Aggregate Planning

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Aggregate Planning
Chapter 12
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Core MRP II
MANUFACTURING RESOURCE PLANNING
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Aggregate Planning Strategies

• Maintain a level workforce
• Maintain a steady output rate
• Match demand period by period
• Use a combination of decision variables

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Basic Strategies

• Level capacity
• Maintaining a steady rate of regular-time output
  while meeting variations in demand by a
  combination of options.
• Chase demand
• Matching capacity to demand the planned output
  for a period is the expected demand for that
  period.

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Disaggregating

• Master schedule The result of disaggregating an
  aggregate plan shows quantity and timing of
  specific end items for a scheduled horizon.
• Rough-cut capacity planning Approximate
  balancing of capacity and demand to test the
  feasibility of a master schedule.

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Master Scheduling Process
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Time Fences in MPS
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Aggregate Production Planning

• Aggregate Versus Detailed Plans
• Costs Of Production
• Chase, Level, And Mixed Strategies

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Aggregate Versus Detailed Plans

• Plans differ in terms of detail and planning
  horizons
• The aggregate production plan has a moderate
  horizon but little detail
• E.g., Plan overall facility production
  month-by-month for the the next 18 months
• The master production schedule has a short
  horizon but great detail
• E.g., Plan production for each product
  week-by-week for the next 12 weeks

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Aggregate Versus Detailed Plans

• Why plan aggregate production levels?
• Aggregate plans do not provide detail needed to
  run facility
• But detail unnecessary for medium-range resource
  deployment decisions
• Labor force size
• Financing inventory
• Aggregate forecasts are more accurate than
  detailed forecasts

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Aggregate Versus Detailed Forecasts

• Sales forecasts can be aggregated with respect to
  time

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Aggregate Versus Detailed Forecasts

• Sales forecasts can be aggregated with respect to
  time

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Aggregate Versus Detailed Forecasts

• Sales forecasts can be aggregated with respect to
  product

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Aggregate Versus Detailed Forecasts

• Sales forecasts can be aggregated with respect to
  product

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Aggregate Versus Detailed Forecasts

• Why? Aggregate forecasts are more accurate than
  individual detailed forecasts

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Aggregate Versus Detailed Forecasts

• Why? Aggregate forecasts are more accurate than
  individual detailed forecasts

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Aggregate Versus Detailed Forecasts

• Use aggregate forecasts for planning medium-range
  overall production levels.
• High long-range forecast accuracy
• Detail not needed for planning long-range
  resource use (labor, inventory, etc.)
• Use detailed forecasts for initial detailed
  short-range Master Production Schedule (MPS)
• Detailed forecasts reasonably accurate for this
  time frame
• Need product-specific detail for MPS

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The Aggregate Production Plan

• Consider the following aggregate demand forecast
• The plan is stated in the the common unit of
  capacity direct labor hours

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The Aggregate Production Plan

• Suppose we want to try to match demand

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The Aggregate Production Plan

• Suppose we want to try to match demand
• How do we cost out the plan?

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The Aggregate Production Plan

• First need some more information

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The Aggregate Production Plan

• Projected Available Balance is simply the
  estimated ending inventory for each period

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The Aggregate Production Plan

• The workers needed is based on the planned
  production and average worker productivity
  here, it is 500 DLH/Worker/Quarter

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Costs Of Maintaining And Changing Production
Levels

• Costs of keeping production steady
• Ch -- Holding cost ( / DLH / quarter)
• Cb -- Backorder cost ( / DLH / quarter)
• Costs of changing production
• CH -- Hiring cost ( / Worker)
• CF -- Firing cost ( / Worker)
• Also need to worry about
• CR -- Wage rate ( / DLH / period)

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The Aggregate Production Plan

• For our example, the wage rate is 10/DLH

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The Aggregate Production Plan

• The hiring and firing costs are 2000 and 500,
  respectively

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The Aggregate Production Plan

• Holding and backorder costs are 1 and 3
  /DLH/Quarter, respectively

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The Aggregate Production Plan

• Which gives us a projected cost of 400,000 for
  the year

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Chase, Level, Mixed Strategies

• This example is the first of the two "pure"
  strategies
• Chase strategy make only as much as you can
  sell
• The other pure strategy has a different cost
  structure
• Level strategy maintain a steady production
  rate
• In reality, a firm's strategy will be a
  combination or mixture of chase and level

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The Aggregate Production Plan

• A level strategy will absorb fluctuations in
  demand through fluctuations in inventory

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The Aggregate Production Plan

• A level strategy will absorb fluctuations in
  demand through fluctuations in inventory

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The Aggregate Production Plan

• A level strategy will absorb fluctuations in
  demand through fluctuations in inventory

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The Aggregate Production Plan

• A level strategy will absorb fluctuations in
  demand through fluctuations in inventory

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The Aggregate Production Plan

• A level strategy will absorb fluctuations in
  demand through fluctuations in inventory

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The Aggregate Production Plan

• A level strategy will absorb fluctuations in
  demand through fluctuations in inventory