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Engineering Management
Chapter 14: Aggregate Planning
Week 13
August 31, 2005
Learning Objectives:
Understand the concepts and methods of aggregate planning
Formulate and solve capacity planning problem
Aggregate Plan
Aggregate Plan: A statement of a companys production
rates, workforce levels, and inventory holding based
on estimates of customer requirements and capacity
limitations
Service Industry
Staffing Plan
Regarding staffs and
labor related factors
Manufacturing Industry
Production Plan
Regarding production
rates and inventory
2
Business
or annual
plan
Production
or staffing
Plan (Aggregate Plan)
MPS or
workforce
schedule
Figure 14.1
Operations
Current machine capacities
Plans for future capacities
Workforce capacities
Current staffing level
Materials
Supplier capabilities
Storage capacity
Materials availability
Aggregate
plan
Engineering
New products
Product design changes
Machine standards
Human resources
Labor-market conditions
Training capacity
5
Competitive
Pricing
Reactive Alternatives
Size of
Workforce and
Workforce Adjustment
Inventory
Levels
Aggregate
plan
Production
per month
(in units or $)
Units or dollars
Of Backlogs,
backorders , or
stockout
Units or
dollars
subcontracted
Demand
Units
Examples of Capacity
Adjustment to Meet
Demand
Time
1.
2.
3.
4.
5.
6.
7.
Planning Strategies
Chase Strategies
PURE
STRATEGIES
Level Strategies
Mixed Strategies
Pure Strategy
Level Production
Chase Demand
Demand
Demand
Production
Units
Units
Production
Time
Time
TABLE 14.1
Possible Alternatives
during Peak Season
Layoffs
Hiring
Layoffs, undertime,
vacations
Hiring, overtime,
subcontracting
No layoffs, building
anticipation inventory,
undertime, vacations
No hiring, depleting
anticipation inventory,
overtime, subcontracting,
backorders, stockouts
Strategy
11
Regular-Time Costs
Overtime Costs
Hiring and
Layoff Costs
Inventory
Holding Costs
Backorder and Stockout Costs
12
Ex 1 Candy Company
Given the following costs and quarterly sales forecasts of a candy
company, compare the two strategies:
Strategy 1: Level production with constant workforce level
Strategy 2: Chase production by varying workforce level
Quarter
Spring
Summer
Fall
Winter
Sale Forecast
(LB)
80,000
50,000
120,000
150,000
Hiring cost
Firing cost
Inventory carrying cost
A method of LP
Gather all cost info
into one matrix
Try to obtain the
lowest cost alternative
Quarter
Transportation
Method
Alternatives
Quarter
1
Beginning
inventory
Regular
time
Regular
time
Overtime
Subcontract
Regular
time
3
Overtime
Subcontract
Regular
time
3h
4h
r+h
r+2h
r+3h
R1
c+h
c+2h
c+3h
O1
s
s+h
s+2h
s+3h
S1
r+b
r+h
r+2h
R2
c+b
c+h
c+2h
O2
s+b
s+h
s+2h
S2
r+2b
r+b
r+h
R3
c+2b
c+b
c+h
O3
s+2b
s+b
s+h
S3
r+3b
r+2b
r+b
R4
c+3b
2h
Overtime
Subcontract
I0
c
1
Unused
Total
Capacity Capacity
c+2b
c+b
Overtime
O4
s+3b
s+2b
s+b
Subcontract
S4
14
Requirements
D1
D2
D3
D4 + I4
Notations
It = inventory at the end of period t (I0 = beginning inventory)
h = holding cost per unit per period,
r = regular production cost per unit,
o = overtime cost per unit,
u = undertime cost per unit
s = subcontracting cost per unit,
b = backordering cost per unit per period
Rt = regular-time capacity in period t
Ot = overtime capacity in period t
St = subcontracting capacity in period t
Dt = forecasted demand for period t
U = total unused capacities
15
Tableau Method
16
Tableau Method
(Contd)
17
Ex 2: Transportation Method
Given the following costs and quarterly sales forecasts, use
the transportation method to design a production plan.
What is the total cost of the plan?
Quarter
Sale Forecast
(unit)
1
2
3
4
50,000
150,000
200,000
52,000
Objective function
Constraints
19