1 aggregate planning. 2 the role of the aggregate plan
TRANSCRIPT
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Aggregate Planning
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The Role of the Aggregate Plan
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Types of Aggregate Plans Level Aggregate Plans
Maintains a constant workforce Sets capacity to accommodate average demand Often used for make-to-stock products like appliances Disadvantage- builds inventory and/or uses back orders
Chase Aggregate Plans Produces exactly what is needed each period Sets labor/equipment capacity to satisfy period demands Disadvantage- constantly changing short term capacity
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Level Plan Example Level production rate= 28,000 units/7 periods= 4000 units Level workforce= (4000 units x .64 std.)/160 = 16 people
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Chase Plan Example Chase hires and fires staff to exactly meet each
periods demand Period 1 = (500 units x .64 std.)/160 = 2 people, need
to fire 16 people
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Types of Aggregate Plans (Cont.)
Hybrid Aggregate Plans Uses a combination of options Options should be limited to facilitate execution May use a level workforce with overtime & temps May allow inventory buildup and some
backordering May use short term sourcing
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Aggregate Planning Options
Demand based options Reactive: uses finished goods inventories and backorders for fluctuations Proactive: shifting the demand patterns to minimize
fluctuations e.g. early bird dinner prices at a restaurant Capacity based options
Changes output capacity to meet demand Uses overtime, undertime, subcontracting, hiring,
firing, and part-timers – cost and operational implications
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Starting with the Current Situation
Point of Departure Current % of normal capacity Options are different depending on present situation
Magnitude of change Larger changes need more dramatic measures
Duration of change Is the length of time a brief seasonal change? Is a permanent change in capacity needed?
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Developing the Aggregate Plan
Step 1- Choose strategy: level, chase, or Hybrid Step 2- Determine the aggregate production rate Step 3- Calculate the size of the workforce Step 4- Test the plan as follows:
Calculate Inventory, expected hiring/firing, overtime needs Calculate total cost of plan
Step 5- Evaluate performance: cost, service, human resources, and operations
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Plan for Companies with Tangible Products – Plans A, B, C, D Plan A: Level aggregate plan using
inventories and back orders Plan B: Level plan using
inventories but no back orders Plan C: Chase aggregate plan
using hiring and firing Plan D: Hybrid plan using initial
workforce and overtime as needed
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Problem Data for Plans A, B, C, D
(Table 13.4)
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A BCost Data
Regular time labor cost per hour $12.50Overtime labor cost per hour $18.75
Subcontracting cost per unit (labor only) $125.00Back order cost per unit per period $25.00
Inventory holding cost per unit per period $10.00Hiring cost per employee $800.00Firing cost per employee $500.00
Capacity DataBeginning workforce (employees) 90
Beginning inventory (units) 0Production standard per unit (hours) 8
Regular time available per period (hours) 160Overtime available per period (hours) 40
Demand Data (units)Period 1 1920Period 2 2160Period 3 1440Period 4 1200Period 5 2040Period 6 2400Period 7 1740Period 8 1500
Total Number of Periods 8
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Plan A - Level Using Inventory & Backorders (Table 13-5)
First calculate the level production rate (14400/8=1800)
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D E F G H I J K L M
Plan A: Level Aggregate Plan, Using Inventories and Backorders
Compute Level Production RateTotal Demand 14400
Less: Beginning Inventory 0Total Net Demand 14400
Average Demand Per Period 1800 <-- Production Rate for Level Plan
Compute Workforce NeededUnits per Employee per Period 20
Employees Required 90Number to Hire 0Number to Fire 0
Detailed Plan Computations1 2 3 4 5 6 7 8 Total
Demand (units) (net of beg. Inventory) 1920 2160 1440 1200 2040 2400 1740 1500 14400Cumulative demand (units) 1920 4080 5520 6720 8760 11160 12900 14400
Period production (units) 1800 1800 1800 1800 1800 1800 1800 1800 14400Cumulative production (units) 1800 3600 5400 7200 9000 10800 12600 14400Cum.Dem. Minus Cum.Prod. 120 480 120 -480 -240 360 300 0
Ending Inventory (units) 0 0 0 480 240 0 0 0 720Backorders (units) 120 480 120 0 0 360 300 0 1380
Cost Calculations for Plan ARegular time labor cost $1,440,000
Overtime labor cost $0Inventory holding cost $7,200
Back order cost $34,500Hiring cost $0Firing cost $0Total Cost $1,481,700
Period
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Plan A Evaluation Back orders were 13.9% of demand (1380)
Worst performance was period 2 at 21% of demand
Marketing will not be satisfied at these levels
Workable plan for operations No employees hired or fired, no overtime or
undertime needed, and output is constant No human resource problems are
anticipated
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Plan B – Level, Inventory but No Backorders (Table 13-7)
Set the level rate equal to the peak cumulative demand/period
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D E F G H I J K L M N
Plan B: Level Aggregate Plan, Using Inventories but No Backorders
Detailed Plan Computations1 2 3 4 5 6 7 8 Total
Demand (units) (net of beg. Inventory) 1920 2160 1440 1200 2040 2400 1740 1500 14400Cumulative demand (units) 1920 4080 5520 6720 8760 11160 12900 14400
Cumulative demand/periods 1920 2040 1840 1680 1752 1860 1842.857 1800Period production (units) 2040 2040 2040 2040 2040 2040 2040 2040 16320
Cumulative production (units) 2040 4080 6120 8160 10200 12240 14280 16320Cum.Dem. Minus Cum.Prod. -120 0 -600 -1440 -1440 -1080 -1380 -1920
Ending Inventory (units) 120 0 600 1440 1440 1080 1380 1920 7980Backorders (units) 0 0 0 0 0 0 0 0 0
Compute Level Production Rate and Workforce NeededProduction Rate (units) 2040
Units per Employee per Period 20Employees Needed 102
Number to Hire 12Number to Fire 0
Cost Calculations for Plan BRegular time labor cost $1,632,000
Overtime labor cost $0Inventory holding cost $79,800
Back order cost $0Hiring cost $9,600Firing cost $0Total Cost $1,721,400
Period
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Plan B Evaluation Plan B costs $240K (16%) more than plan
A and has ending inventory of 7980 units To be fair, Plan B built 1920 additional
units ($192K) which will be sold later Plan B costs $2.58 more per unit (2.5%) Marketing satisfied by 100% service level Workable Operations and HR plan- hire 12,
no OT or UT, and level production
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Plan C – Chase Using Hires and Fires (Table 13- 9)
The production rate equals the demand each period
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D E F G H I J K L M N
Plan C: Chase Aggregate Plan, Using Hiring and Firing (no overtime)
Beginning Number of Employees 90Units per Worker per Period 20 (used to compute workforce size requirement each period)
Detailed Plan Computations1 2 3 4 5 6 7 8 Total
Demand (units) (net of beg. Inventory) 1920 2160 1440 1200 2040 2400 1740 1500Production per period (units) 1920 2160 1440 1200 2040 2400 1740 1500 14400Employees needed in period 96 108 72 60 102 120 87 75 720
Number to hire 6 12 0 0 42 18 0 0 78Number to fire 0 0 36 12 0 0 33 12 93
Cost Calculations for Plan CRegular time labor cost $1,440,000
Overtime labor cost $0Inventory holding cost $0
Back order cost $0Hiring cost $62,400Firing cost $46,500Total Cost $1,548,900
Period
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Plan C Evaluation Costs an additional $2 per unit more than Plan
B Marketing is satisfied again by 100% service
level From Operations and HR standpoint, not easy
to implement: Need space, tools, equipment for up to 120 people
in period 6 and only have 60 people in period 4 High training costs and potential quality problems Low morale likely due to poor job security
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Plan D– Hybrid, Initial Workforce and OT as Needed (Table 13-12)
This is basically a level plan using OT to avoid backorders
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D E F G H I J K L M N
Plan D: Hybrid Aggregate Plan, Using Initial Workforce and Overtime as Needed
Compute Regular Time Production RateNumber of Employees 90
Units per Employee per Period 20Regular Time Production per Period 1800
Detailed Plan Computations1 2 3 4 5 6 7 8 Total
Total Demand in Period 1920 2160 1440 1200 2040 2400 1740 1500 14400Net Demand After Inventory Considered 1920 2160 1440 840 1080 1680 1620 1320
Regular Time Production 1800 1800 1800 1800 1800 1800 1800 1800 14400Overtime Production Needed 120 360 0 0 0 0 0 0 480
Ending Inventory 0 0 360 960 720 120 180 480 2820
Cost Calculations for Plan CRegular time labor cost $1,440,000
Overtime labor cost $72,000Inventory holding cost $28,200
Back order cost $0Hiring cost $0Firing cost $0Total Cost $1,540,200
Period
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Plan D Evaluation Cost is only $.61 (.6%) more than Plan A
with a reasonable increase in ending inventory (+1440)
Marketing is satisfied as well with 100% service level
Not difficult for Operations to implement Does not need excessive overtime
Uses overtime in just periods 1 and 2 (7%, 20%)
Aggregate Plan Objective: Keep customer service high and costs low
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Aggregate Plans for Service Companies with Non-Tangible Products- Plans E, F, G
Options remain the same – level, chase, and hybrid plans Overtime and undertime can be used Staff can be hired and fired
Inventory cannot be used to level the service plan
All demand must be satisfied or lose business to a competing service provider
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Problem Data for Plans E, F, G (Table 13.4)
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A BCost Data
Regular time labor cost per hour $8.00Overtime labor cost per hour $12.00
Subcontracting cost per unit (labor only) $60.00Hiring cost per employee $250.00Firing cost per employee $150.00
Capacity DataBeginning workforce (employees) 60Service standard per call (hours) 4
Regular time available per period (hours) 160Overtime available per period (hours) 24
Demand Data (calls)Period 1 2400Period 2 1560Period 3 1200Period 4 2040Period 5 2760Period 6 1680Period 7 1320Period 8 2400
Total Number of Periods 8
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Plan E – Level with Staffing for Peak Demand- (Table 13-14)
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D E F G H I J K L M
Plan E: Level Aggregate Plan with No Backorders, No Tangible Product
Compute Workforce NeededMaximum Demand 2760 <-- Need to staff to meet the maximum number of calls
Calls per Worker per Period (Reg Time) 40Workers Needed 69
Number to Hire 9Number to Fire 0
Detailed Plan Computations1 2 3 4 5 6 7 8 Total
Demand (calls) 2400 1560 1200 2040 2760 1680 1320 2400 15360Service hours needed 9600 6240 4800 8160 11040 6720 5280 9600 61440
Regular time hours available 11040 11040 11040 11040 11040 11040 11040 11040Undertime hours 1440 4800 6240 2880 0 4320 5760 1440 26880
Cost Calculations for Plan ERegular time labor cost $706,560
Hiring cost $2,250Firing cost $0Total Cost $708,810
Period
Staff of 69 people creates excessive UT (30%) Cost per service call is $46.15
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Plan F – Hybrid with Initial Workforce and OT as Needed (Table 13-16)
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D E F G H I J K L M
Plan F: Hybrid Aggregate Plan Using Initial Workforce and Overtime as Needed
Detailed Plan Computations1 2 3 4 5 6 7 8 Total
Demand (calls) 2400 1560 1200 2040 2760 1680 1320 2400 15360Service hours needed 9600 6240 4800 8160 11040 6720 5280 9600 61440
Regular time hours of capacity 9600 9600 9600 9600 9600 9600 9600 9600 76800Overtime hours needed 0 0 0 0 1440 0 0 0 1440
Undertime hours 0 3360 4800 1440 0 2880 4320 0 16800
Cost Calculations for Plan FRegular time labor cost $614,400
Overtime labor cost $17,280Total Cost $631,680
Period
Costs reduced by $77K and undertime to 20% Cost per service call reduced to $41.13 (-$5.02)
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Plan G – Chase Plan with Hiring and Firing (Table 13-18)
Total cost reduced by $114K over Plan F, utilization improved to 100%, and cost per service call $33.72 (-$7.41)
Workforce fluctuates from 30-69 people- morale problems Solution?? Compare smaller permanent workforce, more OT??
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D E F G H I J K L
Plan G: Chase Aggregate Plan Using Hiring and Firing
Beginning Number of Employees 60
Detailed Plan Computations1 2 3 4 5 6 7 8
Demand (calls) 2400 1560 1200 2040 2760 1680 1320 2400Service hours needed 9600 6240 4800 8160 11040 6720 5280 9600
Number of employees needed 60 39 30 51 69 42 33 60Number of hires 0 0 0 21 18 0 0 27Number of fires 0 21 9 0 0 27 9 0
Cost Calculations for Plan GRegular time labor cost $491,520
Hiring cost $16,500Firing cost $9,900Total Cost $517,920
Period
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Aggregate Planning Bottom Line
The Aggregate plan must balance several perspectives
Costs are important but so are: Customer service Operational effectiveness Workforce morale
A successful AP considers each of these factors
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Planning Links to MPS
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Role of the MPS
Aggregate plan: Specifies the resources available (e.g.:
regular workforce, overtime, subcontracting, allowable inventory levels & shortages)
Master production schedule: Specifies the number & when to produce
each end item (the anticipated build schedule)
Disaggregates the aggregate plan
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Objectives of Master Schedule The Master Scheduler must:
Maintain the desired customer service level Utilize resources efficiently Maintain desired inventory levels
The Master Schedule must: Satisfy customer demand Not exceed Operation’s capacity Work within the constraints of the
Aggregate Plan
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Developing an MPS The Master Scheduler:
Develops a proposed MPS Checks the schedule for feasibility with available
capacity Modifies as needed Authorizes the MPS
Consider the following example: Make-to-stock environment with fixed orders of 125
units There are 110 in inventory to start When are new order quantities needed to
satisfy the forecasted demand?
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The MPS Record
Projected Available = beginning inventory + MPS shipments - forecasted demand
The MPS row shows when replenishment shipments need to arrive to avoid a stock out (negative projected available)
Week BI 1 2 3 4 5 6 7 8 9 10 11 12
Forecast 50 50 50 50 75 75 75 75 50 50 50 50
Projected available 110 60 10 -40
MPS
Week BI 1 2 3 4 5 6 7 8 9 10 11 12
Forecast 50 50 50 50 75 75 75 75 50 50 50 50
Projected available 110 60 10 85 35 -40
MPS 125
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Revised and Completed MPS Record
Week BI 1 2 3 4 5 6 7 8 9 10 11 12
Forecast 50 50 50 50 75 75 75 75 50 50 50 50
Projected available 110 60 10 85 35 85 10 -65
MPS 125 125
Week BI 1 2 3 4 5 6 7 8 9 10 11 12
Forecast 50 50 50 50 75 75 75 75 50 50 50 50
Projected available 110 60 10 85 35 85 10 60 110 60 10 85 35
MPS 125 125 125 125 125
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Evaluating the MPS Rough-cut capacity planning:
An estimate of the plan’s feasibility Given the demonstrated capacity of critical
resources (e.g.: direct labor & machine time), have we overloaded the system?
Customer service issues: Does “available-to-promise” inventory
satisfy customer orders? If not, can future MPS quantities be pulled in to satisfy new orders?
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Rough Cut Capacity Problem: a shoe company produces two models of dance shoes. Over the past 3 years 72,000 pairs of Model M have been produced using 21,600 direct labor hours and 5760 machine hours, and 108,000 pairs of Model W using 43,200 hours of labor and 12,960 hours of machine time.
Step 1: Determine the Planning factors:
Labor Factors
Machine Factors
0.12hour108,000
12,960MachinePF ;0.08hour
pairs 72,000
hours 5760PF Machine
built units ofnumber
model building hours machine TotalFactor Planning Machine
WM
hour 0.40pairs 108,000
hours 43,200PF DL ;hour 0.30
pairs 72,000
hours 21,600PF DL
built units ofnumber
model building hours DL TotalFactor PlanningLabor Direct
WM
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A B C D E FPlanning Factors (hours per pair)
Model M 0.30 0.08Model W 0.40 0.12
Quarterly Master Production Schedule (MPS) (pairs)Q1 Q2 Q3 Q4 Totals
Model M 6000 5500 9500 6500 27500Model W 10000 12000 7500 10100 39600
Direct Labor
Machine Time
Step 2:Calculate the Workload Generated by This Schedule
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Step 3: Calculate the Capacity Needs for Each Resource for Each Time Period
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A B C D E FDirect Labor Hours Required
Q1 Q2 Q3 Q4 TotalsModel M 1800 1650 2850 1950 8250Model W 4000 4800 3000 4040 15840
Totals 5800 6450 5850 5990 24090
Machine Time (Hours) RequiredQ1 Q2 Q3 Q4 Totals
Model M 480 440 760 520 2200Model W 1200 1440 900 1212 4752
Totals 1680 1880 1660 1732 6952
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Step 4: Calculate Individual Workcenter Capacity Needs Based on Historical Percentage Allocation
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A B C D E FWork Center Historical Breakdown
Center 101 60% 60%Center 102 40% 40%
Direct Labor Hours Required by Work CenterQ1 Q2 Q3 Q4 Totals
Center 101 3480 3870 3510 3594 14454Center 102 2320 2580 2340 2396 9636
Totals 5800 6450 5850 5990 24090
Machine Time Hours Required by Work CenterQ1 Q2 Q3 Q4 Totals
Center 101 1008 1128 996 1039.2 4171.2Center 102 672 752 664 692.8 2780.8
Totals 1680 1880 1660 1732 6952
Direct Labor
Machine Time
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Using the MPS to “Order Promise”
The authorized MPS is used to promise orders to customers The MPS table is expanded to add customer orders and
available-to-promise rows (inventory to satisfy new orders) ATPAction Bucket = (beginning inventory + MPS shipment) –
(customer orders before next replenishment). Available in period 1
ATP=MPS shipment – Customer orders between current MPS shipment and next scheduled replenishment. Available in periods 3,5,7,8, & 11
Week BI 1 2 3 4 5 6 7 8 9 10 11 12
Forecast 50 50 50 50 75 75 75 75 50 50 50 50
Customer orders 35 25 25 20 0 15 0 0 10 0 0 10
Projected available 110 60 10 85 35 85 10 60 110 60 10 85 35
Available-to-promise 50 80 110 125 115 115
MPS 125 125 125 125 125
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Example of Revising the ATP MPS Record: A customer calls marketing willing to purchase 200 units if they can be delivered in period 5. The two tables below show how the system logic would first slot the 200 into period 5 and then how the order would be allocated across periods 1, 3, and 5 and adjusting the ATP row.
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Stabilizing the MPS