Transcript Slide 1
Operations
Management
Aggregate Planning
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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
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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)
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Aggregate Planning Goals
Meet demand
Use capacity efficiently
Meet inventory policy
Minimize cost
Labor
Inventory
Plant & equipment
Subcontract
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Aggregate Planning Variables
Production rate
Labor levels
Inventory levels
Overtime work
Subcontracting rates
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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
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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
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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
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Aggregate Planning Strategies
Pure Strategies
Demand Options — change demand:
influencing demand
backordering during high demand periods
Counter seasonal product mixing
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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
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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
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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.
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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.
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The Extremes
Level
Strategy
Chase
Strategy
Production rate
is constant
Production
equals
demand
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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
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Aggregate Planning Methods
Graphical & charting techniques
Popular & easy-to-understand
Trial & error approach
Mathematical approaches
Transportation method
Linear decision rule
Management coefficients model
Simulation
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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
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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
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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
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