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Topic-13

Topic-13. Aggregate Production Planning And Master Production Scheduling. Production/Operations Planning Why?. Helps define organization’s purpose and goals Reduction of risks Increases individual motivation promotes management development Helps organization maintain control

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Topic-13

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  1. Topic-13 Aggregate Production Planning And Master Production Scheduling

  2. Production/Operations Planning Why? • Helps define organization’s purpose and goals • Reduction of risks • Increases individual motivation promotes management development • Helps organization maintain control • Assists organization in adapting to changes • Facilitates more efficient coordination among internal operations • Prevents unplanned unproductive work from supplanting planned work

  3. Aggregate Production Planning • Objective of Aggregate Production Planning (APP): 1. Reduce the total slack within the organization to improve productivity 2. Provide a feasible basis for low level production planning and scheduling

  4. Aggregate Planning Objectives • Minimize Costs/Maximize Profits • Maximize Customer Service • Minimize Inventory Investment • Minimize Changes in Production Rates • Minimize Changes in Workforce Levels • Maximize Utilization of Plant and Equipment

  5. Aggregate Production Planning (II) • Two general approaches to APP: 1. Monolithic: a comprehensive approach to determine the production plan for all levels of items in a single procedure 2. Hierarchic: a step-by-step approach to disaggregate total demand into product groups and individual items then planning for each level.

  6. Corporate Strategic Planning Financial Planning Business Forecasting Product and Market Planning Resource (Capacity) Planning Aggregate Production Planning Item Forecasting Master Production Scheduling (MPS) Rough-cut Capacity Planning (RCP) Find Assembly Scheduling (FAS) Materials Planning Capacity Requirements Planning Production Activity Control (PAC) Purchase Planning Input/ Output Planning and Control Overview of manufacturing Planning Activities Long Range Medium Range Short Range

  7. Operations Distribution and marketing Current machine capacities Customer needs Plans for future capacities Demand forecasts Workforce capacities Competition behavior Current staffing level Materials Accounting and finance Aggregate Supplier capabilities Cost data plan Storage capacity Financial condition Materials availability of firm Engineering Human resources New products Labor-market conditions Product design changes Training capacity Machine standards Managerial Inputs Figure 14.2

  8. Managerial Inputs to Aggregate Plans

  9. Aggregate Measure of Demand • Measured by output: 1. Broader Category (TV/ VCR) 2. Product Group (Medical Equipment) 3. Aggregate Unit (Weight/ Volume…) • Measured by input 1. Machine-Hour 2. Labor-Hour 3. No. of Production Lines

  10. Aggregate Measure of Demand (II) • Why measured by aggregate units? * Forecasting on aggregate unit is more accurate than that on individual item * Provide the flexibility to absorb possible uncertainty * Specify best combination plan for organization’s resources * Provide feasible basis for further disaggregating into lower level planning

  11. The Concept of Aggregation:Product before Aggregation

  12. The Concept of Aggregation:Workforce before Aggregation

  13. The Concept of Aggregation:Aggregation

  14. Components of the Aggregated Demand

  15. Reduce Seasonal Variations in Aggregate Demand • Aggregate demand: the total demand for all products/services produced by a production facility, usually there are significant seasonal variations in aggregate demand • Overall objective of APP: to matching capacity with demand fluctuations

  16. Reduce Seasonal Variations in Aggregate Demand (II) • Two major approaches to reduce seasonal variations in aggregate demand: • 1.Shift demand from the periods with high requirements to the periods with low requirements through: * price incentives/* new promotion • 2. Adopt products/services that have counter-seasonal or counter-cyclical demand patterns such as: -- Electronic Heater vs. Electronic Fan -- Swimming Training vs. Skating Training

  17. Factors in Aggregate Production Planning • External Factors: 1. Market Demand 2. Economic Conditions 3. RM Availability 4. Competitors Behaviors 5……………

  18. Internal factors: Production rate Inventory level Backlog policy 7. Union agreement 8. Capital Limit 2. Workforce level 4. Subcontracting 6. Physical Plant Capacity 9. …………………. Factors in Aggregate Production Planning(II)

  19. Aggregate Planning Strategies • Pure strategies: (changing one variable at a time to match demand fluctuation) 1. Varying Workforce Level 2. Varying Production Rate 3. Varying Inventory Level 4. Varying Subcontracting Amount 5. Varying Backlog Policy 6…………………………….

  20. Aggregate Planning Strategies (II) • Mixed strategies: (changing two or more variables at a time to match demand fluctuation) • 1. Varying both Workforce Level and Inventory Level 2. ……( many possible combinations)

  21. Inventory Capacity = Output Demand Extreme Aggregate Planning Strategies- Constant Output and Constant Capacity Level Strategy

  22. Overtime Idle Time Output Capacity Demand Extreme Aggregate Planning Strategy- Variable Output and Constant Capacity

  23. Extreme Aggregate Planning Strategy-Variable Output and Variable Capacity Chase Strategy (Ideal. Case) Demand Output Capacity

  24. Planning Strategies • Chase Strategy: Adjust production rates or staff levels to match demand requirements over planning horizon • Hires and layoffs • Overtime • Extra shifts or subcontracting • Not anticipation inventory or undertime • Level Strategy: Maintains a constant production rate or workforce level over the planning horizon • Anticipation inventory • Undertime • Sometimes overtime and backlogs • Mixed Strategy: The best strategy may be a mixed strategy of anticipation inventory buildup during slack periods, only minor workforce level changes and overtime

  25. TABLE 14.1 PLANNING STRATEGIES FOR AGGREGATE PLANS Possible Alternatives Possible Alternatives Strategy during Slack Season during Peak Season Aggregate Planning Strategies 1. Chase #1: vary workforce Layoffs Hiringlevel to match demand 2. Chase #2: vary output Layoffs, undertime, Hiring, overtime,rateto match demand vacations subcontracting 3. Level #1: constant No layoffs, building No hiring, depletingworkforcelevel anticipation inventory, anticipation inventory, undertime, vacations overtime, subcontracting, backorders, stockouts 4. Level #2: constant Layoffs, building antici- Hiring, depleting antici-outputrate pation inventory, pation inventory, over- undertime, vacations time, subcontracting, backorders, stockouts

  26. Strategies Importance of APP • A game plan for top management to control the firm • To clearly define production tasks—provide agreement between operations/marketing/finance/engineering functions • Provide required information for long range capacity planning

  27. Strategies Importance of APP (II) • Planning techniques: • Optimization • Heuristics methods • Computer simulation models

  28. Calculation Examples on your Supplementary • 1. Example – p.13-11 to 13-13. • 2. Example – P.13-14 to 13-18.

  29. This example is simplified in two respects: All regular time labor that is employed in any period are assumed to be fully utilized in production (that is, there is no idle time). In order to simplify calculations, the workforce is hired/ fired in labor hour increments rather that is worker increments. An Example in Aggregate Planning The manufacturer uses these cost estimates: CR- Regular time production = $12.00 per labor hour CO- Overtime production = $18.00 per labor hour CI- Inventory carrying costs = $ 7.00 per labor hour/quarter CH- Hiring costs = $ 6.00 per labor hour CF- Firing costs = $ 3.00 per labor hour Assume that the existing labor force is 240,000 labor hours per quarter and that there is no beginning inventory.

  30. Overtime Only Policy 40 0 60 240 960 240 240 0 40 0 40 0 40 0 60 40 140 The cost of this aggregate plan would be: TC= 12(960,000) +18(40,000) +7(140,000) = 13,330,000 Example of Trail and Error Spreadsheet Approach

  31. Hiring and Firing Policy 40 0 0 280 180 260 960 0 0 0 40 0 40 0 80 0 40 120 0 100 0 0 100 The cost of this aggregate plan would be: TC= 12(960,000)+18(0)+7(40,000)+6(120,000)+3(100,000) =12,820,000

  32. 2. If each employee works 480 hours per quarter, how many employees (if any) do you plan to hire or fire in each quarter?

  33. Given: Beginning Inventory = 25,000 (MH) Maximum Inventory = 100,000 (MH) [Warehouse limit] Minimum Inventory = 12,000 (MH) [Safety-Stock limit] Labor Hour/worker-Quarter = 480 (Regular time) Overtime/Quarter/worker = 120 Current Number of Workers = 200 Maximum Hiring/Quarter = 100 (Workers) No Subcontracting. Cost: CR = $4/MH C Hiring = $1,000 CInv = 0.15/MH/Quarter CO = $6.00/MH CFiring = $2,000 Therefore: Regular Production= No. of workersX480 = 96,000

  34. Aggregate Production Plan SheetPlan:1 Policy: Overtime only (in 1,000 units) 21 37 12 384 0 0 19 24 43 0 0 0 0 21 37 12 12 82 Total Production Cost: = 4 X 384,000 + 6 X 43,000 + 0.15 X 82,000 = $1,806,300

  35. Aggregate Production Plan SheetPlan:2 Policy: Hiring & Firing only (in 1,000 units) 21 23 12 82 129 120 427 0 47 0 47 0 14 9 23 68 21 23 12 12 Total Production Cost: = $4X427,000 + (470,000/480)X1000+ (23,000/480)X2000+0.15X68,000 = $1,911,950

  36. Marginal Analysis (Before Mixed Strategy) (1) Tradeoff between Overtime vs. Inventory Cost (Per Manhour-Quarter) Overtime: = (16-4) = $2 Inventory Holding: = 0.15 Carry for 4 Quarter = 0.15X4= 0.60 < 2 So, when Demand increases, we prefer to use Inventory –Rather than overtime (2) Tradeoff between Hiring vs. Overtime: Hiring for one Quarter: =$1,000/480 = $2.08 > $2 (Overtime) Hiring for two Quarter: = $1,000/2X480 = $1.04 < $2(Overtime) So, if Hiring only needed for one Quarter- Prefer Overtime If Hiring needed for more than one Quarter- Prefer Hiring

  37. Tradeoff between Firing vs. Inventory: (Cost/Per Manhour-Quarter) • Firing in Any Quarter: = $2,000/480 = $4.16 • Keep Inventory: For 1 Quarter: $0.15 For 2 Quarter: $0.30 For 3 Quarter: $0.45 For 4 Quarter: $0.60 ----------------------------------------- ----------------------------------------- For 20 Quarter: $3.00 For 28 Quarter: $4.20 > ($4.16) So: When demand decreases, we prefer to use Inventory over Firing, unless we must keep Inventory for a very long period (28 Quarters – 7 Years).

  38. Aggregate Production Plan SheetPlan:3 Policy: Mixed with Hiring/Firing & Overtime (in 1,000 units) 21 17 37 96 120 120 432 0 0 0 24 0 24 0 0 0 17 92 21 37 17 Total Production Cost: = $4X432,000+(24000/480)X1000+ 0.15X 92,000 = $1,791,800

  39. Aggregate Production Plan SheetPlan:4 Policy: Mixed (in 1,000 units) 33 61 29 108 432 108 108 108 0 0 0 0 0 12 12 0 0 0 0 0 0 0 0 33 61 29 17 140 Total Production Cost: $4X432,000 + (12,000/480) X $1,000 + $0.15X140,000 = $1,774,000

  40. Master Production Scheduling

  41. Master Production Schedule for Products X, Y, Z

  42. Master Production Scheduling(MPS) • MPS is a detailed production schedule for end-products (or service), specified period with the exactly quantities • Three major input to MPS 1. forecasts of end-product demand 2. actual orders received from customers 3. aggregate production planning (APP)

  43. Master Production Scheduling(MPS) (II) • Objective of MPS: develop a Master production schedule for each end-product to meet the specified demand of each period under given production leadtime and capacity. • Time fences: to reflect the scheduling flexibility: * frozen: 1st section in which all schedule are fixed * firm: 2nd where schedules can be changed if needed * full: 3rd with full capacity scheduled but changes is ok * Open section: last few periods, capacity available for new orders

  44. Planning Scheduling Planning Bill of Materials Resource characteristics Finite Constraint Model And Engine Aggregates: product and resource families Machine setup characteristics Forecast and order balancing Detailed routings/ operations Where Planning and Scheduling Meet? Advanced planning and scheduling share a common core, but each has its own set of functions that others does not fulfill

  45. Product Structure, Production Planning and Capacity Planning • Development of MPS: 1. Select MPS items 2. Determine MPS planning horizon 3. Develop an initial schedule 4. Rough-cut capacity analysis

  46. Overall View of the Inputs to a Standard Material Requirements Planning Program and the reports Generated by the Program Aggregate Production Plan Forecast of demand form random customers Firm Orders from known customers Inventory transactions Engineering design changes Master Production Schedule (MPS) Material Planning (MRP computer program) Bill of material file Inventory records file Primary reports Secondary reports Planned-order schedules for inventory and production control Exceptions reports Planning reports Reports for performance control

  47. Determining the MPS Planning Horizon Bill of Material for Product - P End Product –P LT= 1 Week Part –A LT= 2 Weeks Part –B LT= 1 Week Part –C LT= 2 Weeks Part –D LT= 3 Weeks Note: LT= Lead Time

  48. Determining the MPS Planning Horizon 1 2 3 4 5 6 A Lead Time Set- Back Chart C D B D Minimum MPS Planning Horizon

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