BUAD306

1. BUAD306 Aggregate Planning

2. Aggregate Planning • Determines the resource capacity needed to meet demand over an intermediate time horizon • Typically 2 - 12 months in duration

3. Objectives • To establish a company-wide game plan for allocating resources • Example: Avoid battles between Marketing and Production • To develop an economic strategy for meeting demand • Demand can be met by adjusting capacity or by managing the demand

4. Managing Demand • Pricing – raise prices during high-demand times • Promotion – to increase demand during low-demand seasons • Backorders – taking orders before production and shipping at a later date • New Demand – developing new products

5. Managing Capacity • Hire and lay off workers • Use overtime and slack time • Use part-time workers • Use inventory to absorb fluctuations in demand • Subcontract work to other firms

6. Strategic Objectives Inputs Capacity Constraints Company Policies Financial Constraints Demand Forecasts Aggregate Production Planning Units or dollars subcontracted, backordered, or lost Size of workforce Production per month (in units or $) Inventory levels Outputs

7. Business Plan Aggregate Planning Production Plan Master Schedule Planning Sequence

8. Service Considerations • Services occur when they are rendered • Demand for service can be difficult to predict • Capacity availability can be difficult to predict • Labor flexibility can be an advantage in services

9. Demand Production Units Time Level Production Strategy for meeting uneven demand

10. Demand Units Production Time Chase Demand Strategy for meeting uneven demand

11. Aggregate Planning Schedule

12. Average inventory Beginning Inventory + Ending Inventory = 2 Read on your own Mathematical Calculations Number of Number of workers Number of new Number of workers in = at the end of + workers at the start - laid-off workers a period the previous period of the period at the start of period Inventory Inventory Production Amount used to at the end of = at the end of + in the current - satisfy demand in a period the previous period period the current period Cost for = Output cost + Hire/lay-off + Inventory + Back-order a period (Reg.+OT+Subcontract) cost cost cost

13. Read on your own Calculating Costs

14. Example - Develop a plan for this scenario: LEVEL Bright Lamps, Inc. is preparing an aggregate plan that will cover 6 months. They have assembled the following and want a plan for steady output. • Zero inventory on hand to start • 10 employees, each person produces 30 units per period max regular and 10 units per period overtime. There is no limit to subcontracting.

15. Example - Develop a plan for this scenario: CHASE Bright Lamps, Inc. is preparing an aggregate plan that will cover 6 months. They have assembled the following and want a plan for steady output. • Zero inventory on hand to start • 10 employees, each person produces 30 units per period max regular and 10 units per period overtime. There is no limit to subcontracting.

16. Example - Develop a plan for this scenario: COMBO Bright Lamps has learned that one of their employees will be out of commission for 6 months due to an injury. Rather than replace the person, the company would like to work with a smaller workforce and use overtime to make up for the lost output. The reduced regular time output is now 270 units per period (9 employees @ 30 units). The maximum amount of overtime output per period is 10 units. They want to develop an aggregate plan for this scenario and compare it to the other one to confirm that costs will be reduced. NO SUBCONTRACTING IS ALLOWED!!!

17. Example – Compare costs from both scenarios Cost of Steady Production with 10 workers – $ Cost of Overtime Production with 9 workers - $ Their decision would be to continue without their injured employee and assume overtime/backorder costs. Why wouldn’t this be a good permanent plan?