Principles of Operations Management

1. Principles of Operations Management Aggregate SchedulingChapter 12

2. Learning Objectives • Describe planning • Distinguish the types of plans • Define aggregate scheduling • Relate aggregate scheduling to the overall planning process • Explain aggregate scheduling options • Develop aggregate schedules

3. Alone Group Class Thinking Challenge You’ve started a new company. You’ve developed 2 production plans: Month Forecast Plan 1 Plan 2 Jan 900 900 800 Feb 700 700 800 Mar 800 800 800 You estimate 1 worker can make 100 unitsper month. Which plan do you use? How many workers do you hire? How do you meet demand?

4. Planning • Setting goals & objectives • Example: Meet demand within the limits of available resources at the least cost • Determining steps to achieve goals • Example: Hire more workers • Setting start & completion dates • Example: Begin hiring in Jan.; finish, Mar. • Assigning responsibility

5. Types of Plans Mgt Level High Long-Range Facility location Top Executives Intermediate-Range Aggregate plans Operations Managers Short-Range Dispatching Supervisors Low Today 3 months 1 year 18 months 5 years

6. Aggregate Scheduling • Provides the quantity & timing of production for intermediate future • Usually 3 to 18 months into future • Combines (‘aggregates’) production • Often expressed in common units • Example: Hours, dollars, equivalents (e.g., FTE students) • Involves capacity & demand variables

7. Relationships of Aggregate Schedule

8. Aggregate Schedule Example Aggregate Schedule:Month Jan Feb Mar Apr MayNo. of Chips 600 650 620 630 640 Master Production Schedule:MonthJan Feb Mar Apr MayPentium 300 200 310 300 340486DX2 300 450 310 330 300

9. Aggregate Scheduling Goals • Meet demand • Use capacity efficiently • Meet inventory policy • Minimize cost • Labor • Inventory • Plant & equipment • Subcontract

10. Promotion & price Back ordering Counterseasonal product mixing Aggregate Scheduling Options Capacity Demand • Inventory • Hire or layoff • Overtime or idle time • Subcontract • Part-time workers

11. Aggregate Scheduling Strategies • Mixed strategy • Combines 2 or more aggregate scheduling options Overtime Price Mixed Strategy Sub-contract Inventory

12. Aggregate Scheduling Strategies • Mixed strategy • Combines 2 or more aggregate scheduling options • Level scheduling strategy • Produce same amount every day • Keep work force level constant • Vary non-work force capacity or demand options • Often results in lowest production costs

13. Aggregate Scheduling Example 1 (Level with Overtime) You’re an aggregate planner for GE. You want to develop a plan that meets average daily demand with a constant work force. Each worker produces 5 units per day. There is no beginning inventory. Besides regular production, you decide to use inventory & overtime.

14. Plan 1 Solution No. workers: Production/day: Month Days Forc Units Produced Inventory Reg OT Subcn Held Chg Jan 22 900 Feb 18 700 Mar 20 800 Total $/Unit $8.00 $11.20 $10.00 $5.00 Tot $ Given information

15. Plan 1 Solution No. workers: 8.0 Production/day: 40 0 0 Total cost = 19200 + 224 + 200 = $19,624

16. Alone Group Class Aggregate Scheduling Thinking Challenge 2 (Level with Subcontracting) You’re an aggregate planner for GE. You want to develop a plan that meets lowest daily demand (March), about 38/day, with a constant work force. All other demand will be met by subcontracting. Each worker produces 5 units per day. There is no beginning inventory.

17. Plan 2 Solution* No. workers: Production/day: 38 Month Days Forc Units Produced Inventory Reg OT Subcn Held Chg Jan 22 900 Feb 18 700 Mar 20 800 Total $/Unit $8.00 $11.20 $10.00 $5.00 Tot $ Given information

18. Plan 2 Solution* No. workers: 7.6 Production/day: 38 0 0 0 0 0 0 Total cost = 18240 + 1200 = $19,440

19. Aggregate Scheduling Example 3 (Chase with Hiring and Layoffs) You’re an aggregate planner for GE. You want to develop a plan that meets exactly monthly demand. To do this, you decide to hire & layoff workers. The number of workers will vary each month. Each worker produces 5 units per day. There is no beginning inventory.

20. Plan 3 Solution No. workers: Production/day: Month Days Forc Units Produced Inventory Reg Inc Dec Held Chg Jan 22 900 Feb 18 700 Mar 20 800 Total $/Unit $8.00 $10.00 $15.00 $5.00 Tot $ Given information

21. Plan 3 Solution No. workers: Production/day: Month Days Forc Units Produced Inventory Reg Inc Dec Held Chg Jan 22 900 90 0 0 0 Feb 18 700 70 0 Mar 20 800 Production matchesforecast demand Total 60 2400 $/Unit $8.00 $10.00 $15.00 $5.00 Tot $

22. Plan 3 Solution No. workers: Production/day: Varies Month Days Forc Units Produced Inventory Reg Inc Dec Held Chg Jan 22 900 90 0 0 0 Feb 18 700 70 0 Mar 20 800 Production per day varies.Jan: 900/22 = 40.9 units/dayFeb: 700/18 = 38.9 units/day Total 60 2400 $/Unit $8.00 $10.00 $15.00 $5.00 Tot $

23. Plan 3 Solution No. workers: Varies Production/day: Varies Month Days Forc Units Produced Inventory Reg Inc Dec Held Chg Jan 22 900 90 0 0 0 Feb 18 700 70 0 Mar 20 800 Total 60 2400 Workers per day varies.Jan: (40.9 units/day)/(5 units/worker/day) = 8.2 Feb: (38.9 units/day)/(5 units/worker/day) = 7.8 $/Unit $8.00 $10.00 $15.00 $5.00 Tot $

24. Plan 3 Solution No. workers: Varies Production/day: Varies Month Days Forc Units Produced Inventory Reg Inc Dec Held Chg Jan 22 900 90 0 0 0 Feb 18 700 70 0 200 Mar 20 800 Total 60 2400 200 = 900 - 700: decrease in production due to layoffs $/Unit $8.00 $10.00 $15.00 $5.00 Tot $

25. Plan 3 Solution No. workers: Varies Production/day: Varies Total cost = 19200 + 1000 + 3000 = $23,200

26. Alone Group Class Thinking Challenge:Compare & Contrast

27. Conclusion • Described planning • Distinguished the types of plans • Defined aggregate scheduling • Related aggregate scheduling to the overall planning process • Explained aggregate scheduling options • Developed aggregate schedules