capacity and agrregate planning
TRANSCRIPT
Capacity Planning
28th October
Capacity Planning (Book: B. Mahadevan)
• It is a long term strategic decision that establishes a firm overall level of resources
• It is the process of determining the necessary people, machines and physical resources to meet the production objectives of the firm
Strategies for capacity expansion
• Capacity lead strategy: capacity expansion in anticipation of demand growth
• Capacity lag strategy: Capacity is increased after an increase in demand has been documented
• Average capacity strategy: Capacity is expanded to coincide with average expected demand
Capacity planning framework
Estimate the capacity requirement for the planning horizon
Compute the available capacity and identify quantum of capacity to be augmented
Identify available alternatives and select the best one for capacity augmentation
Example
Alternatives for capacity augmentation
• Waste elimination• Multi skilling of work force• Sub- contracting / Outsourcing
Decision tree for capacity planning:• It is a schematic model in which different sequences and steps
involved in the problem and the consequences of the decision are systematically portrayed
• Decision tree comprised of nodes and branches. Each node represent the decision point and branches represent the potential outcome of the decision
Example 9.4, pg.no. 236
Aggregate Planning
11th Nov 2010Production and Operations Management:
Everette E. adam, Jr. Ronald J. Ebert
Operational planning & scheduling systems
Output planning Capacity planning
Aggregate output planning
Aggregate capacity planning
Master production scheduling
Rough-cut capacity planning
Material requirements planning
Detailed capacity planning
Loading
Sequencing
Detailed scheduling
Shop floor control
Disaggregation
Aggregation
Operational planning & scheduling systems
Output planning Capacity planning
Aggregate output planning
Aggregate capacity planning
Master production scheduling
Rough-cut capacity planning
Material requirements planning
Detailed capacity planning
Loading
Sequencing
Detailed scheduling
Shop floor control
Monthly output levels (6- 18 months) for the
finished product groups
Process for testing feasibility of output plan. Output plan
converted into input terms (man-hours, machine hours etc)
Temp capacity adjustment strategies
Disaggregation
Aggregation
The aggregate planning process
•maximize customer service •minimize inventory investment •minimize changes in workforce levels •minimize changes in production rates •maximize utilization of plant and equipment
Objective of aggregate planning frequently is to minimize total cost over the planning horizon. Other objectives should be considered:
The aggregate planning process
Concept of aggregation : Deciding the unit for aggregation (# of PC, Tons of output etc)
Identify groups/families of products that although different from one another, share commonproduction process, share common machines e.g.
FMCG (# of powder bottles as one, # of shampoo bottles as another, # of shampoo sachet).
For some others it can be straight forward
• Service Industry : Airlines : # of passengers
• Steel producer : Tons/Kg of steel produced
• Paint company : Kilo liters of paints produced
The aggregate planning process
Goals : The goals to be kept in mind while deciding aggregate plan which later on in planning process becomes input to MPS
• Overall output & inventory norms as per company policy (eg seasonal build up etc)
• Facility capacity utilization as per company policy (Full capacity utilization for stable products, 10 % free capacity for meeting sudden demand)
• Employee Policy (Stable employee work force in case of skilled jobs, Hire/Fire for standard jobs : Loading )
Forecast of aggregate demand (Input to aggregate planning process)
The aggregate planning process
January Forecast
January Actual
Forecast Error % Error
Product A 100 120 -20 -17%Product B 200 180 20 11%Aggregate 300 300 0 0
Aggregate forecast is more accurate compared to individual hence useful for Long term planning purpose
Options for adjusting short term capacity to meet overall organization goals.
Following are commonly used strategies
Internal1. Vary number of productive employees to meet varying output requirement (Chase strategy)
2. Maintain constant workforce but vary utilization of work force (Chase strategy)
3. Vary size of inventory
4. Mix of any of above
External5. Subcontractor
6. Rent / Lease equipment
The aggregate planning process
Data for exercise
Refer to page 381 & 382 of handout
The aggregate planning process
Varying Work Force Size By Hiring Or Layoffs
This is to Hire Or Lay Off Workers To Meet Production Rates.
Limitations
• In this option, often new employees need to be trained will involve training cost.• High hiring and lay off costs• Lowered employee morale during layoff• Skills may not be available when needed• Negative community reaction• Cannot do in case of labor laws etc
1.Vary number of productive employees to meet varying output requirement
Can be used for non critical jobs such as loading/unloading etc
The aggregate planning process
Results in idle time during lean period/overtime during peak
Can eliminate limitation of Hire & Fire however has following limitation.
Limitations
• Overtime cost can be expensive• Overtime can result in errors• During idle time output would be lost forever .• Idle time may affect employee morale as they may fear layoff
2. Maintain constant workforce but vary utilization of work force
The aggregate planning process
Fix # of employees such that little or no overtime/idle timeProduction at constant rate (Inventory build up in lean, depletion in peak period)
Can eliminate limitation of Hire & Fire however has following limitation.
Limitations
• Money tied up in inventory• Obsolescence• Storage space requirement So every strategy has limitation hence need to use combination
3. Vary size of inventory
The aggregate planning process
Graphical method can be used
Exercise (Page 384)
Step 1 : Draw graph (X axis : productive days in planning horizon, Y axis : units output in thousands), plot cumulative forecast on basis of fig 10.2
Step 2 : Select planning strategy level output
• Find out level output rate for no stock out
• How many employees are needed
• Fill the following table (Provided in next slide)
• Find total cost (Assuming inv carrying cost $ 1 / unit/month)
3. Combination method (To combine good points of each strategy)
Month Days Output(units/day) Output (Units) Demand (Units) Beginning in (Units)
Net addition (Subtraction to inv)
Ending inv Avg Inv (Beg + Ending)/2
Jan 22
feb 19
Mar 21
April 22
May 21
Jun 21
Jul 22
Aug 11
Sep 21
Oct 22
Nov 18
Dec 21
Table for level strategy
The aggregate planning process
• Step 3 : Select planning strategy Chase
• Fill the following table (Provided in next slide)• Find total cost assuming following
– Estimated cost for changing output rate
– Max output (1000 wagons/day), OT : $4/unit
Change in output rate from prev month (Incr/decr) Estimated cost
1-200 4000
201-400 10,000
401-600 18,000
601-800 28,000
The aggregate planning process
Month Days Change in output
Output Rates (units/day)
Output (Units)
Demand (Units)
Cost
Jan 22 182 0
feb 19 527
Mar 21 619
April 22 1000
May 21 1143
Jun 21 952
Jul 22 682
Aug 11 1454
Sep 21 857
Oct 22 637
Nov 18 499
Dec 21 286
Table for level strategy
The aggregate planning process
• Combination method
The aggregate planning process
Month Days Output(units/day)
Change in output
Output (Units) Demand (Units)
Beginning in (Units)
Net addition (Subtraction to inv)
Ending inv Avg Inv (Beg + Ending)/2
Output rate change cost
Jan 22 548 0
feb 19 548
Mar 21 548
April 22 1000
May 21 1000
Jun 21 1000
Jul 22 1000
Aug 11 689
Sep 21 689
Oct 22 689
Nov 18 689
Dec 21 689
Table for mix strtaegy
The aggregate planning process
Compare the cost for each strategy
Type of cost Level Output Variable Output
Mixed
Overtime
Inventory
Output change rate
Total cost