Transcript Slide 1
Operations Management Aggregate Planning 1 Anheuser-Busch Anheuser-Busch produces nearly 40% of the beer consumed in the U.S. Matches fluctuating demand by brand to specific plant, labor, and inventory capacity High facility utilization due to meticulous cleaning between batches effective maintenance efficient scheduling 2 Aggregate Planning Provides quantity and timing of production for the intermediate future (usually 3 to 18 months ahead) Objective to minimize cost over the planning period while matching demand Links firm’s strategic goals and production plans (manufacturing) or work force schedules (service) 3 Aggregate Planning Goals Meet demand Use capacity efficiently Meet inventory policy Minimize cost Labor Inventory Plant & equipment Subcontract 4 Aggregate Planning Variables Production rate Labor levels Inventory levels Overtime work Subcontracting rates 5 Planning Horizons Short-range plans Job assignments Ordering Job scheduling Dispatching Responsible: Operations managers, supervisors, foremen Today Responsible: Operations managers Intermediate-range plans Sales planning Production planning and budgeting Setting employment, inventory, subcontracting levels Analyzing operating plans 3 Months 1 year Responsible: Top executives Long-range plans R&D New product plans Capital expenses Facility location, expansion 5 years Planning Horizon 6 Relationships of the Aggregate Plan Marketplace and Demand Demand Forecasts, orders Product Decisions Process Planning & Capacity Decisions Aggregate Plan for Production Master Production Schedule Research and Technology Work Force Raw Materials Available Inventory On Hand External Capacity Subcontractors MRP system Detailed Work Schedules 7 Aggregate Planning Strategies Pure Strategies Capacity Options — change capacity: changing inventory levels varying work force size by hiring or layoffs varying production capacity through overtime or idle time subcontracting using part-time workers 8 Aggregate Planning Strategies Pure Strategies Demand Options — change demand: influencing demand backordering during high demand periods Counter seasonal product mixing 9 Aggregate Scheduling Options Advantages and Disadvantages Option Advantage Disadvantage Changing inventory levels Changes in human resources are gradual, not abrupt production changes Inventory holding costs; Shortages may result in lost sales Varying workforce size by hiring or layoffs Avoids use of Hiring, layoff, other alternatives and training costs Some Comments Applies mainly to production, not service, operations Used where size of labor pool is large 10 Advantages/Disadvantages Continued Option Advantage Disadvantage Some Comments Varying production rates through overtime or idle time Matches seasonal fluctuations without hiring/training costs Permits flexibility and smoothing of the firm's output Overtime premiums, tired workers, may not meet demand Allows flexibility within the aggregate plan Loss of quality control; reduced profits; loss of future business Applies mainly in production settings Subcontracting 11 Advantages/Disadvantages Continued Option Advantage Disadvantage Some Comments Using part-time workers Less costly and more flexible than full-time workers Good for unskilled jobs in areas with large temporary labor pools Influencing demand Tries to use excess capacity. Discounts draw new customers. High turnover/training costs; quality suffers; scheduling difficult Uncertainty in demand. Hard to match demand to supply exactly. Creates marketing ideas. Overbooking used in some businesses. 12 Advantage/Disadvantage Continued Option Advantage Disadvantage Some Comments Back ordering May avoid Customer must during highovertime. Keeps be willing to demand periods capacity constant wait, but goodwill is lost. Many companies backorder. Counterseasonal Fully utilizes May require products and resources; allows skills or service mixing stable workforce. equipment outside a firm's areas of expertise. Risky finding products or services with opposite demand patterns. 13 The Extremes Level Strategy Chase Strategy Production rate is constant Production equals demand 14 Aggregate Planning Strategies Mixed strategy Combines 2 or more aggregate scheduling options Level scheduling strategy Produce same amount every day Keep work force level constant Vary non-work force capacity or demand options Often results in lowest production costs 15 Aggregate Planning Methods Graphical & charting techniques Popular & easy-to-understand Trial & error approach Mathematical approaches Transportation method Linear decision rule Management coefficients model Simulation 16 The Graphical Approach to Aggregate Planning Forecast the demand for each period Determine the capacity for regular time, overtime, and subcontracting, for each period Determine the labor costs, hiring and firing costs, and inventory holding costs Consider company policies which may apply to the workers or to stock levels Develop alternative plans, and examine their total costs OM Session 21: Bishal Shrestha 17 Production rate per working day Forecast and Average Forecast Demand 70 60 50 Forecast Demand Level production using average monthly forecast demand 40 30 20 10 0 Jan Feb 22 18 Mar Apr May Jun 21 21 22 20 18 AP - Example Mary Rhodes has rcvd the following estimates of demand requirements July Aug Sep Oct Nov Dec 1000 1200 1400 1800 1800 1600 Stockout costs = $100, Inventory carrying cost = $25 per unit per month, 0 ending inventory, evaluate the two options on incremental basis Plan A: Produce at steady rate (minimum reqmt) and subcontract rest at $60 per unit Plan B: Vary workforce, which currently performs at 13000 units a month. Hiring cost is $ 3000 per 100 units and firing cost is $6000 per 100 units 19