8496390

Operations Management
Aggregate Planning
• Aggregation
• Relationship to Other Plans
• Reactive vs. Aggressive Alternatives
• Aggregate Planning Strategies
• Planning with Spreadsheets
• Planning with Mathematical Models
MBA782.Aggr.Plng CAJ9.12.1
Aggregate Planning Overview
Problem Context
Aggregate Plan is....
– statement of ____________ rates,
_____________ levels,
and _______________ holdings
based on customer demands and capacity limitations
Goal: Specify the ____________ combination of

– production rate
– workforce level
– inventory on hand
that _____________ all relevant costs.
Aggregation
• Translation of annual business plans into ______ labor
and output plans for the ________________ term
• Generalize the problem
– too ____ to solve for each individual product

• Aggregate quantities into broad categories or product
groups
• Intermediate Range
Planning Horizons
• Long-range planning
– Greater than _____ year planning horizon
• Intermediate-range planning
– ____ to _______ months
• Short-range planning
– One day to less than ____ months
Aggregate Planning
Relationship to Other Plans
• Brings operations, finance, and marketing __________
• Manufacturing....
– business plan
> a ______________ of income, costs, and profits
– _________________ plan
> sets production rates, inventory levels, and work-
force levels for a product family
– ____________ production schedule
> specifies _________ and productions __________
Relationship to Other Plans
Business
Plan
Manufacturing Service
Production Staffing
Plan Aggregate Plan
Plans
Master
Production
Schedule (MPS)
Material Capacity Work-force

Requirements Requirements Schedule)
Plan (MRP) Plan (CRP)
Aggregate Production Planning
Production Planning Environment
• Should inventories be used to absorb changes in demand?
• Should the ______ of the workforce vary?
• Should part-time, overtime, and/or undertime be used?
• Should sub-contractors be used to maintain a stable

workforce?
• Should price or other factors be changed to influence

demand?
Capacity Management Options
• Accept demand forecast as a given, and
_______ to fluctuations in demand.
• Resources:
– changing inventory levels
– varying work force size by hiring or layoffs
– varying production capacity through
overtime or idle time
– subcontracting
– using part-time workers
Demand Management Options
• _________ the demand pattern to achieve

efficiency and reduce costs.
• Resources:
– competitive pricing and promotion
– counter-seasonal product mixing
– backordering during high demand periods
Production Planning Strategies

Level Strategy
• Keep the work-force level __________
– not hiring or laying off workers
• Vary _____-workforce capacity or demand options
• Advantage of level output rates and
________ work force
• Disadvantages of
– increased inventory investment, and
– increased undertime and overtime expenses

Level Strategy
80
70
60
50 Inventory:
Units
40 Sales:
30 Production:
20
10
0
0 1 2 3 4 5 6 7 8 9 10 11 12
Period

• Chase Strategy
– production _________ demand
– uses _______ ___ ________ to match demand

– does not include building of anticipation inventory
– produces ___________ inventory investment.
– expense of adjusting work-force size
– potential alienation of workforce, loss of
productivity, and lower quality
– favored by service organizations because inventory is
MBA782.Aggr.Plng
difficult if not impossible to adopt CAJ9.12.12

• Chase Strategy
80
70
60
50 Inventory:
Units
40 Sales:
30 Production:
20
10
0
0 1 2 3 4 5 6 7 8 9 10 11 12
Period

Mixed Strategy
• Neither a pure level or pure chase strategy
– work force level is not exactly level, and
– does not exactly match demand on
a period-by-period basis
Fitting the Situation

• The best strategy must fit the companies
– environment, and
– competitive priorities

Mixed Strategy
80
70
60
50 Inventory:
Units
40 Sales:
30 Production:
20
10
0
0 1 2 3 4 5 6 7 8 9 10 11 12
Period
Relevant Costs
Relevant costs to consider and include:
• Basic production (labor) costs
– regular time and overtime
• __________ in production levels
– hiring, training, layoff
• Inventory costs ( _________ costs):
– storage, insurance, taxes,spoilage, obsolescence
• Backorder and stockout costs ( ___________ costs):
– expediting, goodwill, lost sales
Aggregate Planning
Aggregate Planning Techniques
• Cut-and-Try charting and graphic methods

– trial & error approach
– cost out _______________ plans and
pick the _______ one
– popular & easy-to-understand
• Mathematical approaches
Cut-and-Try
• Forecast of demand for each period
• Determine the ____________ for regular time,
overtime, and subcontracting, for each period
• Determine the labor ______, hiring and firing costs,
and inventory holding costs
• Consider company policies which may apply to the
workers or to stock levels
• Develop ______________ plans, and examine
their total costs
Using Spreadsheets
• Use a spreadsheet approach for

– stating a strategy,
– developing a plan,
– identifying possible improvements, and
– modify until we are satisfied.
• Components of a spreadsheet are:
– input values
– derived values, and
– calculated costs.
Using Spreadsheets
Aggregate Planning Example
Monthly Demand for the Executive Line
12,000
Number of
Demand (units/month)
10,000 9,000
8,000 working days:
8,000 7,000
6,000 5,500
Jan 22
6,000 4,500 Feb 19
4,000
Mar 22
2,000
Apr 21
-
il
May22
ry ry ch r ay ne
nua
ru
a ar Ap M J u Jun 20
a b M
J Fe
Using Spreadsheets
Aggregate Planning Example
Holding Cost: $ 1.00 per unit per month
Backorder Cost: $ 1.25 per unit per month
Hiring Cost: $ 200 per worker
Layoff Cost: $ 250 per worker
Regular Labor Cost: $ 8.00 per hour
Overtime Labor Cost: $ 12.00 per hour
Undertime Labor Cost: $ - per hour
Materials: $ 5.00 per unit

Subcontracting Cost: $ 20.00 per hour
Production Time: 0.15 hours per unit
Time at regular pay: 8.00 hours per day
Productivity: 1.00
Overtime Limit: 20% of regular labor hours
Sub-contracting Limit: 10% of regular plus overtime hours
Using Spreadsheets
Level Strategy Example
January
Demand: - 8,000
Beginning inventory: -
Net requirement: -
Labor hours required: -
Days per month: -
Required workers: -
Workforce size: 5
Regular hours: -
Overtime hours: -
Undertime hours: -
Subcontract hours: -
Number to hire: -
Number to fire: -
Units produced: -
Ending inventory: 250
Using Spreadsheets
January February March April May June Totals

Demand: - 8,000 6,000 7,000 9,000 5,500 4,500 40,000
Beginning inventory: - 250 (6) - - (1,608) -
Net requirement: - 7,750 6,006 7,000 9,000 7,108 4,500
Labor hours required: - 1,163 901 1,050 1,350 1,066 675
Days per month: - 22 19 22 21 22 20
Required workers: - 6.605 5.927 5.966 8.036 6.058 4.219
Workforce size: 5 5 5 5 5 5 5
Regular hours: - 880 760 880 840 880 800
Overtime hours: - 176 141 170 168 176 -
Undertime hours: - - - - - - -
Subcontract hours: - 106 - - 101 10 -
Number to hire: - - - - - - -
Number to fire: - - - - - - -
Units produced: - 7,744 6,006 7,000 7,392 7,108 5,333 40,583
Ending inventory: 250 (6) - - (1,608) - 833
Using Spreadsheets
January
Material costs: - $ -
Regular labor costs: - -
Overtime labor costs: - -
Undertime costs: - -
Subcontract costs: - -
Hiring costs: - -
Firing costs: - -
Holding costs: - -
Backorder costs: - -
Totals: $ -
Using Spreadsheets

Material costs: - $ - $ - $ - $ - $ - $ - $ -
Regular labor costs: - 7,040 6,080 7,040 6,720 7,040 6,400 40,320
Overtime labor costs: - 2,112 1,691 2,040 2,016 2,112 - 9,971
Undertime costs: - - - - - - - -
Subcontract costs: - 2,112 - - 2,016 204 - 4,332
Hiring costs: - - - - - - - -
Firing costs: - - - - - - - -
Holding costs: - - - - - - 833 833
Backorder costs: - 8 - - 2,010 - - 2,018
Totals: $ 11,272 $ 7,771 $ 9,080 $ 12,762 $ 9,356 $ 7,233 $ 57,474
Using Spreadsheets
Chase Strategy Example
January
Demand: - 8,000
Beginning inventory: -
Net requirement: -
Labor hours required: -
Days per month: -
Required workers: -
Workforce size: 5
Regular hours: -
Overtime hours: -
Undertime hours: -
Subcontract hours: -
Number to hire: -
Number to fire: -
Units produced: -
Ending inventory: 250
Using Spreadsheets

Demand: - 8,000 6,000 7,000 9,000 5,500 4,500 40,000
Beginning inventory: - 250 90 810 530 490 590
Net requirement: - 7,750 5,910 6,190 8,470 5,010 3,910
Labor hours required: - 1,163 887 929 1,271 752 587
Days per month: - 21 21 21 21 21 21
Required workers: - 6.920 5.277 5.527 7.563 4.473 3.491
Workforce size: 5 7 6 6 8 5 4
Regular hours: - 1,176 1,008 1,008 1,344 840 672
Overtime hours: - - - - - - -
Undertime hours: - - - - - - -
Subcontract hours: - - - - - - -
Number to hire: - 2 - - 2 - -
Number to fire: - - 1 - - 3 1
Units produced: - 7,840 6,720 6,720 8,960 5,600 4,480 40,320
Ending inventory: 250 90 810 530 490 590 570
Using Spreadsheets
January
Material costs: - $ -
Regular labor costs: - -
Overtime labor costs: - -
Undertime costs: - -
Subcontract costs: - -
Hiring costs: - -
Firing costs: - -
Holding costs: - -
Backorder costs: - -
Totals: $ -
Using Spreadsheets

Material costs: - $ - $ - $ - $ - $ - $ - $ -
Regular labor costs: - 9,408 8,064 8,064 10,752 6,720 5,376 48,384
Overtime labor costs: - - - - - - - -
Undertime costs: - - - - - - - -
Subcontract costs: - - - - - - - -
Hiring costs: - 400 - - 400 - - 800
Firing costs: - - 250 - - 750 250 1,250
Holding costs: - 90 810 530 490 590 570 3,080
Backorder costs: - - - - - - - -
Totals: $ 9,898 $ 9,124 $ 8,594 $ 11,642 $ 8,060 $ 6,196 $ 53,514
Aggregate Planning Methods
Aggregate Planning with Mathematical Models
• Mathematical Models
– Transportation algorithm
– Linear Programming
– Simulation
• Managerial considerations
– Mathematical techniques are ___________ aids to
the planning process
– Planning process is dynamic and complicated by
_______________ objectives
– Manager - not _______________ - make decisions
Aggregate Planning
Workforce Issues in Service Firms
• Close control of labor hours to ensure ________

response to customer demand
• Some form of ___ - ______ labor resource that

can be added or deleted to meet unexpected demand
• Flexibility of individual worker skills to permit
______________ of available labor
Aggregate Planning
Chapter Wrap-Up
• Read Chapter 12
• Concepts / Terminology
• Review Lecture notes
• Recommended Problems
– none

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Operations Management

Goal: Specify the ____________ combination of

– too ____ to solve for each individual product

Material Capacity Work-force

• Should inventories be used to absorb changes in demand?

• Should the ______ of the workforce vary?

• Should part-time, overtime, and/or undertime be used?

• Should sub-contractors be used to maintain a stable

• Should price or other factors be changed to influence

• _________ the demand pattern to achieve

Production Planning Strategies

Production Planning Strategies

Production Planning Strategies

– uses _______ ___ ________ to match demand

Production Planning Strategies

Production Planning Strategies

Fitting the Situation

Production Planning Strategies

• Cut-and-Try charting and graphic methods

• Use a spreadsheet approach for

Monthly Demand for the Executive Line

Materials: $ 5.00 per unit

January February March April May June Totals

January February March April May June Totals

January February March April May June Totals

January February March April May June Totals

Workforce Issues in Service Firms

• Close control of labor hours to ensure ________

• Some form of ___ - ______ labor resource that

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– uses _____ _ ________ to match demand

• Some form of _ - ____ labor resource that