Aggregate Planning + MPS +Capacity Planning
Transcript of Aggregate Planning + MPS +Capacity Planning
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Sales and 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
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Master scheduling
Material requirements planning
Order scheduling
Weekly workforce and
customer scheduling
Daily workforce and customer scheduling
Process planning
Strategic capacity planning
Sales and operations (aggregate) planning
Long
range
Intermediate
range
Short
range
Manufacturing
Services
Aggregate
Planning
Sales plan Aggregate operations plan
Forecasting
& demand
management
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The Aggregate Operations Plan
Main purpose: Specify the optimal combinationof
production rate (units completed per unit oftime)
workforce level (number of workers)
inventory on hand (inventory carried fromprevious period)
Product group or broad category (Aggregation) This planning is done over an intermediate-
range planning period of 6 to18 months
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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
4500 4000
90008000
4000
6000
Suppose the figure tothe right representsforecast demand inunits
Now suppose thislower figure representsthe aggregate capacityof the company to
meet demand
What we want to do isbalance out theproduction rate,workforce levels, andinventory to makethese figures match up
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Required Inputs to the Production Planning System
Planningfor
production
External
capacity
Competitorsbehavior
Raw materialavailability
Marketdemand
Economic
conditions
Current
physical
capacity
Current
workforce
Inventory
levels
Activities
required
for
production
External
to firm
Internal
to firm
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Aggregate Planning Examples: Unit Demandand Cost Data
Materials $5/unitHolding costs $1/unit per mo.
Marginal cost of stockout $1.25/unit per mo.
Hiring and training cost $200/worker
Layoff costs $250/worker
Labor hours required .15 hrs/unitStraight 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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Jan Feb Mar Apr May Jun
Days/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, whatare the aggregate hours/worker/month, units/worker, anddollars/worker?
7.25x22
7.25x0.15=48.33 &
48.33x22=1063.3322x8hrsx$8=$1408
Cut-and-Try Example: DeterminingStraight Labor Costs and Output
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Chase Strategy(Hiring & Firing to meet demand)
Jan
Days/mo 22
Hrs/worker/mo 159 .5
Units/wo rke r 1 ,0 63 .3 3
$ /worker $1 ,408
Jan
Demand 4 ,500
Beg. inv. 250
Net req. 4 ,250Req. workers 3 .997
Hired
Fired 3
W orkforce 4
Ending inventory 0
Lets assume our current workforce is 7workers.
First, calculate net requirements forproduction, or 4500-250=4250 units
Then, calculate number of workersneeded to produce the netrequirements, or4250/1063.33=3.997 or 4 workers
Finally, determine the number ofworkers to hire/fire. In this case weonly need 4 workers, we have 7, so3 can be fired.
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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 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 Jun
Demand 4,500 5,500 7,000 10,000 8,000 6,000
Beg. inv. 250
Net req. 4,250 5,500 7,000 10,000 8,000 6,000
Req. workers 3.997 5.989 6.897 9.852 7.524 6.207
Hired 2 1 3
Fired 3 2 1
Workforce 4 6 7 10 8 7
Ending inventory 0 0 0 0 0 0
Below are the complete calculations for the remainingmonths in the six month planning horizon
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Jan Feb Mar Apr May Jun
Demand 4,500 5,500 7,000 10,000 8,000 6,000Beg. inv. 250
Net req. 4,250 5,500 7,000 10,000 8,000 6,000
Req. workers 3.997 5.989 6.897 9.852 7.524 6.207
Hired 2 1 3
Fired 3 2 1
Workforce 4 6 7 10 8 7
Ending inventory 0 0 0 0 0 0
Jan Feb Mar Apr May Jun Costs
Mate rial $ 21 ,2 50 .0 0 $ 2 7,5 00 .0 0 $ 3 5,0 00 .0 0 $ 50 ,0 00 .0 0 $ 40 ,0 0 0.0 0 $ 30 ,0 00 .0 0 2 03 ,7 50 .0 0
Labor 5,627.59 7,282.76 9,268.97 13,241.38 10,593.10 7,944.83 53,958.62
Hiring cost 400.00 200.00 600.00 1,200.00
Firing cost 750.00 500.00 250.00 1,500.00
$260,408.62
Below are the complete calculations for the remaining months inthe six month planning horizon with the other costs included
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Level Workforce Strategy(Surplus and Shortage Allowed)
Jan
Demand 4,500
Beg. inv. 250
Net req. 4,250
Workers 6
Production 6,380Ending inventory 2,130
Surplus 2,130
Shortage
Lets take the same problem asbefore but this time use theLevel Workforce strategy
This time we will seek to usea workforce level of 6 workers
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Jan Feb Mar Apr May Jun
Demand 4,500 5,500 7,000 10,000 8,000 6,000
Beg. inv. 250 2,130 2,140 1,230 -2,680 -1,300
Net req. 4,250 3,370 4,860 8,770 10,680 7,300
Workers 6 6 6 6 6 6
Production 6,380 5,510 6,090 6,090 6,380 5,800
Ending inventor 2,130 2,140 1,230 -2,680 -1,300 -1,500
Surplus 2,130 2,140 1,230
Shortage 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 remainingmonths in the six month planning horizon
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Master Production Schedule (MPS):
The result of disaggregating an aggregate
plan; shows quantity and timing of specific end
items for a scheduled horizon.
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Master Scheduling Process
MasterScheduling
Beginning inventory
Forecast
Customer orders
Inputs Outputs
Projected inventory
Master production schedule
Uncommitted inventory
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Need for Capacity Planning
Whenever the existing demand changes or addition of newproducts has to be made, then Capacity planning becomes a
need
Capacity Planning Design includes:
Re-assessment of existing capacity Effect of change in demand ie, effect of addition, deletion of
products and their impact on existing capacity
Identifying ways of meeting desired capacity through
Better Utilisation
Higher Efficiency
Overtime
Adding a shift or two
Adding new machinery, adding another production unit
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Capacity Reduction
Sell-off existing facilities Sell-off surplus inventories
Lay off or transfer employees to other units
Shut down equipment & place them as standby
Reasons for Capacity Change
A capacity shortage situation where present capacity is notenough to meet the forecast demand for the product
An excess or surplus capacity situation where the present
capacity exceeds the expected future demand
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MarketConsiderations
CapacityDecisions
ResourcesAvailable
Capacity PlanningClassification
Based on time
horizon
Based on amount ofresources employed
Short term
Long term
Finite
Infinite
Capacity Planning
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Capacity Planning Strategies
The term Strategy is derived from the Greek wordstrateg means the art of the general
Alfred .D.Chandler defines Strategy as the determinationof the basic long term goals and objectives of an enterpriseand the adoption of the courses of action & the allocation ofresources necessary for carrying out these goals
Strategy levels
Corporate level
Business unit level
Functional level
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Strategies Involved: Active strategies:
Objective- To smooth out the peaks and values of demand during planning horizon toobtain a smoother load on production facilities; during periods of low demand, sales canbe encouraged through price cuts
Passive strategies:
1. Pure strategy-vary anyone of the factors such as work force, production rate,inventory, sub contracting, capacity utilisation.
2. Mixed strategy- Involves two or more pure strategies
Strategy 1 : Vary the size of the work force in accordance with the fluctuations in demandStrategy 2 : Vary output rate keeping the same size of the work force and using overtime
or idle time or short work week with reduced pay to workers.
Strategy 3 : Maintaining the same level of production, keep inventory during periods of lowdemand and using the accumulated inventory to meet high demand in other time periods
Strategy 4 : Sub-contracting work during high demand periodsStrategy 5 : By varying the utilisation of capacity according to the demand to met
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3. Mixed strategies to meet non- uniform demand
Strategy 1 :Absorbing demand fluctuations by varying inventory level,back ordering or shifting demand
Strategy 2 : Changing only the production to match with the non-uniformdemand pattern
Strategy 3 : Changing the size of the work force to vary the productionlevel in accordance with demand