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Topic-11

Topic-11. Aggregate production planning. 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

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Topic-11

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  1. Topic-11 Aggregate production planning

  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 (APPA): 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 Production Planning • 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.

  5. 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

  6. The Concept of Aggregation:Product before Aggregation

  7. The Concept of Aggregation:Workforce before Aggregation

  8. Aggregate Measure of Demand • 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

  9. Components of the Aggregated Demand

  10. 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

  11. Reduce Seasonal Variations in Aggregate Demand (II) • 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

  12. Reduce Seasonal Variations in Aggregate Demand (III) 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

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

  14. Internal factors: Production rate Inventory level Backlog policy 7. Union agreement 8. Capital Limit 2. Workforce level 4. Subcontracting 6. Physical Plant Capacity 9. …………………. (Only top 5 factors are controllable in APP planning.) Factors in Aggregate Production Planning

  15. Aggregate Planning • Why aggregate planning is necessary: 1.Fully load facilities/minimize overloading and under-loading 2.Ensure enough capacity available to satisfy expected demand 3. Plan for the orderly and systematic changes of production capacity to meet peaks and valleys of expected demand 4. Ger the most output for the amount of resources available

  16. Aggregate Planning (II) • Medium-tern capacity adjustments 1.workforce level: * hire of layoff full-time workers * hire or layoff contract workers 2. utilization of the work force overtime/idle time/reduce hours worked 3. inventory level 4. subcontract

  17. Aggregate Planning (III) • Solution approaches • informal or trial-and-error approach • mathematically optimal approaches • computer search • heuristics

  18. 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

  19. Aggregate Planning Strategies • Pure strategies: 1. Varying Workforce Level 2. Varying Production Rate 3. Varying Inventory Level 4. Varying Subcontracting Amount 5. Varying Backlog Policy 6……………………………. (There are cost implications associated with each strategy.)

  20. Aggregate Planning Strategies • Mixed strategies: 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 under-time • Level Strategy: Maintains a constant production rate or workforce level over the planning horizon • Anticipation inventory • Under-time • 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. Matching (Chasing) Strategy • Capacity in each time period is varied to exactly match the forecasted aggregate demand in that time period • Capacity is varied by changing the workforce level. • Finished-goods inventories are minimal • Labor/materials costs tend to be high due to frequent changes • Production rate is dictated by the forecasted aggregate demand • Convert the forecasted aggregate demand into the required workforce level using production time information • The primary costs of this strategy are the costs of changing workforce levels from period to period

  26. Level Capacity Strategy • Capacity is held level over the planning horizon • The difference between the constant production rate and the demand rate is made up by inventory, backlog, overtime, part-time labor and/or subcontracting • Assume that the amount produced each period is constant, no hiring or layoffs • The gap between the amount planned to be produced and the forecasted demand is filled with either inventory or backorders • The primary costs of this strategy are inventory carrying and backlogging costs • Period-ending inventories or backlogs are determined using the inventory balance equation

  27. 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

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

  29. Calculation Examples • Your Supplement: p.11-12 to 11-14. 2. Your Supplementary: Problems #1 & 2. p.11- 27.

  30. 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.

  31. 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

  32. 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

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

  34. Master production scheduling

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

  36. 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)

  37. Master Production Scheduling(MPS) • 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

  38. Master Production Scheduling(MPS) • Time fences in MPS 4 section are divided with time fence points in MPS to reflect their scheduling flexibility: * frozen: 1st section in which all schedule are fixed * firm: 2nd section where schedules can be changed if needed * full: 3rd section with full capacity scheduled but changes is ok * Open section: last few periods, capacity available for new orders

  39. 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

  40. 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

  41. 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

  42. 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

  43. 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

  44. Master Scheduling Overview • Master scheduling consists of following these steps: • Step1: disaggregate total demand for a product group into detailed demand forecasting for each item in the group. • Step2:determine the expected demand of each period from the forecasted demand and actual customer orders • Step3:develop an initial production schedule based on: cost tradeoff and schedule feasibility • Step4:perform the rough-cut capacity planning to ensure that there will be enough capacity to meet the disaggregated demands for all items.

  45. Step-1: Disaggregating the Demand Forecast The first step in developing a master schedule is to take the aggregate plan and break it down into forecasts for each product by each week in your planning horizon. For example, suppose you had the following monthly forecast for product group A: For example, you might then disaggregate this forecast for Products A1, A2 and A3 by weeks as follows: 10 10 10 1014 14 16 1614 14 11 11

  46. Step-2: Determining Expected Demand The Second Step is to determine expected demand for each product in each period. You do this by reconciling forecasts against the customer orders already received and due in each period A simple way to obtain the expected demand is to establish a reconciliation rule. Two examples of such rules are:

  47. Using the greater value in each period of either: • The forecast for that period • The customer orders due in that period Thus, as example of this rule is: 15 20 20 15 15 15 20 15

  48. For Periods 1-4 use the Customer Order and for Periods 5-8 Use the Greater Value of Either: • The Forecast for that Period • The Customer Orders Due that Period Thus, an example of this rule is: 10 20 20 5 15 15 20 15

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