Description
Aggregate Planning
AGGREGATE PLANNING
PROCESS OF PLANNING STARTS FROM DEMAND FORECAST
Identify the Resources and Monitor
Demand Forecast
Prepare The Action Plan
Output
PLANNING HORIZON
The time frame of the planning is known as planning horizon. Normally four planning horizons are considered, which are: ?Daily ?Short term
?Medium term
?Long term
STRUCTURE OF PLANNING PROCESS
Planning Processes
Production Planning
Planning Horizon
Daily
Nature of Activities
Daily schedules for work force, equipment and other resources needed. Planning of day to day activities.
Master Schedule
Sort term (weeks/months)
Planning various inputs for producing end product (s). Planning of various operations in production process.
Aggregate Planning
Medium range (6/18 months or a year)
Few years say 5, 10, 15 or 20 years
Manpower planning on a division / department level. Inventory control and facility planning etc., whether to reduce or increase the capacity.
Strategic planning for new products, process improvements, modernization, automation, computerization, long-term customer demands, technology improvements and planning for social and political scenario.
Long Term Planning
Production Planning Hierarchy
Long-Range Capacity Planning Aggregate Planning Master Production Scheduling
Production Planning and Control Systems
Pond Draining Systems Push Systems Pull Systems Focusing on Bottlenecks
Why Aggregate Planning Is Necessary
?
? ?
?
Fully load the facilities and minimize overloading and under-loading Make sure enough capacity available to satisfy expected demand Plan for the orderly and systematic change of production capacity to meet the peaks and valleys of expected customer demand Get the most output for the amount of resources available
AGGREGATE PLANNING PROBLEM
Given the demand forecast for each period in the planning horizon, determine the production level, inventory level, and the capacity level (internal and outsourced) for each period that maximizes the firm’s profit over the planning horizon. A planning horizon is the time period over which the aggregate plan is to produce a solution – usually between six and eighteen months. A company must also specify the duration of each period within the planning horizon (e.g., weeks, months, or quarters).
AGGREGATE PLAN
?
?
The aggregate plan serves as a broad blueprint for operations and establishes the parameters within which short-term production and distribution decisions are made. If a manufacturer has planned an increase in production over a given time period, the supplier, transporter, and warehouse must be aware of this plan and incorporate the increase into their own plans.
OPERATIONAL PARAMETERS AGGREGATE PLANNING OVER SPECIFIED TIME HORIZON - 1
?
FOR THE
Production rate: the number of units completed per unit time (such as per week or per month). ? Workforce: the number of workers/units of capacity needed for production. ? Overtime: the amount of overtime production planned. ? Machine capacity level: the number of units of machine capacity needed for production.
OPERATIONAL PARAMETERS AGGREGATE PLANNING OVER SPECIFIED TIME HORIZON - 2
?
FOR THE
Subcontracting: the subcontracted capacity required over the planning horizon. ? Backlog: demand not satisfied in the period in which it arises but carried over to future periods. ? Inventory on hand: the planned inventory carried over the various periods in the planning horizon.
AGGREGATE PLANNING
Planning Units of Horizon Measure Description
6 – 18 months
Product Family: e.g., Ford F – series trucks
Operations Managers make plans for: (1) employment-layoffs, hiring, recalls, vacations, overtime, part-time employees; (2) inventories; (3) utilities; (4) facility modifications; (5) material-supply contracts.
The aggregate output planning has following elements: ?Goal for aggregate output ?Resources ?Planning Horizon
?Units of Measurement
INFORMATION NEEDED FOR AGGREGATE PLANNING - 1
Labor/machine hours required per unit ? Inventory holding cost ($/unit/period) ? Stock-out or backlog cost ($/unit/period) ? Constraints
?
? Limits
on overtime ? Limits on layoffs ? Limits on capital available ? Limits on stock-outs and backlogs ? Constraints from supplier to the enterprise
INFORMATION NEEDED FOR AGGREGATE PLANNING - 2
? ?
Demand forecast Ft for each Period t in the planning horizon that extends over T periods Production costs
? Labor
costs, regular time ($/hour), and overtime costs ($/hour) ? Cost of subcontracting production ($/unit or $/hour) ? Cost of changing capacity; specifically, cost of hiring / laying off workforce ($/worker) and cost of adding or reducing machine capacity ($/machine)
INPUTS AND OUTPUTS OF AGGREGATE PRODUCTION PLAN
Demand Planned Capacity
Strategic Policies
Annual Business Plans
Aggregate Production Plan
Planned Output
External Events
Supplier Capacity
Inputs
A forecast of aggregate demand covering the selected planning horizon (6-18 months) ? The alternative means available to adjust short to medium-term capacity, to what extent each alternative could impact capacity and the related costs ? The current status of the system in terms of workforce level, inventory level and
?
Outputs
?
A production plan: aggregate decisions for each period in the planning horizon about
? workforce
level ? inventory level ? production rate
?
Projected costs if the production plan was implemented
OPTIONS TO TRADE-OFF IN AGGREGATE PLANNING
In general, a company will attempt to use a combination of three costs to best meet the demand:
? Capacity
(regular time, overtime, subcontracted) ? Inventory ? Backlog / lost sales
AGGREGATE PLANNING STRATEGIES
?
Chase strategy – using capacity as lever.
Time Flexibility Strategy – Using utilization as the lever.
?
?
Level strategy – using inventory as the lever.
CHASE STRATEGY - USING CAPACITY AS THE LEVER - 1
With this strategy, the production rate is synchronized with the demand rate by varying machine capacity or hiring and laying off employees as the demand rate varies. ? In case the cost of varying machine or labor capacity over the time is high, the implementation of the strategy can be expensive.
?
CHASE STRATEGY - USING CAPACITY AS THE LEVER - 2
It can also have a significant negative impact on the morale of the workforce. ? Results in low level of inventory in the supply chain and high levels of change in capacity and workforce. ? Should be used when Inventory Carrying Cost is high and costs to change levels of machine and labor capacity are low.
?
Matching Demand Strategy
Capacity (Production) in each time period is varied to exactly match the forecasted aggregate demand in that time period ? Capacity is varied by changing the workforce level ? Finished-goods inventories are minimal ? Labor and materials costs tend to be high due to the frequent changes
?
Medium-Term Capacity Adjustments
?
Workforce level
? Hire
or layoff full-time workers ? Hire or layoff part-time workers ? Hire or layoff contract workers
?
Utilization of the work force
? Overtime
? Idle
time (under time) ? Reduce hours worked
?
. . . more
Medium-Term Capacity Adjustments
?
Inventory level
? Finished
goods inventory ? Backorders/lost sales
?
Subcontract
EFFECTS OF POOR AGGREGATE PLAN
?
Lost sales and lost profits if the available inventory and capacity are unable to meet demand.
A large amount of excess inventory and capacity thereby increasing cost.
?
ADVANTAGES OF AGGREGATE OUTPUT PLANNING
?Evaluation of the aggregate output capabilities of available resources helps in increasing overall effectiveness of the company. ?The overall output of an organization vary from weekto-week, month-to-month and year-to-year. Aggregate planning perspective help in more effective control of the overall costs of changing output levels. ?Integrated approach of aggregate output planning helps to save lot of money by effective utilization of resources of various departments. Mismatch of resource utilization is removed.
doc_207759038.ppt
Aggregate Planning
AGGREGATE PLANNING
PROCESS OF PLANNING STARTS FROM DEMAND FORECAST
Identify the Resources and Monitor
Demand Forecast
Prepare The Action Plan
Output
PLANNING HORIZON
The time frame of the planning is known as planning horizon. Normally four planning horizons are considered, which are: ?Daily ?Short term
?Medium term
?Long term
STRUCTURE OF PLANNING PROCESS
Planning Processes
Production Planning
Planning Horizon
Daily
Nature of Activities
Daily schedules for work force, equipment and other resources needed. Planning of day to day activities.
Master Schedule
Sort term (weeks/months)
Planning various inputs for producing end product (s). Planning of various operations in production process.
Aggregate Planning
Medium range (6/18 months or a year)
Few years say 5, 10, 15 or 20 years
Manpower planning on a division / department level. Inventory control and facility planning etc., whether to reduce or increase the capacity.
Strategic planning for new products, process improvements, modernization, automation, computerization, long-term customer demands, technology improvements and planning for social and political scenario.
Long Term Planning
Production Planning Hierarchy
Long-Range Capacity Planning Aggregate Planning Master Production Scheduling
Production Planning and Control Systems
Pond Draining Systems Push Systems Pull Systems Focusing on Bottlenecks
Why Aggregate Planning Is Necessary
?
? ?
?
Fully load the facilities and minimize overloading and under-loading Make sure enough capacity available to satisfy expected demand Plan for the orderly and systematic change of production capacity to meet the peaks and valleys of expected customer demand Get the most output for the amount of resources available
AGGREGATE PLANNING PROBLEM
Given the demand forecast for each period in the planning horizon, determine the production level, inventory level, and the capacity level (internal and outsourced) for each period that maximizes the firm’s profit over the planning horizon. A planning horizon is the time period over which the aggregate plan is to produce a solution – usually between six and eighteen months. A company must also specify the duration of each period within the planning horizon (e.g., weeks, months, or quarters).
AGGREGATE PLAN
?
?
The aggregate plan serves as a broad blueprint for operations and establishes the parameters within which short-term production and distribution decisions are made. If a manufacturer has planned an increase in production over a given time period, the supplier, transporter, and warehouse must be aware of this plan and incorporate the increase into their own plans.
OPERATIONAL PARAMETERS AGGREGATE PLANNING OVER SPECIFIED TIME HORIZON - 1
?
FOR THE
Production rate: the number of units completed per unit time (such as per week or per month). ? Workforce: the number of workers/units of capacity needed for production. ? Overtime: the amount of overtime production planned. ? Machine capacity level: the number of units of machine capacity needed for production.
OPERATIONAL PARAMETERS AGGREGATE PLANNING OVER SPECIFIED TIME HORIZON - 2
?
FOR THE
Subcontracting: the subcontracted capacity required over the planning horizon. ? Backlog: demand not satisfied in the period in which it arises but carried over to future periods. ? Inventory on hand: the planned inventory carried over the various periods in the planning horizon.
AGGREGATE PLANNING
Planning Units of Horizon Measure Description
6 – 18 months
Product Family: e.g., Ford F – series trucks
Operations Managers make plans for: (1) employment-layoffs, hiring, recalls, vacations, overtime, part-time employees; (2) inventories; (3) utilities; (4) facility modifications; (5) material-supply contracts.
The aggregate output planning has following elements: ?Goal for aggregate output ?Resources ?Planning Horizon
?Units of Measurement
INFORMATION NEEDED FOR AGGREGATE PLANNING - 1
Labor/machine hours required per unit ? Inventory holding cost ($/unit/period) ? Stock-out or backlog cost ($/unit/period) ? Constraints
?
? Limits
on overtime ? Limits on layoffs ? Limits on capital available ? Limits on stock-outs and backlogs ? Constraints from supplier to the enterprise
INFORMATION NEEDED FOR AGGREGATE PLANNING - 2
? ?
Demand forecast Ft for each Period t in the planning horizon that extends over T periods Production costs
? Labor
costs, regular time ($/hour), and overtime costs ($/hour) ? Cost of subcontracting production ($/unit or $/hour) ? Cost of changing capacity; specifically, cost of hiring / laying off workforce ($/worker) and cost of adding or reducing machine capacity ($/machine)
INPUTS AND OUTPUTS OF AGGREGATE PRODUCTION PLAN
Demand Planned Capacity
Strategic Policies
Annual Business Plans
Aggregate Production Plan
Planned Output
External Events
Supplier Capacity
Inputs
A forecast of aggregate demand covering the selected planning horizon (6-18 months) ? The alternative means available to adjust short to medium-term capacity, to what extent each alternative could impact capacity and the related costs ? The current status of the system in terms of workforce level, inventory level and
?
Outputs
?
A production plan: aggregate decisions for each period in the planning horizon about
? workforce
level ? inventory level ? production rate
?
Projected costs if the production plan was implemented
OPTIONS TO TRADE-OFF IN AGGREGATE PLANNING
In general, a company will attempt to use a combination of three costs to best meet the demand:
? Capacity
(regular time, overtime, subcontracted) ? Inventory ? Backlog / lost sales
AGGREGATE PLANNING STRATEGIES
?
Chase strategy – using capacity as lever.
Time Flexibility Strategy – Using utilization as the lever.
?
?
Level strategy – using inventory as the lever.
CHASE STRATEGY - USING CAPACITY AS THE LEVER - 1
With this strategy, the production rate is synchronized with the demand rate by varying machine capacity or hiring and laying off employees as the demand rate varies. ? In case the cost of varying machine or labor capacity over the time is high, the implementation of the strategy can be expensive.
?
CHASE STRATEGY - USING CAPACITY AS THE LEVER - 2
It can also have a significant negative impact on the morale of the workforce. ? Results in low level of inventory in the supply chain and high levels of change in capacity and workforce. ? Should be used when Inventory Carrying Cost is high and costs to change levels of machine and labor capacity are low.
?
Matching Demand Strategy
Capacity (Production) in each time period is varied to exactly match the forecasted aggregate demand in that time period ? Capacity is varied by changing the workforce level ? Finished-goods inventories are minimal ? Labor and materials costs tend to be high due to the frequent changes
?
Medium-Term Capacity Adjustments
?
Workforce level
? Hire
or layoff full-time workers ? Hire or layoff part-time workers ? Hire or layoff contract workers
?
Utilization of the work force
? Overtime
? Idle
time (under time) ? Reduce hours worked
?
. . . more
Medium-Term Capacity Adjustments
?
Inventory level
? Finished
goods inventory ? Backorders/lost sales
?
Subcontract
EFFECTS OF POOR AGGREGATE PLAN
?
Lost sales and lost profits if the available inventory and capacity are unable to meet demand.
A large amount of excess inventory and capacity thereby increasing cost.
?
ADVANTAGES OF AGGREGATE OUTPUT PLANNING
?Evaluation of the aggregate output capabilities of available resources helps in increasing overall effectiveness of the company. ?The overall output of an organization vary from weekto-week, month-to-month and year-to-year. Aggregate planning perspective help in more effective control of the overall costs of changing output levels. ?Integrated approach of aggregate output planning helps to save lot of money by effective utilization of resources of various departments. Mismatch of resource utilization is removed.
doc_207759038.ppt