Aggregate Planning MMS-A

8/9/2019 Aggregate Planning MMS-A

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Aggregate Planning

Arvind Gupta 8123

Yogesh More 8142

Nilesh Shingote 8154

Saurabh Malusare 8138

Dipali Chavan 8110

Jagdish Babar 8104


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Masterproduction

schedule andMRP

systems

Detailedwork

schedules

Process

planning andcapacitydecisions

Aggregateplan for

production

Aggregate PlanningAggregate Planning

Productdecisions

Demandforecasts,

orders

Marketplaceand

demand

Researchand

technology

Rawmaterialsavailable

Externalcapacity

(subcontractors)

Workforce

Inventoryon

hand


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Aggregate Planning Inputs

Resources:-Workforce,Facilities Demand forecast

Policies:- Subcontracting, Overtime, Inventory levels, Backorders

Costs:-Inventory carrying(Holding cost), Back orders,Hiring/firing, Overtime, Inventory changes, Subcontracting

Aggregate Planning Outputs

Total cost of a plan

Projected levels of inventory

Inventory, Output, Employment, Subcontracting.


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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

Planning


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8

Aggregate Planning Example

Keepdry, a small manufacturing company (200 employees),

produces umbrellas. The company, founded in 1991 produces the

following three product lines: 1) the Executive Line, 2) the Durable

Line and 3) the Compact line shown in the following figure.

Executive

LineDurable

Line

Compact

Line


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Examples: Unit Demand and

Cost Data

Materials $5/unitHolding costs $1/unit per mo.

Marginal cost of stock-out $1.25/unit per mo.

Hiring and training cost $200/worker

Layoff costs $250/worker

Labor hours required .15 hrs/unit

Straight time labor cost $8/hour

Beginning inventory 250 units

Productive hours/worker/day 7.25

Paid 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


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Determining Straight Labor

Costs and Output

Jan Feb Mar Apr May JunDays/mo 22 19 21 21 22 20

Hrs/worker/mo 159.5 137.75 152.25 152.25 159.5 145

Units/worker 1063.33 918.33 1015 1015 1063.33 966.67

$/worker $1,408 1,216 1,344 1,344 1,408 1,280

Productive hours/worker/day 7.25

Paid straight hrs/day 8

Demand/mo Jan Feb Mar Apr May Jun

4500 5500 7000 10000 8000 6000

Given the demand and cost information below, what are the aggregate

hours/worker/month, units/worker, and dollars/worker?

7.25x22

7.25/0.15=48.33 &

48.33x22=1063.3322x8hrsx$8=$1408


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Tradeoffs between Production and

Inventory

Bricks andTilesCorporation is making plans for the production of bricks for the coming year.T

he total requirements are 3000 bricks, and the corporation has enough facilities and labor tomake 250 bricks a month

The corporation currently following the level strategy and makes bricks at a steady rate of 250per month

Bricks and Tiles CorporationLevel Production, No Overtime

2

$25

500

$10

1 2 3 4 5 6 7 8 9 10 11 12 Total

Demand 50 100 150 200 400 600 250 250 100 300 350 250 3000

Make 250 250 250 250 250 250 250 250 250 250 250 250 3000

Labor required 500 500 500 500 500 500 500 500 500 500 500 500 6000

Cost of labor $12,500 $12,500 $12,500 $12,500 $12,500 $12,500 $12,500 $12,500 $12,500 $12,500 $12,500 $12,500 $150,000

Start inventory 0 200 350 450 500 350 0 0 0 150 100 0

End inventory 200 350 450 500 350 0 0 0 150 100 0 0

Inventory cost $1,000 $2,750 $4,000 $4,750 $4,250 $1,750 $0 $0 $750 $1,250 $500 $0 $21,000

Total cost $171,000

Hours per Brick

Labor Cost per Hour

Maximum Straight Labor per Month

Unit Inventory Cost per Month Yesterday End Inventory

(Unit Make+Start inventory)-Demand

(Start inventory+End inventory) /2 *

inventory cost


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The Planning ProcessThe Planning Process

Long-range plans(over one year)Research & DevelopmentNew product plansCapital investmentFacility location/expansion

Intermediate-range plans(3 to 18 months)Sales planningProduction planning and budgetingSetting employment, inventory,

subcontracting levelsAnalyzing cooperating plans

Short-range plans

(up to 3 months)Job assignmentsOrderingJob schedulingDispatchingOvertimePart-time help

Top

executives

Operationsmanagers

Operationsmanagers,supervisors,foremen

ResponsibilityResponsibility Planning tasks and horizonPlanning tasks and horizon


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STEPS IN AGGREGATE CAPACITY

PLANNING

1.T

he size of the workforce2. The use of overtime or idle time3. The use of inventories or back

orders4. The use of sub-contractors5. Leaving demand unfilled


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Cost Associated with Aggregate

Planning1. Pay roll costs

2. Costs of overtime, second shifts and

sub-contracting3. Cost of hiring and laying off workers

4. Costs of excess inventory and backlog

5. Costs of production rate changes


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Developing the Aggregate

Plan

Step 1- Choose strategy: level, chase, or Hybrid

Step 2- Determine the aggregate production rate

Step 3- Calculate the size of the workforce

Step 4-Test the plan as follows:x Calculate Inventory, expected hiring/firing, overtime needs

x Calculate total cost of plan

Step 5- Evaluate performance: cost, service,

human resources, and operations


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Characteristics of aggregate

planning: Considers a "planning horizon" from about 3 to

18 months, with periodic updating

Looks at aggregate product demand, stated incommon terms

Looks at aggregate resource quantities, stated incommon terms

Possible to influence both supply and demand byadjusting production rates, workforce levels,inventory levels, etc., but facilities cannot beexpanded.


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Information Needed for

an Aggregate Plan Demand forecast in each period

Production costs labor costs, regular time ($/hr) and overtime ($/hr)

subcontracting costs ($/hr or $/unit)

cost of changing capacity:hiring or layoff ($/worker) and cost ofadding or reducing machine capacity ($/machine)

Labor/machine hours required per unit

Inventory holding cost ($/unit/period) Stock out or backlog cost ($/unit/period)

Constraints: limits on overtime, layoffs, capital available,stock outs and backlogs


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APPROACHES TO AGGREGATIVE

PLANNING

Aggregate plan takes in toconsideration the overall

level of output andcapacity that is required toproduce it.


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Types of Approaches

Top down approach

development of the entire plan by working only at

the highest level of consideration of products.

Bottom-up approach

development of pans for major products at somelower level, within the product line.


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CAPACITY

Capacity is maximum production rate of

a firm .

Why determining capacity is essential?


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TYPES OF CAPACITY

Fixed Capacity

Adjustable Capacity

Design Capacity

System Capacity

Potential Capacity

Immediate Capacity

Efficient Capacity

Normal Capacity

Actual Capacity


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SYSTEM EFFICIENCY :

System efficiency = Actual outputSystem capacity

MEASUREMENTOF CAPACITY :

Input rate capacities Output rate capacities


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INTERRELATIONSHIP BETWEEN

CAPACITY AND OTHER ISSUES

Location

PlantL

ayout

Process Design

Equipment Selection


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CAPACITY PLANNING

When is the need for capacity planning ?

Capacity planning decisions


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CLASSIFICATION OF CAPACITY

Based on time horizon

LongTerm

ShortTerm

Based on the amount of resources employed

Finite

Infinite


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FACTORS AFFECTING CAPACITY

PLANNING

Controllable Factors

Less Controllable Factors


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WAYS OF CHANGING CAPACITY

Expansion

Reduction


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1.LEVEL CAPACITY PLAN

2. MATCHING CAPACITYWITH AGGREGATE DEMAND

PLAN

Aggregate Plans


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Level Capacity Plan

The level method allows for a constant rate ofproduction and uses inventory levels to absorbfluctuations in demand.

Cost of strategy holding items in inventory

When demand is lower than production,inventory increases

When demand exceeds production, inventorydecreases


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Level Capacity Plan

Advantages

Stable output rates and workforce levels

Worker levels and production output are stable

Tends to be the preferred strategy of many organizations,including labor unions.

Disadvantages

Greater inventory costs

Increased labor costs in term of overtime and idle time

Resource utilizations change over time


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matching capacity with

aggregate demand plan

Maintaining a steady rate of regular-time

output while meeting variations in demand bya combination of options.

This method helps firms match production

and demand by hiring and firing workers as

necessary to control output

Cost of strategy hiring and firing workers


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matching capacity with

aggregate demand plan Advantages

Investment in inventory is low

Labor utilization is high

Disadvantages

The cost of adjusting output rates and/or workforce levels

Cost of fluctuating workforce levels.

Potential damage to employee morale

This strategy would not be feasible for industries which require highlyskilled labor or where competition for labor is fierce.

This strategy would be cost effective during periods of highunemployment or when low-skilled labor is acceptable.


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Mathematical Techniques

Linear programming: Methods for obtainingoptimal solutions to problems involvingallocation of scarce resources in terms of cost

minimization.Simulation models: Computerized models that

can be tested under different scenarios toproblems.


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Comparison of Aggregate Planning Methods

MethodMethod AdvantagesAdvantages LimitationsLimitations

GraphicalGraphical Simple, easy to use and

understand

Many solutions; solution need

not be optimal

LinearLinear

ProgrammingProgramming

Provides optimal solution

Popular in many industries

Sensitivity & dual analysis

provide useful information Constraints readily added

Mathematical functions must be

linear, and deterministic -- not

necessarily a realistic

assumption


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Comparison of Aggregate Planning Methods

MethodMethod AdvantagesAdvantages LimitationsLimitations

Simulation

Places no restrictions on

mathematical structure or cost

functions

Can test many relationships

No optimal solution guaranteed

Often a long, costly, process


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THE OBJECTIVE IS TO SMOOTH

OUT THE PEACKS AND VALLEYSOF DEMAND DURING THE

PLANNING HORIZON TO OBTAIN

A SMOOTHER LOAD ONPRODUCTION FACILITIES.

Active Strategies


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Passive Strategies

The Objective is not to change demand but to

absorb somehow the fluctuations

indemand.The alternatives include varyingany one of work force size, production rate,Inventory,sub-contracting and capacity

utilization. It includes

A) Pure Strategies

B) Mixed Strategy


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A)Pure Strategies :

Varying any one of theFactors such as work force, production

rate, inventory, sub-contracting and

capacity utilization is known as purestrategy.

B) Mixed Strategy:This involves the use

of two or more pure stategies.


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Various Pure Strategies in aggregate

capacity Planning

Strategy 1 :-To vary the size of work force in

accordance with the fluctuations in demand

Strategy 2 :-To vary output rate while keeping

the work force size same and using overtime oridle time or short work week with reduced pay to

workers.


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Strategy 3 :- Maintaining level production rateduring all time period, producing inventory

during periods of low demand and using the

accumulated inventory to meet high demand in

other time periods.

Strategy 4 :- Sub-contracting work during high

demand periods.

Strategy 5 :- By changing the utilization of

capacity.

Aggregate Planning MMS-A

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