Aggregate Planning

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Aggregate Planning
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Dealing with the Problem Complexity through
Decomposition
Corporate Strategy
Aggregate Planning
Aggregate Unit Demand
(Plan. Hor. 1 year, Time Unit 1 month)
Capacity and Aggregate Production Plans
Master Production Scheduling
End Item (SKU) Demand
(Plan. Hor. a few months, Time Unit 1 week)
SKU-level Production Plans
Materials Requirement Planning
Manufacturing and Procurement lead times
(Plan. Hor. a few months, Time Unit 1 week)
Component Production lots and due dates
Shop floor-level Production Control
Part process plans
(Plan. Hor. a day or a shift, Time Unit
real-time)
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Aggregate Planning Problem
Aggr. Unit Production Reqs
Corporate Strategy
Aggregate Unit Demand
Aggregate Production Plan
Aggregate Planning
Aggregate Unit Availability (Current
Inventory Position)
Required Production Capacity

• Aggregate Production Plan
• Aggregate Production levels
• Aggregate Inventory levels
• Aggregate Backorder levels

• Production Capacity Plan
• Workforce level(s)
• Overtime level(s)
• Subcontracted Quantities

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Product Aggregation Schemes

• Items (or Stock Keeping Units - SKUs) The final
  products delivered to the (downstream) customers
• Families Group of items that share a common
  manufacturing setup cost i.e., they have similar
  production requirements.

• Aggregate Unit A fictitious item representing an
  entire product family.
• Aggregate Unit Production Requirements The
  amount of (labor) time required for the
  production of one aggregate unit. This is
  computed by appropriately averaging the (labor)
  time requirements over the entire set of items
  represented by the aggregate unit.
• Aggregate Unit Demand The cumulative demand for
  the entire set of items represented by the
  aggregate unit.

Remark Being the cumulate of a number of
independent demand series, the demand for the
aggregate unit is a more robust estimate than its
constituent components.
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Computing the Aggregate Unit Production
Requirements
Aggregate unit labor time (.32)(4.2)(.21)(4.9)
(.17)(5.1)(.14)(5.2) (.10)(5.4)(.06)(5.8)
4.856 hrs
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Pure Aggregate Planning Strategies
1. Demand Chasing Vary the Workforce Level

• D(t) Aggregate demand series
• P(t) Aggregate production levels
• W(t) Required Workforce levels
• Costs Involved
• PC Production Costs
• fixed (setup, overhead)
• variable (materials, consumables, etc.)
• WC Regular labor costs
• HC Hiring costs e.g., advertising,
  interviewing, training
• FC Firing costs e.g., compensation, social cost

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Pure Aggregate Planning Strategies
2. Varying Production Capacity with Constant
Workforce
PC
WC
OC
UC
SC
D(t)
P(t)
S(t)
O(t)
U(t)
W constant

• S(t) Subcontracted quantities
• O(t) Overtime levels
• U(t) Undertime levels
• Costs involved
• PC, WC as before
• SC subcontracting costs e.g., purchasing,
  transport, quality, etc.
• OC overtime costs incremental cost of producing
  one unit in overtime
• (UC undertime costs this is hidden in WC)

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Pure Aggregate Planning Strategies
3. Accumulating (Seasonal) Inventories

• I(t) Accumulated Inventory levels
• Costs involved
• PC, WC as before
• IC inventory holding costs e.g., interest lost,
  storage space, pilferage, obsolescence, etc.

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Pure Aggregate Planning Strategies
4. Backlogging
PC
WC
BC
D(t)
P(t)
B(t)
W(t), O(t), U(t), S(t) constant

• B(t) Accumulated Backlog levels
• Costs involved
• PC, WC as before
• BC backlog (handling) costs e.g., expediting
  costs, penalties, lost sales (eventually),
  customer dissatisfaction

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Typical Aggregate Planning Strategy
A mixture of the previously discussed pure
options
PC
WC
HC
FC
OC
UC
SC
IC
BC
P
W
D
H
F
O
Io
U
S
I
Wo
B

• Additional constraints arising from the company
  strategy e.g.,
• maximal allowed subcontracting
• maximal allowed workforce variation in two
  consecutive periods
• maximal allowed overtime
• safety stocks
• etc.

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Solution Approaches

• Graphical Approaches Spreadsheet-based
  simulation
• Analytical Approaches Mathematical (mainly
  linear programming) Programming formulations

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Analytical ApproachA Linear Programming
Formulation
min TC St ( PCtPtWCtWtOCtOtHCtHtFCtFt
SCtStICtItBCtBt )
s.t.

• t, (u_l_r)Pt ? (s_d)(w_d)tWtOt

Prod. Capacity

• t, PtIt-1St (Dt-Bt)Bt-1It

Material Balance

• t, Wt Wt-1Ht-Ft

Workforce Balance
(
)
Any additional policy constraints
Var. sign restrictions

• t, Pt, Wt, Ot, Ht, Ft, St, It, Bt ? 0

Time unit month / unit_labor_req.
/shift_duration (in hours) / (working_days) for
month t
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Demand (vs. Capacity) Options or Proactive
Approaches to Aggregate Planning

• Influencing demand variation so that it aligns to
  available production capacity
• advertising
• promotional plans
• pricing
• (e.g., airline and hotel weekend discounts,
  telecommunication companies weekend rates)
• Counter-seasonal product (and service) mixing
  Develop a product mix with antithetic (seasonal)
  trends that level the cumulative required
  production capacity.
• (e.g., lawn mowers and snow blowers)
• gt The outcome of this type of planning is
  communicated to the overall aggregate planning
  procedure as (expected) changes in the demand
  forecast.