units completed per unit time)– Employment (workforce level-no.of workers)– Subcontracting levels (if any)– Backordering levels (if any)
• Meet demand• Use capacity efficiently• Meet inventory policy• Minimize total cost
Aggregate Planning Goals
Aggregate Planning Strategies
• Proactive– Alter demand to match capacity
• Reactive– Alter capacity to match demand
• Mixed– Some of each
Demand Management Options Shifting demand from peak to off-peak periods by
incentives, promotions, advertising campaigns, pricing (price elasticity important) etc.
Offering product or services with counterseasonal demand patterns (counterseasonal product mixing)
Backordering (orders are taken in one period and deliveries promised for a later period
Creation of new demand Partnering with suppliers to reduce information
distortion along the supply chain
Producing at a constant rate and using inventories to absorb fluctuations in demand ie. changing inventory levels
Varying work force size (hiring and firing workers) so that production matches demand
Varying production capacity by increasing or decreasing working hours (overtime or idle time)
Adjusting Capacity to Meet Demand (Supply Options) (1 of 2)
Using part-time workers to change production rateSubcontracting work to other firmsProviding the service or product at a later time
period (backordering)
Options of Adjusting Capacity to Meet Demand (2 of 2)
Strategy Details
Overtime & undertime - common when demand fluctuations are not extreme
Subcontracting - useful if supplier meets quality & time requirements
Part-time workers - feasible for unskilled jobs or if labor pool exists
Backordering - only works if customer is willing to wait for product/services
Capacity Options - Advantages and Disadvantages (1 of 4)
Option Advantage Disadvantage SomeComments
Changinginventory levels
Changes inhuman resourcesare gradual, notabruptproductionchanges
Inventoryholding costs;Shortages mayresult in lostsales
Applies mainlyto production,not service,operations
Varyingworkforce sizeby hiring orlayoffs
Avoids use ofother alternatives
Hiring, layoff,and trainingcosts
Used where sizeof labor pool islarge
Option Advantage Disadvantage SomeComments
Varyingproduction ratesthrough overtimeor idle time
Matches seasonalfluctuationswithouthiring/trainingcosts
Overtimepremiums, tiredworkers, may notmeet demand
Allowsflexibility withinthe aggregateplan
Subcontracting Permitsflexibility andsmoothing of thefirm's output
Loss of qualitycontrol; reducedprofits; loss offuture business
Applies mainlyin productionsettings
Advantages/Disadvantages (2 of 4)
Advantages/Disadvantages (3 of 4)
Option Advantage Disadvantage SomeComments
Using part-timeworkers
Less costly andmore flexiblethan full-timeworkers
Highturnover/trainingcosts; qualitysuffers;schedulingdifficult
Good forunskilled jobs inareas with largetemporary laborpools
Influencingdemand
Tries to useexcess capacity.Discounts drawnew customers.
Uncertainty indemand. Hard tomatch demand tosupply exactly.
Createsmarketing ideas.Overbookingused in somebusinesses.
Advantages/Disadvantages (4 of 4)
Option Advantage Disadvantage SomeComments
Back orderingduring high-demand periods
May avoidovertime. Keepscapacity constant
Customer mustbe willing towait, butgoodwill is lost.
Many companiesbackorder.
Counterseasonalproducts andservice mixing
Fully utilizesresources; allowsstable workforce.
May requireskills orequipmentoutside a firm'sareas ofexpertise.
Risky findingproducts orservices withopposite demandpatterns.
The Extremes
Level Strategy
Chase Strategy
Production equals
demand
Production rate is constant
Basic Aggregate Planning Strategies for Meeting Demand
Level capacity strategy: • Keeping work force constant and maintaining a steady rate
of regular-time output while meeting variations in demand by a combination of options (such as using inventories +overtime+part-time workers+backorders subcontracting)
Chase demand strategy: • Changing workforce levels so that production matches
demand (the planned output for a period is set at the expected demand for that period.)
Maintaining resources for high demand levels • Ensures high levels of customer service
©The McGraw-Hill Companies, Inc., 2004
33
Chase Approach
• Capacities are adjusted to match demand requirements over the planning horizon– Advantages
• Investment in inventory is low• Labor utilization in high
– Disadvantages• The cost of adjusting output rates and/or workforce
levels
©The McGraw-Hill Companies, Inc., 2004
34
Level Approach
• Capacities are kept constant over the planning horizon
• Advantages– Stable output rates and workforce
• Disadvantages– Greater inventory costs– Increased overtime and idle time– Resource utilizations vary over time
Level Production
Production
Demand
Uni
tsU
nits
TimeTime
Chase Demand
Production
Demand
Uni
ts
Time
Level Strategy: Forecast and Average Forecast Demand
0
10
20
30
40
50
60
70
Prod
uctio
n ra
te p
er w
orki
ng d
ay
Jan Feb Mar Apr May Jun
Forecast Demand
Level production using average monthly forecast demand
22 18 21 21 22 20
Level Strategy: Cumulative Demand Graph
Jan Feb Mar Apr May Jun
Cumulative forecast requirements
Cumulative level production using average monthly
forecast requirements
Reduction of inventory
Excess inventoryCum
ulat
ive D
eman
d (U
nits
)7,000
6,000
5,000
4,000
3,000
2,000
1,000
Graphical & charting techniques• Popular & easy-to-understand• Trial & error approach
Mathematical approaches• Linear programming • Transportation method • Linear decision rule (LDR)• Search decision rule (SDR)• Management coefficients model• Simulation models (Computerized models that can be tested under different scenarios
to identify acceptable solutions to problems
Aggregate Planning Methods
Summary of Planning TechniquesTechnique Solution Characteristics Graphical/charting Trial and
error Intuitively appealing, easy to understand; solution not necessarily optimal.
Linear programming
Optimizing Computerized; linear assumptions not always valid.
Linear decision rule
Optimizing Complex, requires considerable effort to obtain pertinent cost information and to construct model; cost assumptions not always valid.
Simulation Trial and error
Computerized models can be examined under a variety of conditions.
©The McGraw-Hill Companies, Inc., 2004
41
Trial-and-Error Techniques
• Trial-and-error approaches consist of developing simple table or graphs that enable planners to visually compare projected demand requirements with existing capacity
• Alternatives are compared based on their total costs• Disadvantage of such an approach is that it does
not necessarily result in an optimal aggregate plan
1. Forecast demand for each period
2. Determine capacities (for regular time, overtime, subcontracting) for each period
3. Identify policies that are pertinent
4. Determine costs (labor, hiring/firing, holding etc.)
5. Develop alternative plans and costs
6. Select the best plan that satisfies objectives. Otherwise return to step 5.
Steps of Trial & Error Method
©The McGraw-Hill Companies, Inc., 2004
43
Trial-and-Error Technique Assumptions
• The regular output capacity is the same in all periods• Cost is a linear function composed of unit cost and number of units• Plans are feasible• All costs are associated with a decision option can be represented
by a lump sum• Cost figures can be reasonably estimated and are constant for the
planning period• Inventories are built up and drawn down at a uniform rate
throughout each period• Backlogs are treated as if they exist the entire period
©The McGraw-Hill Companies, Inc., 2004
44
Cumulative Graph
Cumulativeproduction
CumulativedemandC
umul
ativ
e ou
tput
/dem
and
Period
Inventory Build Up
Inventory Shortage
Aggregate Planning Using Pure Strategies- Example 1
(1 of 4)
Hiring cost = $100 per workerFiring cost = $500 per worker
Inventory carrying cost = $0.50 pound per quarterProduction per employee = 1,000 pounds per quarter
Beginning work force = 100 workers
QUARTER SALES FORECAST (LB)
Spring 80,000Summer 50,000Fall 120,000Winter 150,000
Example 1: Level Production Strategy (2 of 4)
QUARTER SALES FORECAST (LB)
Spring 80,000Summer 50,000Fall 120,000Winter 150,000
Level production
= 100,000 pounds
(50,000 + 120,000 + 150,000 + 80,000)4
Example 1:Level Production Strategy (3 of 4)
Spring 80,000 100,000 20,000Summer 50,000 100,000 70,000Fall 120,000 100,000 50,000Winter 150,000 100,000 0
Total 400,000 140,000
Cost = 140,000 pounds x 0.50 per pound = $70,000
SALES PRODUCTIONQUARTER FORECAST PLAN INVENTORY
Spring 80,000 80,000 80 0 20Summer 50,000 50,000 50 0 30Fall 120,000 120,000 120 70 0Winter 150,000 150,000 150 30 0
100 50
SALES PRODUCTION WORKERS WORKERS WORKERSQUARTER FORECAST PLAN NEEDED HIRED FIRED
Cost = (100 workers hired x $100) + (50 workers fired x $500)= $10,000 + 25,000 = $35,000
Example 1:Chase Demand Strategy (4 of 4)
Aggregate Planning: Example 2
Production per employee = 100 cases per monthWage rate = $10 per case for regular production
= $15 per case for overtime= $25 for subcontracting
Hiring cost = $1000 per workerFiring cost = $500 per worker
Inventory carrying cost = $1.00 case per monthBeginning work force = 10 workers
January 1000 July 500February 400 August 500March 400 September 1000April 400 October 1500May 400 November 2500June 400 December 3000
MONTH DEMAND (CASES) MONTH DEMAND (CASES)
Aggregate Planning:Example 3(1 of 8)
Materials $5/unitHolding costs $1/unit per mo.Marginal cost of stockout $1.25/unit per mo.Hiring and training cost $200/workerLayoff costs $250/workerLabor hours required 0.15 hrs/unitStraight time labor cost $8/hourBeginning inventory 250 unitsProductive hours/worker/day 7.25Paid straight hrs/day 8
Suppose we have the following unit demand and cost information:
Demand/mo Jan Feb Mar Apr May Jun
4500 5500 7000 10000 8000 6000
Jan Feb Mar Apr May JunDays/mo 22 19 21 21 22 20Hrs/worker/mo 159.5 137.75 152.25 152.25 159.5 145Units/worker 1063.33 918.33 1015 1015 1063.33 966.67$/worker $1,408 1,216 1,344 1,344 1,408 1,280
Demand/mo Jan Feb Mar Apr May Jun4500 5500 7000 10000 8000 6000
Given the demand and cost information below, whatare the aggregate hours/worker/month, units/worker, and dollars/worker?
7.25x22
7.25/0.15=48.33 & 48.33x22=1063.3322x8hrsx$8=$1408
Example 3:Determining Output and Straight Labor Costs(2 of 8)
Example 3: Chase Strategy(Hiring & Firing to meet demand)(3 of 8)
JanDays/mo 22Hrs/worker/mo 159.5Units/worker 1,063.33$/worker $1,408
JanDemand 4,500Beg. inv. 250Net req. 4,250Req. workers 3.997HiredFired 3Workforce 4Ending inventory 0
Lets assume our current workforce is 7 workers.
First, calculate net requirements for production, or 4500-250=4250 units
Then, calculate number of workers needed to produce the net requirements, or 4250/1063.33=3.997 or 4 workers
Finally, determine the number of workers to hire/fire. In this case we only need 4 workers, we have 7, so 3 can be fired.
Jan Feb Mar Apr May JunDays/mo 22 19 21 21 22 20Hrs/worker/mo 159.5 137.75 152.25 152.25 159.5 145Units/worker 1,063 918 1,015 1,015 1,063 967$/worker $1,408 1,216 1,344 1,344 1,408 1,280
Jan Feb Mar Apr May JunDemand 4,500 5,500 7,000 10,000 8,000 6,000Beg. inv. 250Net req. 4,250 5,500 7,000 10,000 8,000 6,000Req. workers 3.997 5.989 6.897 9.852 7.524 6.207Hired 2 1 3Fired 3 2 1Workforce 4 6 7 10 8 7Ending inventory 0 0 0 0 0 0
Below are the complete calculations for the remaining months in the six month planning horizon
Example 3 (4 of 8)
Jan Feb Mar Apr May JunDemand 4,500 5,500 7,000 10,000 8,000 6,000Beg. inv. 250Net req. 4,250 5,500 7,000 10,000 8,000 6,000Req. workers 3.997 5.989 6.897 9.852 7.524 6.207Hired 2 1 3Fired 3 2 1Workforce 4 6 7 10 8 7Ending inventory 0 0 0 0 0 0
Jan Feb Mar Apr May Jun CostsMaterial $21,250.00 $27,500.00 $35,000.00 $50,000.00 $40,000.00 $30,000.00 203,750.00Labor 5,627.59 7,282.76 9,268.97 13,241.38 10,593.10 7,944.83 53,958.62Hiring cost 400.00 200.00 600.00 1,200.00Firing cost 750.00 500.00 250.00 1,500.00
$260,408.62
Below are the complete calculations for the remaining months in the six month planning horizon with the other costs included
Example 3 (5 of 8)
Example 3: Level Workforce Strategy (Surplus and Shortage Allowed)(6 of 8)
JanDemand 4,500Beg. inv. 250Net req. 4,250Workers 6Production 6,380Ending inventory 2,130Surplus 2,130Shortage
Lets take the same problem as before but this time use the Level Workforce strategy
This time we will seek to use a workforce level of 6 workers
Jan Feb Mar Apr May JunDemand 4,500 5,500 7,000 10,000 8,000 6,000Beg. inv. 250 2,130 2,140 1,230 -2,680 -1,300Net req. 4,250 3,370 4,860 8,770 10,680 7,300Workers 6 6 6 6 6 6Production 6,380 5,510 6,090 6,090 6,380 5,800Ending inventory 2,130 2,140 1,230 -2,680 -1,300 -1,500Surplus 2,130 2,140 1,230Shortage 2,680 1,300 1,500
Note, if we recalculate this sheet with 7 workers we would have a surplus
Below are the complete calculations for the remaining months in the six month planning horizon
Example 3 (7 of 8)
Jan Feb Mar Apr May Jun4,500 5,500 7,000 10,000 8,000 6,000
250 2,130 10 -910 -3,910 -1,6204,250 3,370 4,860 8,770 10,680 7,300
6 6 6 6 6 66,380 5,510 6,090 6,090 6,380 5,8002,130 2,140 1,230 -2,680 -1,300 -1,5002,130 2,140 1,230
2,680 1,300 1,500
Jan Feb Mar Apr May Jun$8,448 $7,296 $8,064 $8,064 $8,448 $7,680 $48,000.0031,900 27,550 30,450 30,450 31,900 29,000 181,250.002,130 2,140 1,230 5,500.00
3,350 1,625 1,875 6,850.00
$241,600.00
Below are the complete calculations for the remaining months in the six month planning horizon with the other costs included
Note, total costs under this strategy are less than Chase at $260.408.62
LaborMaterialStorageStockout
Example 3 (8 of 8)
APP by Linear Programming
whereHt = # hired for period tFt = # fired for period tIt = inventory at end
of period tPt = units produced
in period tWt = workforce size
for period t
Minimize Z = $100 (H1 + H2 + H3 + H4)+ $500 (F1 + F2 + F3 + F4)+ $0.50 (I1 + I2 + I3 + I4)
Subject toP1 - I1 = 80,000 (1)
Demand I1 + P2 - I2 = 50,000 (2)constraints I2 + P3 - I3 = 120,000 (3)
I3 + P4 - I4 = 150,000 (4)Production 1000 W1 = P1 (5)constraints 1000 W2 = P2 (6)
1000 W3 = P3 (7)1000 W4 = P4 (8)
100 + H1 - F1 = W1 (9) Work force W1 + H2 - F2 = W2 (10) constraints W2 + H3 - F3 = W3 (11)
W3 + H4 - F4 = W4 (12)
APP by the Transportation Method
1 900 1000 100 5002 1500 1200 150 5003 1600 1300 200 5004 3000 1300 200 500
Regular production cost per unit $20Overtime production cost per unit $25Subcontracting cost per unit $28Inventory holding cost per unit per period $3Beginning inventory 300 units
EXPECTED REGULAR OVERTIME SUBCONTRACTQUARTER DEMAND CAPACITY CAPACITY CAPACITY
The Transportation TableauUnused
PERIOD OF PRODUCTION 1 2 3 4 Capacity Capacity
Beginning 0 3 6 9Inventory 300 — — — 300
Regular 600 300 100 — 1000
Overtime 100 100
Subcontract 500
Regular 1200 — — 1200
Overtime 150 150
Subcontract 250 250 500
Regular 1300 — 1300
Overtime 200 — 200
Subcontract 500 500
Regular 1300 1300
Overtime 200 200
Subcontract 500 500
Demand 900 1500 1600 3000 250
1
2
3
4
PERIOD OF USE
20 23 26 29
25 28 31 34
28 31 34 37
20 23 26
25 28 31
28 31 34
20 23
25 28
28 31
20
25
28
©The McGraw-Hill Companies, Inc., 2004
61
Burruss’ Production Plan
1 900 1000 100 0 5002 1500 1200 150 250 6003 1600 1300 200 500 10004 3000 1300 200 500 0
Total 7000 4800 650 1250 2100
REGULAR SUB- ENDINGPERIOD DEMAND PRODUCTION OVERTIME CONTRACT INVENTORY
©The McGraw-Hill Companies, Inc., 2004
62
Other Quantitative Techniques
Linear decision rule (LDR)
Search decision rule (SDR)
Management coefficients model
Hierarchical Planning ProcessItems
Product lines or families
Individual products
Components
Manufacturing operations
Resource Level
Plants
Individual machines
Critical work
centers
Production Planning
Capacity Planning
Resource requirements
plan
Rough-cut capacity
plan
Capacity requirements
plan
Input/ output control
Aggregate production
plan
Master production schedule
Material requirements
plan
Shop floor
schedule
All work
centers
Aggregate Plan to Master Schedule(Disaggregation)
AggregatePlanning
Disaggregation
MasterSchedule
• Master schedule: –The result of disaggregating an aggregate plan
–shows quantity and timing of specific end items needed to meet demand for a scheduled horizon.
• Rough-cut capacity planning: –Approximate balancing of capacity and demand to
test the feasibility of a master schedule.
Disaggregating the Aggregate Plan
©The McGraw-Hill Companies, Inc., 2004
66
Master Scheduling
• The heart of production planning and control– It determines the quantity needed to meet demand from all
sources– It interfaces with
• Marketing• Capacity planning• Production planning• Distribution planning
– Provides senior management with the ability to determine whether the business plan and its strategic objectives will be achieved
©The McGraw-Hill Companies, Inc., 2004
67
The Master Scheduler
• The master scheduler’s duties:– Evaluating the impact of new orders– Providing delivery dates for orders– Deals with problems
• Evaluating the impact of production or delivery delays• Revising master schedule when necessary because of
insufficient supplies or capacity• Bring instances of insufficient capacity to the attention of
relevant personnel so they can participate in resolving conflicts
©The McGraw-Hill Companies, Inc., 2004
68
The Master Scheduling Process
Beginning inventory
Forecast
Customer orders
Inputs OutputsProjected inventory
Master production schedule
Uncommitted inventory
MasterProductionSchedule
©The McGraw-Hill Companies, Inc., 2004
69
Master Scheduling Process• The master production schedule (MPS) is one of the primary outputs
of the master scheduling process– Once a tentative MPS has been developed, it must be validated
• Rough cut capacity planning (RCCP) is a tool used in the validation process– Approximate balancing of capacity and demand to test the feasibility of a
master schedule
– Involves checking the capacities of production and warehouse facilities, labor, and vendors to ensure no gross deficiencies exist that will render the MPS unworkable
©The McGraw-Hill Companies, Inc., 2004
70
MPS – Forecasts and Customer Orders
©The McGraw-Hill Companies, Inc., 2004
71
Projected On-hand Inventory
Projected on-handinventory
Inventory fromprevious week
Current week’srequirements
-=
©The McGraw-Hill Companies, Inc., 2004
72
MPS - Projected On-hand Inventory
64 1 2 3 4 5 6 7 8Forecast 30 30 30 30 40 40 40 40Customer Orders (committed) 33 20 10 4 2Projected on-hand inventory 31 1 -29
JUNE JULY
Beginning Inventory
Customer orders are larger than forecast in week. Projected on hand inventory is 64-33=31
Forecast is larger than Customer orders in week 2. Projected on hand inventory is 31-30=1
Forecast is larger than Customer orders in week 3. Projected on hand inventory is 1-30=-29
©The McGraw-Hill Companies, Inc., 2004
73
Determining MPS and Projected On Hand
©The McGraw-Hill Companies, Inc., 2004
74
Adding MPS and Projected On Hand to the MPS
©The McGraw-Hill Companies, Inc., 2004
75
Available to Promise
©The McGraw-Hill Companies, Inc., 2004
76
Available-to-PromisePERIOD
ON-HAND = 50 1 2 3 4 5 6Forecast 100 100 100 100 100 100Customer ordersMaster production schedule 200 200 200Available to promise
PERIODON-HAND = 50 1 2 3 4 5 6Forecast 100 100 100 100 100 100Customer orders 90 120 130 70 20 10Master production schedule 200 200 200Available to promise 40 0 170
ATP in period 1 = (50 + 200) - (90 + 120) = 40ATP in period 3 = 200 - (130 + 70) = 0ATP in period 5 = 200 - (20 + 10) = 170
©The McGraw-Hill Companies, Inc., 2004
77
Available-to-PromiseProduct Request
Is the product available at
this location?
Is an alternative product available
at an alternate location?
Is an alternative product available at this location?
Is this product available at a
different location?
Available-to-promise
Allocate inventory
Capable-to-promise date
Is the customer willing to wait for
the product?
Available-to-promise
Allocate inventory
Revise master schedule
Trigger production
Lose sale
Yes
No
Yes
No
Yes
No
Yes
No
Yes
No
©The McGraw-Hill Companies, Inc., 2004
78
Time Fences
Time Fences – points in time that separate phases of a master schedule planninghorizon.
©The McGraw-Hill Companies, Inc., 2004
79
Time Fences in MPS
Period
“frozen”(firm orfixed)
“slushy”somewhat
firm
“liquid”(open)
1 2 3 4 5 6 7 8 9
1. Most services can’t be inventoried2. Demand for services is difficult to predict3. Capacity availability is also difficult to predict4. Service capacity must be provided at the
appropriate place and time5. Labor is usually the most constraining resource
for services6. Labor flexibility can be an advantage in services
Aggregate Planning for Services
©The McGraw-Hill Companies, Inc., 2004
81
Aggregate Planning in Services
• Hospitals:– Aggregate planning used to allocate funds, staff, and
supplies to meet the demands of patients for their medical services
• Airlines:– Aggregate planning in this environment is complex due to
the number of factors involved– Capacity decisions must take into account the percentage
of seats to be allocated to various fare classes in order to maximize profit or yield
©The McGraw-Hill Companies, Inc., 2004
82
Aggregate Planning in Services
• Restaurants:– Aggregate planning in high-volume businesses is
directed toward smoothing the service rate, determining workforce size, and managing demand to match a fixed capacity
– Can use inventory; however, it is perishable
©The McGraw-Hill Companies, Inc., 2004
83
Aggregate Planning in Services
• The resulting plan in services is a time-phased projection of service staff requirements
• Aggregate planning in manufacturing and services is similar, but there are some key differences related to:1. Demand for service can be difficult to predict2. Capacity availability can be difficult to predict3. Labor flexibility can be an advantage in services4. Services occur when they are rendered
©The McGraw-Hill Companies, Inc., 2004
84
Yield Management
• Yield management– An approach to maximizing revenue by using a
strategy of variable pricing; prices are set relative to capacity availability• During periods of low demand, price discounts are
offered• During periods of peak demand, higher prices are
charged• Users of yield management include
– Airlines, restaurants, hotels, restaurants
Characteristics That Make Yield Management Work
Service or product can be sold in advance of consumption
Demand fluctuatesCapacity is relatively fixedDemand can be segmentedVariable costs are low and fixed costs are
high
Hotel: Single Price Level
$15 variable cost of room
$150 Price charged for room
Price
Sales
$sales = Net price * 50 rooms =150*50=$7500
Demand Curve
Passed up profit contributions
Money left on the table
Potential customers exist who are willing to pay more than the $15 variable cost
Some customers who paid $150 for the room were actually willing to pay more
$ Sales = $ 6,750
Hotel: Two Price Levels
$15 variable cost of room
Demand
Sales
$100Price #1
$200Price #2
Total sales =
1st net price *30 + 2nd net price *30
= $8100
Net prices are:Price #1 => $85Price #2 => $175
$Sales = $ 8,100
Yield Management
P(n < x) Cu
Cu + Co
where
n = number of no-showsx = number of rooms or seats overbooked
Cu = cost of underbooking; i.e., lost saleCo = cost of overbooking; i.e., replacement costP = probability
Yield Management
NO-SHOWS PROBABILITY
0 .151 .25
2 .303 .30
Yield Management
NO-SHOWS PROBABILITY P(N < X)
0 .15 .001 .25 .152 .30 .403 .30 .70
Expected number of no shows
0(.15) + 1(.25) + 2(.30) + 3(.30) = 1.75
Optimal probability of no-shows
P(n < x) = = .517Cu
Cu + Co
7575 + 70
.517
Yield Management
NO-SHOWSNO-SHOWS PROBABILITYPROBABILITY PP((NN < < XX))
00 .15.15 .00.0011 .25.25 .15.1522 .30.30 .40.4033 .30.30 .70.70
Expected number of no shows
0(.15) + 1(.25) + 2(.30) + 3(.30) = 1.75
Optimal probability of no-shows
P(n < x) = = .517Cu
Cu + Co
7575 + 70
.517.517
Cost of overbooking
[2(.15) + 1(.25)]$70 = $38.50 Cost of bumping customers(.30)$75 = $22.50 Lost revenue from no-shows
$61.00 Total cost of overbooking by2 rooms
Expected savings = ($131.225 - $61) = $70.25 a night