BA339 Chapter 13

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BA339 Chapter 13

• Aggregate Planning (AP)
• AP Defined
• Requirements for AP
• Planning Process
• Strategies Capacity Demand Options (includes
  advantages disadvantages)
• Methods for AP
• AP in Services
• Problems

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BA339 Chapter 13

• Aggregate Planning Defined
• Aka. Aggregate scheduling
• Focus is determining quantity and timing of
  production for the intermediate future (3-18
  mos.)
• Determines the best way to meet forecasted demand
  by adjusting production rates, labor levels,
  inventory levels, OT, level of subcontracting,
  and other controllable variables
• Objective is to minimize cost over the planning
  period
• Must be done in the context of other strategic
  issues smooth employment levels, drive down
  inventory levels, meet high service levels
• Goal is to minimize cost of labor, plant,
  inventory, and subcontracting, meet demand, use
  capacity efficiently, meet inventory policy.

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BA339 Chapter 13

• Requirements for Aggregate Planning
• Logical overall unit for measuring sales and
  output (ex. air conditioning units, cases of
  beer, number of units (cars))
• Forecast of demand for a reasonable intermediate
  planning period in these aggregate terms (units
  of measure)
• A method for determining costs of those units of
  measure
• Model that combines forecasts and costs so that
  schedule decisions can be made for a planning
  period

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BA339 Chapter 13

• The Planning Process
• Reflects a macro view of operations aggregates
  micro level information to determine the rate of
  output for a facility
• Example
• Compaq 4 types of micro-computers (laptops,
  desktops, notebooks, advanced technology)
• Each type has sales forecasts and production
  capacity
• AP consolidates production in the aggregate, not
  on a unit by unit basis
• GM cars (aggregate) vs. color, make, model
• Nucor tones of steel (aggregate) vs. grades of
  steel
• Part of a larger production planning system
  (includes product decisions (chpt. 5), demand
  forecasts (chpt 4), capacity decisions (chpt. 7),
  master production schedule, and MRP (chpt. 14))

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BA339 Chapter 13

• AP Strategies
• Key questions
• Should inventories be used to absorb changes in
  demand during the planning period
• Should changes be accommodated by varying the
  size of the workforce
• Should part-timers be used, or should overtime
  and idle time absorb fluctuations
• Should subcontractors be used on fluctuating
  orders so a stable workforce can be maintained
• Should prices or other factors be changed to
  influence demand

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BA339 Chapter 13

• AP Strategies
• Capacity options
• Changing inventory levels increase inventory
  during periods of low demand to meet high demand
  in future periods (primarily production, not
  service operations)
• Advantages. gradual HR changes, no abrupt
  production changes, minimizes risk due to
  shortages, longer lead times and poorer customer
  service
• Disadvantages. increased carrying costs
• Varying workforce size by hiring or layoffs
• Advantages. Avoids costs associated with other
  alternatives, avoid lower productivity associated
  with layoffs, poor morale, etc.
• Disadvantages. - training costs, reduced
  productivity associated with training new
  workers, timing arrival of new employees can be
  risky
• Best used when surplus labor pool is available

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BA339 Chapter 13

• AP Strategies Capacity Options
• Varying production rates through overtime or idle
  time
• Advantages. flexibility, smoothing of output,
  reduced carrying cost associated with high
  inventory, matches seasonal fluctuations and
  avoids hiring/training costs
• Disadvantages. OT is more costly, worker
  fatigue can lead to poor quality, increased OH,
  absorption of idle time reduces
  efficiency/productivity
• Allows flexibility within the aggregate plan
• Subcontracting temporary help to meet peak
  demands
• Advantages. permits flexibility and smoothing
  of output, less costly and more flexible than
  full-time workers, reduced OH
• Disadvantages. high turnover training costs,
  potential quality problems delivery delays,
  scheduling can be difficult, risks opening your
  clients door to competitor
• Applies mainly in production setting

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BA339 Chapter 13

• AP Strategies
• Capacity Options
• Use part-time workers
• Advantages. less costs and more flexible than
  fulltime workers
• Disadvantages. high training costs, high
  turnover costs (lower productivity), quality
  suffers, scheduling difficult
• Good strategy for unskilled jobs in areas with
  large temporary labor pools
• Demand Options
• Influencing demand advertising, promotions,
  price cuts when demand is low price increases,
  delay deliveries when demand is high
• Advantages. tires to increase productivity to
  use excess capacity, discounts may draw new
  customers, creates new marketing ideas,
  overbooking is common in some businesses
• Disadvantages. hard to match demand to supply,
  uncertainty regarding effectiveness of
  advertising, etc.

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BA339 Chapter 13

• AP Strategies
• Demand Options
• Backordering orders for goods that are accepted
  but which cant be filled at the moment
• Advantages. useful when customers are willing
  to wait without loss of goodwill or order, keeps
  capacity constant, avoids OT
• Disadvantages. loss of goodwill, loss of
  customer
• Used effectively by airlines captive customers,
  limited alternatives, may lose goodwill but wont
  lose many customers
• Counter seasonal product and service mixing
• Advantages. fully utilizes resources, allows
  for stable workforce
• Disadvantages. may require skills outside firms
  core competencies or beyond their target market
• Incentives _at_ John Deere and LL Bean for off-peak
  ordering is effective.

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• AP Strategies
• Mixed Options combines capacity and demand
  strategies
• Chase strategy (production demand)
• Attempts to achieve output rates that match
  demand forecasts used when changing inventory
  levels is difficult or impossible
• Juggles workforce levels, varies production via
  OT, part-time subcontracting service
  industries (BPA)
• Level strategy (constant production rate)
• Keeps daily production at uniform levels and may
  1.) let finished goods inventory rise/fall to
  buffer difference in demand and production or 2.)
  find alternative work for employees
• Based on philosophy that stable workforce leads
  to better quality, less turnover, and more
  commitment to co. goals

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BA339 Chapter 13

• Methods for AP (Techniques)
• Graphical charting methods
• Easy to understand and use
• Works with a few variables at a time to compare
  projected capacity with existing capacity
• Trial error dont guarantee optimal prod.
  plan
• 5 Steps
• Determine the demand in each period
• Determine capacity for reg. Time, OT, and subK
  each period
• Find labor costs, hiring/layoff costs, carrying
  costs
• Consider company policy that may apply to workers
  or stock levels
• Develop alternative plans and examine their total
  costs
• See examples on pages 548-551

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BA339 Chapter 13

• Methods for AP (Techniques)
• Mathematical approaches
• Transportation method of linear programming
• Produces an optimal plan for minimizing costs
• Management coefficients model
• Uses regression analysis of past productions
  decisions made by managers regression line
  examines relationship between variables (demand
  labor)
• Other models linear decision rule, scheduling
  by simulation

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BA339 Chapter 13

• AP in Services
• Controlling the cost of labor in services
  involves the following
• Close scheduling/control of labor hours to ensure
  quick response to customer demand
• On-call labor resource that can be added or
  deleted to meet unexpected demand
• Flexibility of individual worker skills to permit
  reallocation of available labor
• Individual worker flexibility in rate of output
  or hours of work to meet expanded demand

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• AP in Services
• Labor in services in the primary AP planning
  vehicle. Examples
• Excess capacity is used to provide study/planning
  time in real estate and auto sales
• Police/Fire Depts. call in off-duty personnel for
  major emergencies homeland security, war
  protests
• When business is light retail restaurants
  send personnel home early
• Supermarket stock clerks work cash register at
  peak periods
• Waiters/waitresses increase pace when business
  increases