CHAPTER 12: Aggregate Operations Planning

1. CHAPTER 12: Aggregate Operations Planning Slides prepared by Romulus Cismaru University of Regina

2. Introduction • Nature of Aggregate Operations Planning • Demand and Capacity Options • Basic Strategies for Meeting Uneven Demand • Techniques for Aggregate Operations Planning • Aggregate Planning for Services • Disaggregating the Aggregate Plan Chapter 12 Outline

3. A. Introduction Aggregate planning: Intermediate - range capacity planning, usually covering 2 to 12 months. • Sales and Operations Planning • The process of integrating customer focused marketing plans for new and existing products with the management of operations • The process must reconcile all supply, demand, and new product plans at both the detail and aggregate level and tie them to business plan

4. Business Planning Sales and Operations Planning Forecasting and demand management Capacity planning Sales Plan Operations Plan Master Scheduling Detailed planning and execution systems A. Sales and Operations Planning Process

5. Long range Intermediate range Short range Now 2 months 1 Year A. Planning Horizon • Short-range plans (Detailed plans) • Machine loading • Job assignments • Intermediate plans (General levels) • Employment • Output • Long-range plans • Long term capacity • Location / layout

6. B. Nature of Aggregate Operations Planning Aggregate Operations Planning (AOP) is essentially a big picture approach to planning • Aggregate planning begins with a forecast of aggregate demand for the intermediate range • Aggregate plans are updated periodically to take into account updated forecasts and other changes • AOP is concerned with • Quantity • Timing

7. Economic, competitive, and political conditions Corporate strategies and policies Aggregate demand forecasts Establishes production and capacity strategies Business Plan Establishes production capacity Production plan Establishes schedules for specific products Master schedule B. Planning Sequence

8. Resources Workforce Facilities Demand forecast Policy statements Subcontracting Overtime Inventory levels Back orders Costs Inventory carrying Back orders Hiring/firing Overtime subcontracting B. Inputs and Outputs of AOP • Total cost of a plan • Projected levels of inventory • Inventory • Output • Employment • Subcontracting • Backordering

9. C. Demand and Capacity Options • Demand Options: • Pricing • Promotion • Back orders • New complementary products • Capacity Options • Hire and layoff workers • Overtime/slack time • Part-time workers • Inventories • Subcontracting

10. D. Basic Strategies for Meeting Uneven Demand Level output strategy: Maintaining a steady rate of output while meeting variations in demand by a combination of inventory, subcontracting, and back orders • Maintain a steady output rate • Match demand period by period • Use a combination of decision variables Chase demand strategy: Matching capacity to demand; the planned output for a period is set at the forecast of demand for that period.

11. D. Basic Strategies

12. D. Techniques for AOP • Determine demand for each period • Determine capacities and production rates for each period • Identify policies that are pertinent • Determine units costs • Develop alternative plans and costs and select the best plan that satisfies objectives

13. Inventory reduction/ back order Cumulative output/demand Cumulative production Cumulative demand 6 7 1 2 3 4 5 8 9 10 Period D. Cumulative Graph

14. D. Trial and Error Develop simple tables (worksheets) or graphs that enable managers to visually compare projected demand requirements with existing capacity • Assumptions: • The regular output capacity is the same in all periods • Each total cost, except hire/fire costs, is a linear function of number of units

15. D. Average Inventory

16. D. Optimization Techniques • Linear programming: • Methods for obtaining optimal solutions to problems involving allocation of scarce resources in terms of cost minimization. • Transportation Model: • Planners must identify capacity (maximum supply) of regular time, overtime, part time, and subcontracting, and demand for each period, as well as related costs of production and inventory

17. F. Aggregate Planning in Services • Similar to manufacturing aggregate planning but there are two important differences: • Services occur when they are rendered • For labor intensive services, it may be easier to measure the aggregate plan in terms of time instead of an aggregate measure of output

18. G. Disaggregating • Master production schedule: • The result of disaggregating an aggregate plan; shows quantity and timing of specific end items for the next 6 to 12 weeks • Rough-cut capacity planning: • Approximate balancing of short-range capacity and production requirements to test the feasibility of a master schedule.

19. Inputs Outputs Beginning inventory Projected inventory Master Scheduling Forecast Master production schedule Customer orders Uncommitted inventory G. Master Scheduling Process Available to promise inventory: Uncommitted planned inventory

20. G. Projected On-hand Inventory Beginning Inventory Forecast is larger than Customer orders in week 3 Forecast is larger than Customer orders in week 2 Customer orders are larger than forecast in week 1

21. G. Time Fences in MPS Time Fences: Points in time that separate zones of a master production schedule Period Emergency zone Planning zone Trading zone