Transcript Slide 1

BUAD306
Aggregate Planning
Aggregate Planning
Determines the resource capacity
needed to meet demand over an
intermediate time horizon
 Typically 2 - 12 months in duration

Objectives

To establish a company-wide game
plan for allocating resources


Example: Avoid battles between
Marketing and Production
To develop an economic strategy for
meeting demand

Demand can be met by adjusting
capacity or by managing the demand
Managing Demand
Pricing – raise prices during highdemand times
 Promotion – to increase demand
during low-demand seasons
 Backorders – taking orders before
production and shipping at a later date
 New Demand – developing new
products

Managing Capacity
Hire and lay off workers
 Use overtime and slack time
 Use part-time workers
 Use inventory to absorb fluctuations in
demand
 Subcontract work to other firms

Capacity
Constraints
Demand
Forecasts
Size of
workforce
Strategic
Objectives
Company
Policies
Aggregate
Production
Planning
Production Inventory
per month
levels
(in units or $)
Outputs
Inputs
Financial
Constraints
Units or dollars
subcontracted,
backordered, or
lost
Planning Sequence
Business Plan
Aggregate
Planning
Production Plan
Master Schedule
Service Considerations
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

Level Production
Strategy for meeting uneven demand
Demand
Production
Units
Time
Chase Demand
Strategy for meeting uneven demand
Demand
Units
Production
Time
Aggregate Planning Schedule
Period
Forecast
Output
Regular
Overtime
Subcontract
Output - Forecast
Inventory
Beginning
Ending
Average
Backlog
Costs:
Output
Regular
Overtime
Subcontract
Hire/Lay off
Inventory
Back orders
Total
1
2
3
4
5
6
TOTAL
Read on your own
Mathematical Calculations
Number of
workers in
a period
=
Inventory
at the end of
a period
Number of workers
at the end of
+
the previous period
Inventory
= at the end of
+
the previous period
Number of new
Number of
workers at the start - laid-off workers
of the period
at the start of period
Production
in the current
period
-
Amount used to
satisfy demand in
the current period
Average Beginning Inventory + Ending Inventory
=
inventory
2
Cost for
a period
=
Output cost
+
(Reg.+OT+Subcontract)
Hire/lay-off +
cost
Inventory + Back-order
cost
cost
Read on your own
Calculating Costs
Type of Cost
Output
Hire/lay off
Inventory
Back order
How to calculate
Regular
Regular cost per unit * Quantity of
regular output
Overtime
Overtime cost per unit * Overtime
quantity
Subcontract Subcontracting cost per unit *
Subcontract quantity
Hire
Cost per hire * Number hired
Lay off
Cost per layoff * Number laid off
Carrying cost per unit * Average
inventory
Back order cost per unit * Number of
back-ordered units
Example - Develop a plan for this scenario: LEVEL
Hawk Skateboards are preparing an aggregate plan that will cover 6 months.
They have assembled the following and want a plan for steady output.
Period
Forecast
Costs
Output
Regular time =
Overtime =
Subcontract =
Inventory =
Back orders =
1
200
2
200
3
300
4
400
5
500
6
200
Total
1800
$2 per skateboard
$3 per skateboard
$6 per skateboard
$1 per skateboard per period on avg. inventory
$5 per skateboard per period
•Zero inventory on hand to start
•15 employees, each person produces 20 units per period max
Reg Time = $2/Board
Sub-C = $6/board
Inventory = $1/board avg inv
Example - LEVEL
Period
Forecast
Output
Regular
Overtime
Subcontract
Output - Forecast
Inventory
Beginning
Ending
Average
Backlog
Costs:
Output
Regular
Overtime
Subcontract
Hire/Lay off
Inventory
Back orders
Total
1
2
200
3
200
4
300
5
400
OT = $3/Board
Backorders = $5/board/pd
6
500
TOTAL
200
1800
Example - Develop a plan for this scenario: CHASE
Hawk Skateboards now wants to compare this to a CHASE strategy
assuming maximum of 40 units of overtime per period.
Period
Forecast
Costs
Output
Regular time =
Overtime =
Subcontract =
Inventory =
Back orders =
1
200
2
200
3
300
4
400
5
500
6
200
Total
1800
$2 per skateboard
$3 per skateboard
$6 per skateboard
$1 per skateboard per period on avg. inventory
$5 per skateboard per period
•Zero inventory on hand to start
•15 employees, each person produces 20 units per period max
Reg Time = $2/Board
Sub-C = $6/board
Inventory = $1/board avg inv
Example - CHASE
Period
Forecast
Output
Regular
Overtime
Subcontract
Output - Forecast
Inventory
Beginning
Ending
Average
Backlog
Costs:
Output
Regular
Overtime
Subcontract
Hire/Lay off
Inventory
Back orders
Total
1
2
200
3
200
4
300
5
400
OT = $3/Board
Backorders = $5/board/pd
6
500
TOTAL
200
1800
Example - Develop a plan for this scenario: COMBO
Hawk Skateboards learns that one of their production workers was badly
injured during a skateboard competition and will be out of commission for
6 months. Rather than replace the person, the company would like to work
with a smaller workforce and use overtime to make up for the lost output.
The reduced regular time output is now 280 units per period. The maximum
amount of overtime output per period is 40 units. They want to develop an
aggregate plan for this scenario and compare it to the other one to confirm
that costs will be reduced.
NO SUBCONTRACTING IS ALLOWED!!!
Reg Time = $2/Board
Sub-C = $6/board
Inventory = $1/board avg inv
Example – COMBO
Period
Forecast
Output
Regular
Overtime
Subcontract
Output - Forecast
Inventory
Beginning
Ending
Average
Backlog
Costs:
Output
Regular
Overtime
Subcontract
Hire/Lay off
Inventory
Back orders
Total
1
2
200
3
200
4
300
5
400
OT = $3/Board
Backorders = $5/board/pd
6
500
TOTAL
200
1800
Example – Compare costs from both scenarios
Cost of Steady Production with 15 workers Cost of Overtime Production with 14 workers Their decision would be to continue without their injured
employee and assume overtime/backorder costs.
Why wouldn’t this be a
good permanent plan?
HW #8:
Nowjuice produces bottled juice. A planner had developed
an aggregate forecast for demand (in cases) for the next six
months.
Develop an aggregate plan using each of the following
guidelines and compute total cost. Which is lowest?
a) Level plan (use OT if needed)
b) Combo OT (500 max/pd), inventory, subcontracting (500
max/pd) to handle variations
Costs: Reg Prod = $10/case, Max Reg = 5000
OT Prod = $16/case, SubC = $20, Hold = $1, BKo = $10
Month
May
June
July
Aug
Sep
Oct
Fore
4000
4800
5600
7200
6400
5000