AGGREGATE PLANNING

 

Learning Objective:

To take the first steps in translating forecasts for demand into a production plan.  


Aggregate Planning:

Attempts to match the supply of and demand for a product or service by determining the appropriate quantities and timing of inputs, transformation, and outputs.  Decisions made on production, staffing, inventory and backorder levels.

Characteristics of aggregate planning:

Production Plan (manufacturing aggregate plan):

A managerial statement of the period-by-period (time-phased) production rates, work-force levels, and inventory investment, given customer requirements and capacity limitations.

Staffing Plan (service aggregate plan):

A managerial statement of the period-by-period staff sizes and labour-related capacities, given customer requirements and capacity limitations.


Objectives of Aggregate Planning

Objective of aggregate planning frequently is to minimize total cost over the planning horizon.

Other objectives should be considered:


Aggregate Planning Strategies

Active strategy:

 

Passive strategy (reactive strategy):

Mixed strategy:


Passive (reactive) Strategies in Aggregate Planning: Basic Approaches

Chase approach

capacities (workforce levels, production schedules, output rates, etc.) are adjusted to match demand requirements over the planning horizon.

Advantages:

Disadvantages:

Level Approach

Capacities (workforce levels, production schedules, output rates, etc.) are kept constant over the planning horizon.

Advantages:

Disadvantages:


 

Aggregate Planning Methods: Intuitive Methods

Intuitive methods use management intuition, experience, and rules-of-thumb, frequently accompanied by graphical and/or spreadsheet analysis.

Advantage:

Disadvantage:

 

Aggregate Planning Example:

Suppose you have the following forecasts for demand to meet:

Month

1

2

3

4

5

6

Demand

1000

1200

1500

1900

1800

1600

Relevant Costs:

Regular production cost

$35/unit

Lost sales

$100/unit

Inventory carrying costs

$10/unit/month

Subcontracting costs

$60/unit

Hiring costs

$1500/worker

Firing costs

$3000/worker

Beginning workforce level

20 workers

Capacity per worker

50 units/month

Initial inventory level

700 units

Closing inventory level

100 units

 

LEVEL PRODUCTION STRATEGY

Find the requirements for the period of the plan and produce the average amount needed per month to meet the plan.

First determine the average requirements per month:

Avg. requirements = total requirements - opening inv. + closing inv.

number of periods

Avg. requirements = (9000 - 700 + 100)/6 = 1400 units/period

Steps:

  1. Enter the production data
  2. Determine hire/fire to get to production level desired
  3. Update inventory levels
  4. Does the inventory run out - If it does recalculate average production needed and go to step 1
  5. Calculate totals for each category
  6. Calculate costs

LEVEL STRATEGY

Period

1

2

3

4

5

6

Total

Req.

1000

1200

1500

1900

1800

1600

9000

Prod.

 

 

 

 

 

 

 

Inv.(700)

 

 

 

 

 

 

 

Hire

 

 

 

 

 

 

 

Fire

 

 

 

 

 

 

 

Sub.

 

 

 

 

 

 

 

 

Costs:

  1. Regular production costs:
  2. Inventory carrying costs:
  3. Hiring Costs:

TOTAL COSTS: _________

CHASE STRATEGY

 

Period

1

2

3

4

5

6

Total

Req.

1000

1200

1500

1900

1800

1600

9000

Prod.

 

 

 

 

 

 

 

Inv.(700)

 

 

 

 

 

 

 

Hire

 

 

 

 

 

 

 

Fire

 

 

 

 

 

 

 

Sub.

 

 

 

 

 

 

 

Costs:

  1. Regular production costs:
  2. Inventory carrying costs:
  3. Hiring Costs:
  4. Firing Costs:

TOTAL COSTS : _____________


Intuitive (Mixed) Strategy

- Trial and Error to find a good solution

- Use Excel to model the problem and test the impact of different solutions

- Build the model using proper structure with key variables at the top and a summary of key results immediately below.

Finding Optimal Solutions Using Linear Programming

- Aggregate planning problems can be solved optimally using linear programming (LP).

- Given the constraints on requirements, production capabilities, allowed workforce changes, overtime and subcontracting limits plus all relevant costs LP will find an optimal solution to the problem which minimizes total costs.

-Excel's Solver add-in will perform LP

 

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