Aggregate Planning

By - Raj

Planning Horizon
Aggregate
Intermediate-range capacity planning, usually covering 2 to 12 months.
Long range Intermediate range

planning:

Short range Now

2 months

1 Year

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Overview of Planning Levels

y

Short-range plans (Detailed plans)

Machine loading Job assignments

Intermediate plans (General levels)

Employment Output

Long-range plans
Long term capacity Location / layout
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Planning Sequence
Corporate strategies and policies Economic, competitive, and political conditions Aggregate demand forecasts

Business Plan

Establishes operations and capacity strategies Establishes operations capacity

Aggregate plan

Master schedule

Establishes schedules for specific products

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Aggregate Planning
Begin with forecast of aggregate demand y Forecast intermediate range y General plan to meet demand by setting
y

Output levels Employment Finished goods inventory level

Production plan is the output of aggregate planning y Update plan periodically rolling planning horizon always covers the next 12 18 months
y
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Aggregate Planning Inputs

y

Resources
Workforce Facilities

Costs
Inventory carrying Back orders Hiring/firing Overtime Inventory changes Subcontracting

Demand forecast y Policies

y

Subcontracting Overtime Inventory levels Back orders

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Aggregate Planning Outputs

Total cost of a plan y Projected levels of inventory
y

Inventory Output Employment Subcontracting Backordering

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Aggregate Planning Strategies

y y y

Proactive
Alter demand to match capacity

Reactive
Alter capacity to match demand

Mixed
Some of each

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Demand Options
y

Pricing Promotion Back orders New demand

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Capacity Options
Hire and layoff workers y Overtime/slack time y Part-time workers y Inventories y Subcontracting
y

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Aggregate Planning Strategies

y y y y

Maintain a level workforce Maintain a steady output rate Match demand period by period Use a combination of decision variables

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Basic Strategies
y

Level capacity strategy:

Maintaining a steady rate of regular-time output while meeting variations in demand by a combination of options.

Chase demand strategy:

Matching capacity to demand; the planned output for a period is set at the expected demand for that period.

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Chase Approach
y

Advantages
Investment in inventory is low Labor utilization in high

Disadvantages
The cost of adjusting output rates and/or workforce levels

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Level Approach
y

Advantages
Stable output rates and workforce

Disadvantages
Greater inventory costs Increased overtime and idle time Resource utilizations vary over time

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Techniques for Aggregate Planning

1. Determine 2. Determine 3. Identify

demand for each period capacities for each period

policies that are pertinent units costs

4. Determine 5. Develop 6. Select

alternative plans and costs

the best plan that satisfies objectives. Otherwise return to step 5.

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Mathematical Techniques
Linear programming: Methods for obtaining optimal solutions to problems involving allocation of scarce resources in terms of cost minimization. Simulation models: Computerized models that can be tested under different scenarios to problems.

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Summary of Planning Techniques

Technique
Graphical/charting

Solution
Heuristic (trial and error) Optimizing

Characteristics
Intuitively appealing, easy to understand; solution not necessarily optimal. Computerized; linear assumptions not always valid. Computerized models can be examined under a variety of conditions.

Linear programming Simulation

Heuristic (trial and error)

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Aggregate Planning in Services

y y

Services occur when they are rendered Demand for service can be difficult to predict Capacity availability can be difficult to predict Labor flexibility can be an advantage in services
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Aggregate Plan to Master Schedule

Aggregate Planning

Disaggregation

Master Schedule

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Disaggregating the Aggregate Plan

y

Master schedule: The result of disaggregating an aggregate plan; shows quantity and timing of specific end items for a scheduled horizon. Rough-cut capacity planning: Approximate balancing of capacity and demand to test the feasibility of a master schedule.

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Master Scheduling
y

Master schedule
Determines quantities needed to meet demand Interfaces with
x x x x Marketing Capacity planning Production planning Distribution planning

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Master Scheduler
Evaluates impact of new orders y Provides delivery dates for orders y Deals with problems
y

Production delays Revising master schedule Insufficient capacity

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Master Scheduling Process

Inputs
Beginning inventory

Outputs
Projected inventory

Forecast

Master Scheduling

Master production schedule

Customer orders

Uncommitted inventory

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Projected On-hand Inventory On-

Projected on-hand = inventory

Inventory from previous week

Current weeks requirements

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Projected On-hand Inventory OnBeginning Inventory

64 Forecast Customer Orders (committed) Projected on-hand inventory

Customer orders are larger than forecast in week 1

1 30 33 31

JUNE 2 3 30 30 20 1 10 -29

4 30 4

5 40 2

JULY 6 7 40 40

8 40

Forecast is larger than Customer orders in week 3

Forecast is larger than Customer orders in week 2

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Time Fences
Time Fences points that separate phases master schedule planning horizon. in time of a

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Time Fences in MPS

Period

frozen (firm or fixed)

slushy somewhat firm

liquid (open)

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ILLUSTRATION

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