Chapter 16 Aggregate Sales and Operations Planning

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Chapter 16Aggregate Sales and Operations Planning

• Operations Planning Overview
• The Hierarchical Planning Process
• Aggregate Production Planning
• Examples Chase and Level strategies

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Operations Planning Overview

• Long-range planning
• Greater than one year planning horizon
• Usually with yearly increments
• Intermediate-range planning
• Six to eighteen months
• Usually with monthly or quarterly increments
• Short-range planning
• One day to less than six months
• Usually with weekly increments

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Process Planning
Long- range
Strategic Capacity Planning
Forecasting and Demand Mgmt.
Sales and Operations (Aggregate) Planning
Sales Plan
Aggregate Operations Plan
Intermediate- range
Manufacturing
Services
Master Production Scheduling
Material Requirements Planning
Weekly Workforce Customer Scheduling
Order Scheduling
Short- range
Daily Workforce Customer Scheduling
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Hierarchical Production Planning
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Aggregate Planning

• Goal Specify the optimal combination of
• Product group or broad category - family
  (Aggregation)
• Intermediate-range planning period 6-18 months

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Balancing Aggregate Demandand Aggregate
Production Capacity
10000
Suppose the figure to the right represents
forecast demand in units.
10000
8000
8000
7000
6000
5500
6000
4500
Now suppose this lower figure represents the
aggregate capacity of the company to meet demand.
4000
2000
0
Jan
Feb
Mar
Apr
May
Jun
9000
10000
What we want to do is balance out the production
rate, workforce levels, and inventory to make
these figures match up.
8000
8000
6000
6000
4500
4000
4000
4000
2000
0
Jan
Feb
Mar
Apr
May
Jun
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Aggregate Scheduling Goals

13-13
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Required Inputs to the Production Planning System
External to firm
Planning for production
Internal to firm
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Key Strategies for Meeting Demand

• Chase - Match production to customer order rate
  by hiring and laying off employees
• Level - Stable workforce with constant output,
  inventory and backlogs absorb fluctuations in
  demand
• Some combination of the two - Stable workforce,
  variable hours - vary output through overtime or
  flexible schedules

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Costs Relevant to Aggregate Planning

• Direct and indirect labor costs and overtime
• Costs associated with changing the production
  rate - hiring, training, layoffs, temps
• Inventory holding costs - costs of capital,
  storage, insurance, taxes, spoilage, obsolescence
• Backordering costs - expediting, loss of
  goodwill, lost sales due to stocking out

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Aggregate Planning Examples Unit Demand and Cost
Data
Suppose we have the following unit demand and
cost information
Demand/mo Jan Feb Mar Apr May Jun 4500 7500 1050
0 11000 8000 5000
Materials 5/unit Holding costs 1/unit per mo.
based on ending inv. Marginal cost of
backorder 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 Beginning inventory 250
units Productive hours/worker/day 7.25 Paid
straight hrs/day 8
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Cut-and-Try Example Determining Straight Labor
Costs and Output
Given the demand and cost information below, what
are the aggregate hours/worker/month,
units/worker, and dollars/worker?
Demand/mo Jan Feb Mar Apr May Jun 4500 7500 1050
0 11000 8000 5000
Productive hours/worker/day 7.25 Paid straight
hrs/day 8
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Chase Strategy(Hiring Firing to meet demand/
No Shortage)
Lets assume our current workforce is 7 workers.
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Below are the complete calculations for the
remaining months in the six month planning
horizon.
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Below are the complete calculations for January
with the other costs included.
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Below are the complete calculations for the
remaining months in the six month planning
horizon with the other costs included.
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Level Workforce Strategy (Surplus and Shortage
Allowed - minimize ending inventory)
Lets take the same problem as before but this
time use the Level Workforce strategy.
What workforce level will minimize ending
inventory?
Total demand
Beginning inventory
Total production required
Minimum production required per month
Workers required
Actual monthly production
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Below are the complete calculations for the six
months in the planning horizon.
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Master Scheduling Process - Determine amounts and
dates of each end itemto be produced
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Master Scheduling Drives

• Rough cut capacity planning verifies equipment
  and labor availability
• Material requirements planning (MRP) - breaks end
  product requirements into a materials plan for
  component parts