operations management- 2011

Operations Management

Sub Code : 10MBA33 No. of Lecture Hrs/week :04+01(extra) Total no .of Lecture Hrs : 56


MODULE 1- Introduction and Break even analysis (7 hours) -- 1

MODULE 2- Forecasting (7 hours) -- 3

MODULE 3- Facility Planning (6 hours) -- 2

MODULE 4- Employee Productivity (6 hours) -- 6

MODULE 5- Capacity Planning (6 hours) -- 4

MODULE 6- Materials Management (6 hours) -- 5

MODULE 7- Quality Management I (12 hours) -- 7

MODULE 8- Quality Management II (6 hours) -- 8

MODULE 1- Introduction and Break even analysis (7 hours) -- 1

Break even analysis - Break even analysis in terms of physical units, sales value, and percentage of full capacity. Break even for Multi Product situations, Capacity expansion decisions, Product add or drop decisions, Make or Buy decisions, Equipment Selection decisions, Production process selection decisions, Managerial uses of break even analysis, Limitations of Breakeven analysis.

Note: The module will cover both theory and numerical problems with emphasis on decision making for competitive advantage.

MODULE 3- Facility Planning (6 hours) -- 2

Facilities location decisions, factors affecting facility location decisions and their relative importance for different types of facilities, Facility location models.

Facility layout planning. Layout and its objectives for manufacturing operations, warehouse operations, service operations, and office operations., principles, types of plant layouts – product layout, process layout, fixed position layout, cellular manufacturing layouts, hybrid layouts, Factors influencing layout changes. Facilities utilities – lighting, ventilation, air conditioning, noise control, sanitation.

Materials handling - objectives, principles, types. Note: The module will cover theory focusing on safety,

psychological factors, and productivity. Numerical problems on location selection

MODULE 2- Forecasting (7 hours) -- 3

Forecasting as a planning tool, forecasting time horizon, short and long range forecasting, sources of data, types of forecasting, qualitative forecasting techniques, quantitative forecasting models - Linear regression , Moving average, Weighted moving average, Exponential smoothing, Exponential smoothing with trends, Measurement of errors, Monitoring and Controlling forecasting models.

Note: The module will cover both theory and numerical problems

MODULE 5- Capacity Planning (6 hours) -- 4

Concept and overview of aggregation, Demand and capacity options and strategies in production and services, capacity and value, financial impact of capacity decisions, aggregate planning types and procedure, capacity requirement planning, concepts of yields (productivity) and its impact on capacity. Capacity requirement planning, Materials requirement planning,

Planning hierarchies in operations, aggregate planning, purpose, necessity and importance of aggregate planning, Managerial importance of aggregate plans, alternatives for managing demand and supply, capacity augmentation strategies. Matching demand and capacity, demand chase aggregate planning, level production aggregate planning, capacity planning and steps, Resource requirements planning system, material requirement planning, objectives of MRP, elements of MRP, BOM, benefits of MRP. Capacity requirement planning and strategies thereto, economic production quantity, Job shop scheduling n jobs on 1 machine, n jobs on 2 machines,

Note: Numerical problems on job shop scheduling

MODULE 6- Materials Management (6 hours) -- 5

Role of Materials Management- materials and profitability, Purchase functions, Procurement procedures including bid systems, Vendor selection and development, Vendor rating, ethics in purchasing. Roles and responsibilities of purchase professionals. Concepts of lead time, purchase requisition, purchase order, amendments, forms used and records maintained.

Inventory Management : Concepts of inventory, types, Classification, selective inventory management, ABC VED, and FSN analysis. Inventory costs, Inventory models – EOQ, safety stocks, Re order point, Quantity discounts. Stores- types, functions, roles responsibilities, Inventory records,

Note: Numerical problems on vendor rating, ABC analysis, Inventory models, Discounts

MODULE 4- Employee Productivity (6 hours) -- 6

Productivity and work studyProductivity and the standard of living, Productivity and the organization, productivity, variables affecting labour productivity, work content and time, Work Study and related working conditions and human factors.

Method StudyIntroduction to Method Study, Data collection, recording, examining, and improving work, Material flow and material handling study, Worker flow study, Worker area study,

Work MeasurementIntroduction to Work Measurement, Work sampling study, Time study and setting standards Numerical problems on productivity measurement, time study and work standards

MODULE 7- Quality Management I (12 hours) -- 7

Basic concepts of quality of products and services, dimensions of quality. Relationships between quality, productivity, costs, cycle time and value. Juran’s quality trilogy Impact of quality on costs – quality costs. Demings 14 principles.. Quality improvement and cost reduction – 7 QC tools and 7 new QC tools, PDCA cycle, Quality circles, Quality Function Deployment and its benefits.

Quality Systems – Need, benefits, linkage with generic strategies, ISO 9000 – 2000 clauses, coverage, QS 9000 clauses, coverage, linkages with functional domains like production, marketing, six sigma concepts, organizing for continuous improvement, Excellence models, awards and standards awards – MBNQA, Demings prize, Baldrige award, their main focus. Role of management in implementing quality systems.

MODULE 8- Quality Management II (6 hours) -- 8

Concept of specification limits, statistical control limits, Process control and control charts for both attributes and variable data. Operators role in quality assurance.


The course will cover both theory and numerical problems ( theory and numerical in the ratio of 40 : 60 ratio)

Recommended books:1. Operations Management Theory and Practice,

B.Mahadevan, Pearson education, Second impression 2007

Reference Books:1. Production and Operations Management – Prof. K.

Ashwathappa, K Sridhar Bhat, Himalaya Publications

OPERATIONS MANAGEMENTOPERATIONS MANAGEMENT

Module 1INTRODUCTION TO

OPERATIONS MANAGEMENT and BREAKEVEN ANALYSIS

INTRODUCTION

Manufacturing, service and agriculture are the major economic activities in any country.

In India manufacturing and services together constitute nearly 75 percent of the GDP.

A manufacturing firm essentially engages in converting several inputs into products that are useful for individuals and organizations.

A service organization addresses the requirements of its customers using a service delivery system and provides the required service.

Examples- management consultancies (Information), automobile garages, hotels (materials consumed), hospitals and banks.

Definition of Operations Management

Operations management is a systematic approach to address all the issues pertaining to the transformation process that converts some inputs into output that are useful, and could fetch revenue to the organization.

These inputs and outputs can be physical things such as materials and / or informational.

Production and Manufacturing

Production is the process by which raw materials and other inputs are converted into finished products.

Manufacturing engages in converting several inputs into products that are useful for individuals and organizations.

Manufacturing --only tangible goods Production --both tangible goods and intangible

services

Production as a System

Production system model comprises:

i. Production system,

ii. Conversion sub-system and

iii. Control sub-system.

A Production System Model

Breakeven analysis

Assumptions underlying Break-Even analysis.

All the costs are either perfectly variable or absolutely fixed over the entire range of production.

All revenue is perfectly variable with the physical volume of production.

The volume of sales and the volume of production are equal

In case of multi product firms, the product mix should be stable.

Break-even point in terms of physical units.

Break-even volume is the number of units of a product which must be sold to earn enough revenue just to cover all expenses.

The BEP is reached when sufficient number of units have been sold so that the total contribution margin of the units sold is equal to the fixed costs.

B.E.P = Fixed cost

Selling price - Variable cost per unit.

Break-even point in terms of sales value.

Multi product firms are not in a position to measure the BEP in terms of any common unit of product.

In these firms it is convenient to determine their BEP in terms of total rupees sales.

B.E.P = Fixed cost

Contribution ratio

Contribution ratio = Selling value - Variable cost

Sales value

Breakeven for multi product situations

Capacity expansion decisions

Product add or drop decisions

Should a new product be added in view of the estimated revenue and cost?

If the product is dropped from the line, what would be consequent effects on revenue and costs?

Make of Buy decisions

This is the very first step in process planning. It involves considering whether to make or buy some

or all of a product or service. Traditionally, many large firms favour the make

option resulting in backward integration and ownership of a large range of manufacturing and assembly facilities.

Increased competition has created pressure on large firms to reduce cost--focus on core competencies--hence the trend is now towards outsourcing.

At the completion of product design, its documents like product structure tree, part lists, drawings for parts, components etc are produced.

The process planning engineers are required to make the important decision of make-or-buy, considering a number of factors.

Make of Buy decisions

Various factors considered in Make-or Buy decisions.

Available capacity Expertise Quality considerations Nature of demand Cost.

When to make?

Higher purchase price per unit. Assurance of timely availability. Availability of the required facilities and

capacities in house. Better control of quality on in-house

operations. Need to preserve trade secrets and design

secrets Savings on transportation costs of items.

When to buy?

When the purchase price per unit is less. Firm’s requirement of an item is low and does not

justify investment on special purpose equipments, machines and tools..

Ability of the outside supplier to supply the item at lower cost higher quality and fast delivery.

When the outside suppliers hold a patent on the needed item.

When there is no problem of trade secrets or design secrets.

When item does not have a long-term requirement.

Production Processes

Production processes : Conversion or transformation processes used to produce products.

InputsConversion

ProcessOutputs


Manufacturing operations or processes convert inputs into tangible outputs.

Three basic categories of manufacturing processes are:– Forming processes– Machining processes– Assembly processes.


Forming processes - Include casting, forging,

stamping, embossing,

spinning, etc. These

processes change the

shape of the work piece

without necessarily

removing or adding

material.


Machining processes-

Involve basically

metal removal, by turning,

drilling, milling, grinding, etc.


Assembly processes-

Involve the joining of component or piece parts to produce a single component that has a specific function. Some of the common assembly processes are welding, brazing, soldering, riveting, fastening with bolts and nuts.

Managerial uses of break even analysis

With the help of B.E.P analysis management of a production

firm can take decisions related to the following.

1. Safety margin- it decides the extent to which the firm can afford to decline in sales, before it starts incurring losses.

2. Volume needed to attain target profit.

3. Change in price, and its effect.

4. Whether to expand production capacity or not.

5. Whether to add a new product or drop production of any product.

6. Whether to make or buy.

Managerial uses of break even analysis

7. Selection of production machinery so as to get maximum profit for a particular volume of the product out of the available machineries.

8. Improving profit performance by-

i. increasing the volume of sales, and or

ii. increasing the selling price, and or

iii. reducing the variable expenses per unit, and or

iv. reducing the fixed costs.

Limitations of B.E.P

1. Since break even analysis is based on accounting data therefore, it can be sound and useful only if the firm in question maintain a good accounting system.

2. It is based on the assumptions of given relationships between costs and revenues, on one hand, and input on the other.

3. Cost data of the past period may not hold good for the current period.

4. Selling costs may not remain constant. 5. The cost revenue-volume relationship is linear. But this is

realistic only over narrow ranges of output.6. Breakeven analysis is not an effective tool for long range use

and its use should be restored to the short run only.

PROBLEMS

NUMERICAL PROBLEMS ON-- B.E.P PRODUCT ADD OR DROP DECISIONS

PRODUCTION AND OPERATIONS MANAGEMENT

Module 3FACILITY PLANNING

Plant location is the function of determining location for a plant for maximum operating economy and effectiveness.

--It is perhaps the most important problem faced by an entrepreneur.

--Ensures supply of raw materials, labour force, efficient plant layout, proper utilization of production capacity, etc

Plant Location

Need for location selection

Arises for any of the following conditions:

1. When a new business is started;

2. When there is no space for expanding the facilities at present location;

3. The volume of business and sales has increased so there is a need for branches;

4. A lease expires and the landlord does not renew the lease;

5. When a company thinks that there is a possibility of reducing manufacturing cost by shifting from one location to another location;

6. Other social or economic reasons; for instance, inadequate labour supply, shifting of the market etc.

Steps in Location Selection

To be systematic, in choosing a plant location, the entrepreneur would do well to proceed step by step, the steps being;

1. Within the country or outside;

2. Selection of the region;

3. Selection of the locality or community;

4. Selection of the exact site.

Factors influencing location decisions

Availability of raw materials Nearness to the market Availability of power Transport facilities Suitability of climate Government policy Competition between states Availability of labour Civic amenities for workers, availability of water and fire fighting

facilities. Existence of complementary and competing industries Finance and research facilities Soil, size and Topography

Relative importance for different types of facilities

Among all the location factors, personal or business contacts seem to influence location decisions most followed by availability of infrastructure and so on.

Rural, Suburban and Urban site

All these offer advantages as industrial sites.Rural site: Land-cheaperTaxes-negligibleLayout-spaciousWages-lower for unskilled, higher for skilled because they

have to be mobilised.Smoke and waste- no restrictionsSkilled workers--lack of supplyCivic amenities-- lack for employeesLack of transport facilities

Urban site:Land-very high costTaxes-house, water, sanitation and other similar taxes are highLayout-awkwardly shaped factory buildings, ill-lighted and ill-

ventilated.Wages-cost of labour is highSmoke and waste- restrictions are imposedSkilled workers--available in plentyCivic amenities-- all facilities are available to the employeesTransportation facilities are no problems


Suburban site:

Suburban sites offer a compromise between the city and village and have the advantages of both.


Facility Location Models

Various models are available which help identify a near ideal location. The most popular models are:

1. Factor Rating Method

2. Point Rating Method

3. Break-even Analysis

4. Qualitative Factor Analysis

S.No. Location factor Factor rating Rating

Location 1 Location 2

1. Facility utilization 8 3 5

2. Total patient per month 5 4 3

3. Average time per emergency trip 6 4 5

4. Land ad construction costs 3 1 2

5. Employee preferences 5 5 3

Answer:

S.No. Location factor Factor rating

Location 1 Location 2

Rating Total= Rating Total=

(1) (2) (1).(2) (3) (1).(3)

1. Facility utilization 8 3 24 5 40

2. Total patient per month 5 4 20 3 15

3.

Average time per emergency trip 6 4 24 5 30

4. Land and construction cost 3 1 3 2 6

5. Employee 5 5 25 3 15

Total 96 Total 106

The total score for location 2 is higher than that of location 1. Hence location 2, is the best choice

Factor Rating Method

Point rating method

Factors rated Maximum possible points

Points assigned to locations

Location A Location B

a. Future availability of fuel

b. Transportation flexibility and growth

c. Adequacy of water supply

d. Labour availability

e. Pollution regulations

f. Site topography

g. Living conditions

300

200

100

250

30

50

150

200

150

100

220

20

40

100

250

150

100

200

20

30

125

TOTAL 1080 830 875

Locational Break-Even Analysis

Method of cost-volume analysis used for Method of cost-volume analysis used for industrial locationsindustrial locations

Three steps in the methodThree steps in the method

1.1. Determine fixed and variable costs for Determine fixed and variable costs for each locationeach location

2.2. Plot the cost for each location Plot the cost for each location

3.3. Select location with lowest total cost for Select location with lowest total cost for expected production volumeexpected production volume

Locational Break-Even Analysis Example

Three locations:Three locations:

AkronAkron $30,000$30,000 $75$75 $180,000$180,000

Bowling GreenBowling Green $60,000$60,000 $45$45 $150,000$150,000

ChicagoChicago $110,000$110,000 $25$25 $160,000$160,000

Selling price Selling price = $120= $120

Expected volumeExpected volume = 2,000 = 2,000 unitsunits

FixedFixed VariableVariable TotalTotalCityCity CostCost CostCost CostCost

Total Cost = Fixed Cost + Variable Cost x VolumeTotal Cost = Fixed Cost + Variable Cost x Volume

Locational Break-Even Analysis Example

–$180,000 $180,000 –

–$160,000 $160,000 –$150,000 $150,000 –

–$130,000 $130,000 –

–$110,000 $110,000 –

––

$80,000 $80,000 ––

$60,000 $60,000 –––

$30,000 $30,000 ––

$10,000 $10,000 ––

An

nu

al c

ost

An

nu

al c

ost

| | | | | | |

00 500500 1,0001,000 1,5001,500 2,0002,000 2,5002,500 3,0003,000

VolumeVolume

Belgaum Belgaum lowest lowest costcost

Pune lowest costPune lowest cost Mumbai Mumbai lowest lowest costcost

Mumbai cost curve

Mumbai cost curve

Belgau

m

Belgau

m

cost

curv

e

cost

curv

e

Pune cost curve

Pune cost curve

Qualitative factor analysis method

Assigned weight is multiplied with the scoresRelevant factors Assigned

weightScores for locations

A B C D

Production cost

Raw material supply

Labour availability

Cost of living

Environment

Markets

0.35

0.25

0.20

0.05

0.05

0.10

50

70

60

80

50

70

40

80

70

70

60

90

60

80

60

40

70

80

30

60

50

80

90

50

TOTAL 1.00

Relevant factors Weighted Score for locations

A B C D

Production cost

Raw material supply

Labour availability

Cost of living

Environment

Markets

17.5

17.5

12.0

04.0

02.5

07.0

14.0

20.0

14.0

03.5

03.0

09.0

21.0

20.0

12.0

02.0

03.5

08.0

10.5

15.0

10.0

04.0

04.5

05.0

TOTAL 60.5 63.5 66.5 49.0

Qualitative factor analysis method

Plant layout

Plant layout refers to the arrangement of machinery, equipment and other industrial facilities for achieving quickest and smooth production.

A more simple, clear and comprehensive definition is given by ‘Knowles & Thomson’. They say that a plant layout involves.

1. “Planning & arranging manufacturing machinery, equipment & services for the first time in completely new plants.”

2. “The improvements in layouts already in use in order to introduce new methods & improvements in manufacturing procedures.”

Objectives of a good layout

The objectives of good facility layout are as follows: [A] Objectives related to material (i) Less material handling and minimum transportation cost(ii) Less waiting time for in-process inventory .(iii) Fast travel of material inside the factory without congestion or bottleneck. [B] Objectives related to work place (i) Suitable design of work-stations and their proper placement(ii) Maintaining the sequence of operations of parts by adjacently locating the succeeding

facilities(iii) Safe working conditions from the point of ventilation, lighting, etc.(iv) Minimum movement of workers(v) Least chances of accidents, fire, etc.(vi) Proper space for machines, worker, tools, etc.(vii)Utilization of vertical height available in the plant.

Objectives of a good layout

[C] Performance related objectives (i) Simpler plant maintenance(ii) Increased productivity, better product quality, and reduced cost(iii) Least set-up cost and minimal change-over(iv) Exploitation of buffer capacity, common workers for different

machines, etc.

[D] Objective related to flexibility(i) Scope for future expansion(ii) Considerations for varied product mix(iii) Considerations for alternate routings

Warehouse operations

Office layout

Types of Layout

i. Process layout or functional layout or job shop layout;

ii. Product layout or line processing layout or flow-line layout;

iii. Fixed position layout or static layout;iv. Cellular manufacturing (CM) layout or Group

Technology layout;v. Combination layout or Hybrid layout.

Process Layout or Functional Layout or Job Shop Layout

Line Layout or Product Layout

Fixed Position Layout or Static Layout

Cellular Manufacturing Layout or Group Technology Layout

Combined Layout or Hybrid Layout for Gear Manufacturing

Service Facility Layout

Service facility layout should provide easy entrance to service facilities from free ways and busy thoroughfares.

Factors Influencing facility Layout

Materials Product Worker Machinery Types of Industry Location Managerial Policies

Problems

Numerical problems on Location selection


Module 2DEMAND FORECASTING

FORECASTING

Forecasts are the prediction of future events used for planning purposes

Forecasting is estimating future demand for products and services and the resources necessary to produce these outputs

WHY DEMAND FORECAST?

General Purpose– Market is dynamic, competitive and volatile– Better planning and allocation of resources

Specific purposes– Appropriate production scheduling– Inventory control– Determining appropriate pricing policies– Setting sales targets and establishing controls and

incentives

TYPES OF FORECASTS

Short – term Forecasting:Short-term Forecasting is employed to fine tune an existing plan based on the new information obtained

Medium – term forecasting:Medium – term forecasting is used as a starting point to the annual business planning exercise

Long – term Forecasting:Long – term forecasting involves purely strategic decisions.

Forecast horizon

Short – term Medium-term Long – term

Time span 1 To 6 months 1 to 2 years 5 to 10 years

Nature of decisions

Purely tactical Tactical and strategic Purely strategic

Key

Considerations

Random (short-term Effects

Seasonal and cyclical effects

Long term effects

Nature of data Mostly qualitative Quantitative & Qualitative

Largely Quantitative

Degree of uncertainty

Low Significant High

Some Examples Revising quarterly prodn plans

Rescheduling supply of raw materials

Annual prodn planning

New business development

New product introduction

Facility location decisions

Qualitative Methods or Judgemental Methods

Executive committee consensus/Jury or Executive’s Opinion

Survey of Sales force/Field Expectation Method Survey of Customers/User’s Expectation Method Historical Analogy The Delphi Method

Qualitative methods are not based on past record, but on the opinions of experts in the relative field.

QUANTITATIVE METHODS

Quantitative methods are purely based on past data.Methods of Forecasting

Moving Average

Ft+1 = Sum of last n demands n

= Dt+Dt-1+Dt-2+Dt-3+…+Dt-n+1 n

Where;Dt = actual demand in period tn = total number of periods in the averageFt+1 = forecast for period t+1

MBA

FORECAST ERROR

Forecast error is simply the difference found by substracting the forecast from actual demand for a given period or,

Et = Dt – Ft

Where,

Et = forecast error for period t

Dt = actual demand for period t

Ft = forecast for period t

QUANTITATIVE METHODS

Weighted Moving Average:

A type of moving average in which greater weight is given to the latest data, and less weight is given to older data.

Waited moving average gives more weight for more recent data.

WMA = Three Months Weighted Moving Total* Total Weight

*for three months weighted moving average

EXPONENTIAL SMOOTHING

In exponential smoothing weight assigned to a previous period’s demand decreases exponentially as that data gets older.

Ft+1 = α(Demand for this period) +(1- α) (Forecast calculated last period)

= α Dt + (1- α))Ft

Or Ft+1 = Ft + α (Dt-Ft)

EXPONENTIAL SMOOTHING WITH TRENDS

A trend in a time series is a systematic increase or decrease in the average of the series over time.

The method for incorporating a trend in an exponentially smoothened forecast is called trend-adjusted exponential smoothing method.

Ft+1 = At+ Tt

Where,

At = exponentially smoothened average of the series in period t

Tt = exponentially smoothened average of the trend in period t

At = α(Demand this period) + (1- α)(Average + Trend estimation last period)

= α Dt + (1- α) (At-1 + Tt-1), and

Tt = ß (Ave this period – Ave last period) + (1- ß )(Trend estimate last period)

= ß (At – At-1) + (1- ß ) Tt-1

Where,

α = smoothing parameter for the ave, with a value between 0 & 1

ß = smoothing parameter for the trend, with a value between 0 & 1

EXPONENTIAL SMOOTHING WITH TRENDS

LINEAR REGRESSION

It is a casual method in which one variable is related to one or more independent variables by a linear equation.

Dependent variable is the variable that one wants to forecast Independent variables that are assumed to affect the dependent

variable and thereby ‘cause’ the results observed in the past.

The linear equation is;

Y = a + bX

Where,Y = Dependent variable

X = Independent variable

a = Y – intercept of the line

b = slope of the line

ACCURACY OF FORECASTS

FORECAST ERROR:

Et = Dt – Ft

A positive value of Et will indicate underestimation of demand and vice versa

Sum Of Forecast of Error:

SFE = ∑E

The value of SFE must be ZERO. This can be ensured when the system overestimates the demand and underestimates it.

MEAN ABSOLUTE DEVIATION:MAD = ∑|Et| / nwhere, ∑|Et| is the sum total of absolute forecast error and n is the number of periods.(to overcome the limitation of SFE, the absolute values of Et will be taken and averaging it over the ‘n’ periods)

MEAN ABSOLUTE PERCENTAGE ERRORMAPE = ∑|Et| / Dt x 100 / n

MEAN SQUARED ERRORMSE = ∑ Et² / n

TRACKING SIGNAL (TS)TS = SFE / MAD

ACCURACY OF FORECASTS

Monitoring and controlling forecasting models


Module 5CAPACITY PLANNING

Planning hierarchies in operations

At first level- business plan answers the following questions.

Should we meet the projected demand entirely or a portion of the projected demand?

What are the implications of this decision on the overall competitive scenario and the firm’s standing in the market?

How is this likely to affect the operating system and planning in other functional areas of the business, such as marketing and finance.

What resources should we commit to meet the chosen demand during the planning horizon?

Planning hierarchies in operations

Once the level of resources to be committed is arrived at, rough cut capacity planning needs to be done.

At second level- detail planning to ensure the capacity, material and other resources are available to meet the projected demand on periodic basis.

At final level—the set of machines to be used for manufacturing and the time when the job needs to be launched into the system in order to meet the targeted completion time are decided.

AGGREGATE PLANNINGAGGREGATE PLANNING

It involves planning the best quantity to produce during time periods in the inter-mediate range horizon and planning the lowest cost method .

For manufacturing operations, aggregate planning involves planning workforce, production rate (work hours per week) and inventory levels.

Why is aggregate planning necessary and important

Demand fluctuations Capacity fluctuations Difficulty level in altering production rates. Benefits of multi-period planning

Matching the demand and supply

For the supply capacity that an organisation has during a period, identify ways by which the demand could be suitably modified so that both are matched.

For the targeted demand in every period, identify ways by which the supply is altered so that both are matched.

During every period, adjust both the demand and the supply in such a way that both are matched.

Alternatives for managing demand

Two strategies are used to manage demand.

Reservation of Capacity

Influencing Demand

Alternatives for managing supply

Modifying supply can be done in one of the following ways:

Inventory based alternatives

Capacity adjustment alternatives1. hiring/ lay-off of workers

2. varying shifts

3. varying working hours

Capacity augmentation alternatives

CAPACITYCAPACITY

The extent of availability of the resources for use by various processes

Maximum output of products one can achieve by using the available resources.

‘when the output increases in an operating system, the system is likely to experience cost advantages’

MEASURES OF CAPACITYMEASURES OF CAPACITY

Input measures of capacity

Firms operating in low volume, high variety situation will use input measures capacity

Output measures of capacity

when the volume of production is higher than the variety, it is appropriate to use output measures of capacity

Capacity Utilization = Capacity put to use

Total capacity available

operations management- 2011

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