3. 3
Process planning
Long
range
Strategic capacity planning
Intermediate Forecasting
& demand
range
management
Manufacturing
Sales and operations (aggregate) planning
Sales plan
Aggregate operations plan
Services
Master scheduling
Material requirements planning
Short
range
Order scheduling
Weekly workforce and
customer scheduling
Daily workforce and customer scheduling
4. 4
Sales and Operations Planning
Activities
Long-range planning
–
–
Medium-range planning
–
–
Greater than one year planning horizon
Usually performed in annual increments
Six to eighteen months
Usually with weekly, monthly or quarterly
increments
Short-range planning
–
–
One day to less than six months
Usually with weekly or daily increments
5. The Aggregate Operations
Plan
• Main purpose: Specify the optimal
combination of
•
production rate (units completed per unit
of time)
•
•
workforce level (number of workers)
inventory on hand (inventory carried from
previous period)
• Product group or broad category
(Aggregation)
• This planning is done over an intermediaterange planning period of 3 to18 months
5
6. Balancing Aggregate Demand
and Aggregate Production
Capacity
Suppose the figure to
Suppose the figure to
the right represents
the right represents
forecast demand in
forecast demand in
units
units
Now suppose this
Now suppose this
lower figure represents
lower figure represents
the aggregate capacity
the aggregate capacity
of the company to
of the company to
meet demand
meet demand
10000
10000
8000
8000
6000
7000
6000
5500
4500
4000
2000
0
Jan
Feb
Mar
9000
10000
Apr
May
Jun
8000
8000
What we want to do is
What we want to do is
balance out the
balance out the
production rate,
production rate,
workforce levels, and
workforce levels, and
inventory to make
inventory to make
these figures match up
these figures match up
6000
6000
4500
4000
Jan
Feb
4000
4000
2000
0
Mar
Apr
May
Jun
6
7. 7
Required Inputs to the Production
Planning System
Competitors’
behavior
External
capacity
Current
physical
capacity
Raw material
availability
Planning
for
production
Current
workforce
Inventory
levels
Market
demand
External
to firm
Economic
conditions
Activities
required
for
production
Internal
to firm
9. Key Strategies for Meeting
Demand (Production Planning
Strategies)
• Pure Strategy – only one of the
9
variables used to absorb demand
fluctuations
• Mixed Strategy – two or more
variables used in combination
constitute this strategy
10. 10
AGGREGATE PLANNING
TECHNIQUES (cut-and-try)
Prodn Plan 1 - Exact Production / Vary
workforce
Prodn Plan 2 – Constant workforce /
Vary Inventory & permit stockouts
Prodn Plan 3 – Constant workforce /
Subcontract
Prodn Plan 4 – Vary wrkforce/Subcont.
11. Aggregate Planning Examples: Unit
Demand and Cost Data
Suppose we have the following unit
Suppose we have the following unit
demand and cost information:
demand and cost information:
Demand/mo
Jan
Feb
Mar
Apr
May
Jun
4500
5500
7000
10000
8000
6000
Materials
Holding costs
Marginal cost of stockout
Hiring and training cost
Layoff costs
Labor hours required
Straight time labor cost
Beginning inventory
Productive hours/worker/day
Paid straight hrs/day
Rs5/unit
Rs1/unit per mo.
Rs1.25/unit per mo.
Rs200/worker
Rs250/worker
.15 hrs/unit
Rs8/hour
250 units
7.25
8
11
12. 12
Cut-and-Try Example: Determining
Straight Labor Costs and Output
Given the demand and cost information below, what
Given the demand and cost information below, what
are the aggregate hours/worker/month, units/worker, and
are the aggregate hours/worker/month, units/worker, and
Ruppees/worker?
Ruppees/worker?
Demand/mo
Jun
Jan
Feb
4500
5500
Productive hours/worker/day
6000 straight hrs/day
Paid
22x8hrsxRs8=Rs1
Jan
408
Days/mo
Hrs/worker/mo
Units/worker
Rs/worker
22
159.5
1063.33
1,408
Feb
19
137.75
918.33
1,216
Mar
Apr
May
7000
7.25
10000
7.25x
22
8000
8
Mar
21
152.25
1015
1,344
7.25/0.15=48.33 &
48.33x22=1063.33
Apr
21
152.25
1015
1,344
May
22
159.5
1063.33
1,408
Jun
20
145
966.67
1,280
13. 13
Chase Strategy
(Hiring & Firing to meet demand)
Days/mo
Hrs/worker/mo
Units/worker
Rs/worker
Demand
Beg. inv.
Net req.
Req. workers
Hired
Fired
Workforce
Ending inventory
Jan
22
159.5
1,063.33
1,408
Jan
4,500
250
4,250
3.997
3
4
0
Lets assume our current workforce is 7
Lets assume our current workforce is 7
workers.
workers.
First, calculate net requirements for
production, or 4500-250=4250 units
Then, calculate number of workers
needed to produce the net
requirements, or
4250/1063.33=3.997 or 4 workers
Finally, determine the number of
workers to hire/fire. In this case we
only need 4 workers, we have 7, so
3 can be fired.
14. 14
Below are the complete calculations for the remaining
Below are the complete calculations for the remaining
months in the six month planning horizon
months in the six month planning horizon
Days/mo
Hrs/worker/mo
Units/worker
Rs/worker
Demand
Beg. inv.
Net req.
Req. workers
Hired
Fired
Workforce
Ending inventory
Jan
22
159.5
1,063
1,408
Feb
19
137.75
918
1,216
Mar
21
152.25
1,015
1,344
Apr
21
152.25
1,015
1,344
May
22
159.5
1,063
1,408
Jun
20
145
967
1,280
Jan
4,500
250
4,250
3.997
Feb
5,500
Mar
7,000
Apr
10,000
May
8,000
Jun
6,000
5,500
5.989
2
7,000
6.897
1
10,000
9.852
3
8,000
7.524
6,000
6.207
2
8
0
1
7
0
3
4
0
6
0
7
0
10
0
15. 15
Below are the complete calculations for the remaining months in
the six month planning horizon with the other costs included
Demand
Beg. inv.
Net req.
Req. workers
Hired
Fired
Workforce
Ending inventory
Material
Labor
Hiring cost
Firing cost
Jan
4,500
250
4,250
3.997
3
4
0
Jan
21,250.00
5,627.59
750.00
Feb
5,500
Mar
7,000
Apr
10,000
May
8,000
Jun
6,000
5,500
5.989
2
7,000
6.897
1
10,000
9.852
3
8,000
7.524
6,000
6.207
2
8
0
1
7
0
6
0
7
0
10
0
Feb
27,500.00
7,282.76
400.00
Mar
35,000.00
9,268.97
200.00
Apr
50,000.00
13,241.38
600.00
May
Jun
40,000.00 30,000.00
10,593.10 7,944.83
500.00
250.00
Costs
203,750.00
53,958.62
1,200.00
1,500.00
260,408.62
16. 16
Level Workforce Strategy
(Surplus and Shortage Allowed)
Lets take the same problem as
Lets take the same problem as
before but this time use the
before but this time use the
Level Workforce strategy
Level Workforce strategy
This time we will seek to use
This time we will seek to use
a workforce level of 6 workers
a workforce level of 6 workers
Demand
Beg. inv.
Net req.
Workers
Production
Ending inventory
Surplus
Shortage
Jan
4,500
250
4,250
6
6,380
2,130
2,130
17. 17
Below are the complete calculations for the remaining
Below are the complete calculations for the remaining
months in the six month planning horizon
months in the six month planning horizon
Demand
Beg. inv.
Net req.
Workers
Production
Ending inventory
Surplus
Shortage
Jan
4,500
250
4,250
6
6,380
2,130
2,130
Feb
5,500
2,130
3,370
6
5,510
2,140
2,140
Mar
7,000
2,140
4,860
6
6,090
1,230
1,230
Apr
10,000
1,230
8,770
6
6,090
-2,680
May
8,000
-2,680
10,680
6
6,380
-1,300
Jun
6,000
-1,300
7,300
6
5,800
-1,500
2,680
1,300
1,500
Note, if we recalculate this sheet with 7 workers
Note, if we recalculate this sheet with 7 workers
we would have a surplus
we would have a surplus
18. 18
Below are the complete calculations for the remaining
Below are the complete calculations for the remaining
months in the six month planning horizon with the
months in the six month planning horizon with the
other costs included
other costs included
Jan
4,500
250
4,250
6
6,380
2,130
2,130
Apr
10,000
-910
8,770
6
6,090
-2,680
May
8,000
-3,910
10,680
6
6,380
-1,300
2,680
Jan
8,448.00
31,900.00
2,130.00
Feb
5,500
2,130
3,370
6
5,510
2,140
2,140
Mar
7,000
10
4,860
6
6,090
1,230
1,230
Jun
6,000
Note, total
Note, total
-1,620
costs under
7,300 costs under
this strategy
6 this strategy
5,800
are less than
are less than
-1,500
1,300
Feb
Mar
Apr
7,296.00 8,064.00 8,064.00
27,550.00 30,450.00 30,450.00
2,140.00 1,230.00
3,350.00
May
8,448.00
31,900.00
Jun
7,680.00
29,000.00
1,625.00
1,875.00
Chase at
Chase at
Rs260.408.62
1,500 Rs260.408.62
48,000.00 Labor
181,250.00 Material
5,500.00 Storage
6,850.00 Stockout
241,600.00
19. 19
Question Bowl
a.
b.
c.
d.
e.
Sales and Operations Planning activities
are usually conducted during which
planning time horizon?
Long-range
Intermediate-range
Short-range
Really short-range
None of the above
Answer: b. Intermediate-range (i.e., 6 to
18 months)
20. 20
Question Bowl
a.
b.
c.
d.
e.
Which of the following are Production Planning
Strategies can involve trade-offs among the
workforce size, work hours, inventory, and
backlogs?
Chase strategy
Stable workforce-variable work hours
Level strategy
All of the above
None of the above
Answer: d. All of the above
21. 21
Question Bowl
Which of the following are considered “relevant
a.
b.
c.
d.
e.
costs” in the Aggregate Production Plan?
Costs associated with changes in the production
rate
Inventory holding costs
Backordering costs
Basic production costs
All of the above
Answer: e. All of the above
22. 22
Question Bowl
Which of the following Aggregate Planning
Techniques can be performed using simple
a.
b.
c.
d.
e.
spreadsheets?
Cut-and-try
Linear programming
Transportation method
All of the above
None of the above
Answer: a. Cut-and-try (The other two involve more
complex computational effort than simple
spreadsheets.)
23. 23
Question Bowl
a.
b.
c.
d.
e.
Which of the following methods can be used
to allocate the right type of capacity to the
right type of customer at the right price and
in time to maximize revenue?
Cut-and-try
Yield management
Transportation method
All of the above
None of the above
Answer: b. Yield management
24. 24
Question Bowl
From an operational perspective Yield
Management is most effective as a capacity
technique, then which of the following
happens?
a.
Demand can not be segmented by customer
b.
Variable costs are high
c.
Fixed costs are low
d.
Demand is highly variable
e.
All of the above
Answer: d. Demand is highly variable
