Aggregate Production Planning

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CHAPTER 11

• Aggregate Production Planning

ã 1998 South-Western College Publishing
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Chapter Outline

• I. Introduction
• II. The Concept of Aggregation
• III. An Overview of Production-Planning
  Activities
• IV. Framework for Aggregate Production Planning
• V. Techniques for Aggregate Production Planning
• VI. Aggregate Planning in Service Companies
• VII. Implementing Aggregate Production Plans -
  Managerial Issues
• VIII. Hierarchical Production Planning

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Aggregate production planning is medium-term
capacity planning over a two to eighteen month
planning horizon. It involves determining the
lowest-cost method of providing the adjustable
capacity for meeting production requirements.
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Capacity Decisions Hierarchy
Linkages
Facilities Planning
Aggregate Planning
Scheduling
Time Frame
Facilities Planning
Aggregate Planning
Scheduling
Time
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Aggregation refers to the idea of focusing on
overall capacity, rather than individual products
or services.

• Aggregation is done according to
• Products
• Labor
• Time

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Production Planning

• Long Range Planning
• Strategic planning (1-5 years)
• Medium Range Planning
• Employment, output, and inventory levels (2-18
  months)
• Short Range Planning
• Job scheduling, machine loading, and job
  sequencing (0-2 months)

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Aggregate production planning involves managing...

• Work force levels - the number of workers
  required for production.
• Production rates - the number of units produced
  per time period.
• Inventory levels - the balance of unused units
  carried forward from the previous period.

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Common objectives of production planning...
MINIMIZEcost, inventory levels, changes in work
force levels, use of overtime, use of
subcontracting, changes in production rates,
changes in production rates, plant/personnel idle
time MAXIMIZEprofits, customer service
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Methods of Influencing Demand

• Price Incentives
• Reservations
• Backlogs
• Complementary Products or Services
• Advertising/promotion

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Methods of Influencing Supply

• Hiring/firing workers
• Overtime/slack time
• Part time/temporary labor
• Subcontracting
• Cooperative arrangements
• Inventories

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Aggregate Production Planning Variable Costs

• Hiring/firing costs
• Overtime/slack time costs
• Part time/temporary labor costs
• Subcontracting costs
• Cooperative arrangements costs
• Inventory carrying costs
• Backorder or stock out costs

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Aggregate Production Planning Strategies

• Chase strategy
• production rates or work force levels are
  adjusted to match demand requirements over
  planning horizon
• Level strategy
• constant production rate or work force level is
  maintained over planning horizon
• Mixed strategy
• both inventory level changes and work force level
  changes occur

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Aggregate Production Planning Techniques

• Trial-and-error method
• Mathematical techniques

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Trial-and-Error Method

• Examples of alternative strategies
• Vary work force levels
• Level work force, vary inventories and backorders
• Level work force, use subcontracting
• Level work force, use overtime and subcontracting

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Mathematical Techniques

• - Linear Decision Rule
• - Mgmt. Coefficient Models
• - Parametric Prod. Planning
• - Search Decision Rule
• - Production-Switching Heuristic

• - Linear Programming
• - Transportation Method
• - Goal Programming
• - Mixed Integer Programming
• - Simulation Models

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Managerial Issues in Aggregate Production
Planning
1. APP should be tailored to the particular
company and situation. 2. APP may be
constrained by union contracts or company
policies. 3. Mathematical techniques will likely
have to be balanced with managerial
judgment and experience. 4. A tendency to
blur the distinction between production
planning and production scheduling.
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Aggregate Planning in Services

• For service companies, aggregate planning
  results in staffing plans that call for changing
  the number of employees or subcontracting.