Transcript lec no. 24 n 25....15.4.13

AGGREGATE PLANNING BY
GRAPHICAL APPROACH
• Particularly for high volume, standardized
product system & closed job shop systems,
the concepts & methods of aggregate
planning & scheduling are of great importance
• They are important at least if we are to obtain
the best possible use of facility within the
constraint of policy regarding hiring & firing,
inventories & the use of outside capacity &
within the constraints of our own capacity
15/4/2013
Lec # 24 & 25
1
AGGREGATE PLANNING BY
GRAPHICAL APPROACH
• The broad line of questions that are vital & can be
addressed through aggregate planning are:
1. To what extent should inventory be used to absorb the
fluctuations in demand over the next 6-12 months?
2. Why not absorb this fluctuation by simply varying the
size of work force?
3. Why not maintain a fairly stable workforce size & absorb
fluctuation by changing production rate by resorting to
the overtime & shortened time?
4. Why not maintain a fairly stable workforce size &
product rate & let our sub contractor help with the
problem of fluctuating the order rates from us?
15/4/2013
Lec # 24 & 25
2
AGGREGATE PLANNING BY
GRAPHICAL APPROACH
• If inventory has to absorb all the fluctuations
in demand, it is necessary to prepare the
inventory balance so that no stock out occurs
15/4/2013
Lec # 24 & 25
3
PREPARATION OF INVENTORY
BALANCE
• To understand how inventory balance is
prepared, look at table 3.1 (in excel sheet) which
shows how a company has developed forecast to
an item which has a demand influenced by
seasonal factors
• The table illustrate how the inventory balance is
prepared
• The monthly inventory balance required is
determined following a plan of letting the
inventory to absorb all fluctuations in demand.
15/4/2013
Lec # 24 & 25
4
PREPARATION OF INVENTORY
BALANCE
• In this case we have constant workforce, no
idle time or overtime, no backorder, no use of
subcontract, & no capacity adjustments
• Once the inventory requirements are known
the carrying cost can be weighted against the
cost of alternative plan
15/4/2013
Lec # 24 & 25
5
PREPARATION OF INVENTORY
BALANCE
Problem 1: with reference to the data in table
3.1, the company has determined that to
follow a plan of meeting demand by varying
the size of workforce would result in hiring &
layoff cost estimated at Rs.22,000. If the cost
of producing each unit is Rs.100, the carrying
cost/per annum are 20% of average inventory
value & storage cost are Rs. 9/unit, which plan
results in lower cost: VARYING INVENTORY or
VARYING EMPLOYMENT (hiring/layoff)
15/4/2013
Lec # 24 & 25
6
PREPARATION OF INVENTORY
BALANCE
Problem 2: A Company has a monthly demand as shown in table 3.2 (shown
on excel sheet). The organization policy is to have 10% of month forecast
as safety stock. The number of days available in each month is also shown.
There is no inventory available at the beginning of the first month, i.e.
January
The cost of the organization are as follows:
Inventory holding cost:
Rs.2/unit/month
Duration of shift:
8 hours
Hourly wage rate:
Rs. 8
Stock out cost /unit:
Rs.5
Hourly overtime wage rate:
Rs. 10
Subcontracting cost/unit:
Rs. 105 with Rs. 5 premium
Labor Hour /unit:
4 hours
Layoff cost/worker:
Rs.500
Hiring cost/worker:
Rs. 400
15/4/2013
Lec # 24 & 25
7
PREPARATION OF INVENTORY
BALANCE
Problem 2: (Cont..)
Three potential plans are suggested:
1. Produce to exact production requirement by varying the
size of workforce on regular hours. Assume there are 250
workers available in January
2. Make a constant workforce of 518 workers. Assume no
subcontracts are available & inventory will fluctuate with
stock out filled from the following month’s production
3. Produce by fixed workforce of 500 regular times &
subcontract all excess demands over the period
production. Inventory will increase when production
exceeds demand, no stock out is permitted
Determine the plan which gives the least cost
15/4/2013
Lec # 24 & 25
8