Aggregate Sales and Operations Planning

1
Aggregate Sales and Operations Planning

• Selected Slides from Jacobs et al, 9th Edition
• Operations and Supply Management
• Chapter 16
• Edited, Annotated and Supplemented by
• Peter Jurkat

2
If we make 15 million cars a year we better sell
15 million cars a year or well be up to our ears
in cars
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Sales and Operations Planning Activities
16-3

• Long-range planning
• Greater than one year planning horizon
• Usually performed in annual increments
• Medium-range planning
• Six to eighteen months
• Usually with weekly, monthly or quarterly
  increments
• Short-range planning
• One day to less than six months
• Usually with weekly or daily increments

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16-4
Process planning
Strategic capacity planning
Supply network planning
Long range
Sales and operations (aggregate) planning
Forecasting and demand management
Sales plan
Aggregate operations plan
Services
Manufacturing
Logistics
Medium range
Master scheduling
Vehicle capacity planning
Weekly workforce (regular/overtime,
subcontracting, etc.) scheduling
Material requirements planning
Vehicle loading
Order scheduling
Vehicle dispatching
Warehouse receipt planning
Daily workforce scheduling
Short range
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The Aggregate Operations Plan
16-5

• Main purpose Specify the optimal combination of
• production rate (units completed per unit of
  time)
• workforce level (number of workers)
• inventory on hand (inventory carried from
  previous period)
• Product group or broad category (Aggregation)
• This planning is done over an intermediate-range
  planning period of 3 to18 months

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Balancing Aggregate Demandand Aggregate
Production Capacity
16-6
10000
Suppose the figure to the right represents
forecast demand in units
10000
8000
8000
7000
6000
5500
6000
4500
4000
Now suppose this lower figure represents the
aggregate capacity of the company to meet demand
2000
0
Jan
Feb
Mar
Apr
May
Jun
9000
10000
8000
8000
What we want to do is balance out the production
rate, workforce levels, and inventory to make
these figures match up a least cost
6000
6000
4500
4000
4000
4000
2000
0
Jan
Feb
Mar
Apr
May
Jun
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Required Inputs to the Production Planning System
16-7
External to firm
Planning for production
Internal to firm
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Key Strategies for Meeting Demand
16-8

• Chase adjust production to just meet demand for
  every period requires capacity for maximum
  demand period
• Level - produce at constant level (often that
  required to meet demand in period of minimum
  demand, adjust with overtime, subcontractors,
  etc)
• Stable workforce find some workforce level and
  stick to it, adjust with overtime, etc.)
• Mixed - find production level, workforce level by
  hiring/firing, overtime, subcontracting to
  minimize overall cost of production for entire
  time horizon

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Aggregate Planning Examples Unit Demand and Cost
Data
16-9
Suppose we have the following unit demand and
cost information
Demand/mo Jan Feb Mar Apr May Jun 4500 5500 7000
10000 8000 6000
Materials 5/unit Holding costs 1/unit per
mo. Marginal cost of stockout 1.25/unit per
mo. Hiring and training cost 200/worker Layoff
costs 250/worker Labor hours required .15
hrs/unit Straight time labor cost 8/hour Beginni
ng inventory 250 units Productive
hours/worker/day 7.25 Paid straight hrs/day 8
See AggregatePlanning.xls for expanded version of
this case Team Case expand to include overtime
and subcontractors find minimum cost plan
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Yield Management

• Allocating resources to customers at various
  prices that will maximize yield or revenue
• Service or product can be sold in advance of
  consumption
• Demand fluctuates
• Capacity is relatively fixed
• Demand can be segmented
• Variable costs are low and fixed costs are high

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Yield Management Example
All rooms at same price
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Yield Management Example
Different rooms at different prices
Total contribution (1st price) x 30 rooms
(2nd price) x 30 rooms (100 - 15) x 30
(200 - 15) x 30 2,550 5,550 8,100
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Yield Management Matrix
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Making Yield Management Work

• Multiple pricing structures must be feasible and
  appear logical to the customer
• Frequent (daily?) forecasts of the use and
  duration of use
• Changes in demand