Sales and Operations Planning

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Chapter 14
Aggregate Planning

• Sales and Operations Planning
• The Aggregate Operations Plan
• Examples Chase and Level strategies

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Sales and Operations Planning Activities

• Long-range planning (for fixed capacity)
• Greater than one year planning horizon
• Usually performed in annual increments
• Medium-range planning (for adjustable capacity)
• Six to eighteen months
• Usually with monthly or quarterly increments
• Short-range planning (for for item or job
  planning)
• One day to less than six months
• Usually with weekly increments

Aggregate Planning
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Where Aggregate Planning Fits In
Exhibit 13.1
Process planning
Long range
Strategic capacity planning
Forecasting demand management
Inter- mediate range
Aggregate planning
Short range
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The Aggregate Operations Plan

• Main purpose Specify optimal combination of
• production rate
• workforce level
• inventory level
• subcontracting
• overtime under time
• By product group or overall (Aggregate)
• Intermediate-range planning period, 6 to18 months

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Inputs to the Aggregate Planning
Raw material availability
Market demand
External to firm
External capacity
Economic conditions
Planning for production
Internal to firm
Current fixed capacity
Current workforce
Inventory levels
Activities required for production
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Aggregate Planning Goals

• Meet demand
• Use capacity efficiently
• Conform to inventory and labor policies
• Minimize cost
• Labor
• Inventory
• Plant equipment
• Subcontract

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Aggregate Planning Strategies

• Chase strategy varying output rate and
  workforce size by hiring or layoffs
• Level strategy constant output rate and
  workforce size inventory levels vary
• Stable workforce / variable work hours uses
  overtime or idle time
• Subcontracting constant, minimal workforce
• Using part-time or temporary employees used to
  supplement permanent workforce
• Mixed Strategies

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2 Pure Aggregate Planning Options
Chase Strategy
Level Strategy
Production rate workforce vary with demand
Inventory constant
Production rate workforce constant Inventory
varies
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Example -- Capacity Strategies
Transmission Assembly
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Example--Capacity Strategies (cont.)
Solution -- a. Chase Demand
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Example--Capacity Strategies (cont.)
Solution -- b. Level-capacity
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Costing the Two Plans
Assume 2000 to hire an employee, 1500 to
layoff an employee 20/unit/year
holding cost, or 5 to carry 1 unit to next qtr.
84500 47500 132500
Cost 22500 24000 6000 32000
Cost 10000 11250 12500 13750
6000 90000 96000
Cost 6000 0 0 0
Cost 10000 25000 25000 30000
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End of Chapter 14