Aggregate planning / scheduling

1. Aggregate planning / scheduling • Medium range plan - what we will make over the next 3-18 months. • general demand • controllable variables / forms of capacity • production rates • labor levels • inventory levels • outsourcing • overtime • does not include investments in facilities

2. Linkages • Marketing: • when will products be available ? Lead times ? Excess inventory (good time for a sale?) • Accounting and Finance: • cash flows- will we be making more than we are selling? • do we have to finance inventory? • when will suppliers need to be paid? • Human resources • timing of hiring, firing and training • Information Systems • what to track • linkages to other supply chain members

3. Aggregate planning strategies Companies can do any or all of the following: • Use inventory to absorb changes in demand • Vary the size of the workforce • Vary work hours • part timers • overtime • Outsource • parts they could make • the entire product • Demand management

4. Examples of different strategies: tool and die shops 1) Atlas Tool and Die (competes on cost) • as demand increases working hours increase - until both shifts are working 65 hours a week • once the shop is effectively running 24 a day they start to outsource. If there is enough demand they will outsource the entire project. • as demand decrease they bring work back in house and then cut work hours

5. Examples: DieCast 2) DieCast (competes on innovation / knowledge) • work hours set at 50 a week • size of workforce driven by decision to keep people working 50 hours a week all the time. • usually outsource simple work • never outsource entire project • when demand decreases they bring work back in house - have never laid off • when demand outstrips their capacity they turn work down

6. Examples: Grand Rapids Mold and Die 3) GRMD (competes on speed) • machine capacity set at maximum level of demand • hire workers as they get busier and fire when work slows down • only outsource if every machine is running 24 hours a day- and then only until they can get another machine

7. Aggregate planning options: capacity • Changing inventory levels • Varying workforce size by hiring or firing • Grand Rapids • Construction unions • Over and idle time • why do companies prefer overtime to hiring new people? • Part time or temps • Adjunct faculty members • Outsourcing

8. Outsourcing pluses and minuses • Pluses • increased flexibility • increased quality (?) • decreased costs (?) • Minuses • decreased control • can be very expensive in certain situations • suppliers can become competitors

9. Aggregate planning options: demand management • Directly influence demand • promotions • early bird specials and happy hour • Back-orders • MTO verses MTS • Product mixing • Sea-doo / Ski-doo • The golf / ski shop

10. Level verses chase strategies • Level production strategies: if possible the best plan is to keep production level and use inventory or backlogs (note DieCast is level with no inventory) to act as a buffer between production and demand. • requires fairly stable demand (or very low inventory / backorder costs) • why is this preferred • Chase demand production strategies: vary the level of production to match demand using a combination of the previously discussed options. • What must our capacity be to chase?

11. Methods of aggregate planning • Mathematical approaches: a number of mathematical approaches to scheduling exist- but they are very complex, often do not work for large problems, and or take a very long time to run. So... • Graphical / logical models tend to be used in practice

12. An example

13. Cost info. for example

14. A level demand strategy • Produce 50 units a day - increasing inventory in Jan., Feb., and Mar., and decreasing it the last 3 months • Workers required = 10 per day no O.T. • Beginning inventory and ending inventory = 0

15. The level plan

16. Costs of level plan

17. Another option: outsourcing • In this option we choose to set production at the level of the lowest demand month (like DieCast) and outsource the remaining work. • The lowest demand month is March where we make 38 units per day - so 38 units per day is our production plan. • In order to achieve this we need 7.6 workers (38 /5)

18. Outsourcing costs • In house production = 38 * 124 = 4712 • 7.6 workers * $ 40 per day * 124 days = 37,696 • Outsourced production = 6200 - 4712 = 1488 • 1488 * 10 unit = 14,880 • Total costs = • 37.696 + 14,880 = 52,576

19. Your turn • Do a chase demand plan • Use only whole employees • Remember to include hire and fire costs • Use overtime not idle time

20. Chase strategy

21. Try this • Use the same cost data but • Add backorder costs of $10 a unit • Plan – split level: 1 level of production for Jan- March, a second for April – June • Use overtime not idle time • If you did not want to have backorders what could you do?

22. The basics of the split plan

23. Costs for the split plan

24. Aggregate planning conclusions • These were only a few of a number of options. • We generally focused on the price • Other goals besides lowest price ? • customer service • employee morale • etc. • Should be linked to strategy