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Operations
Global Company Profile:
Management Anheuser-Busch
The Planning Process
Chapter 13
The Nature of Aggregate Planning
Aggregate Planning
Aggregate Planning Strategies
Capacity Options
PowerPoint presentation to accompany
Heizer/Render
Demand Options
Principles of Operations Management, 7e Mixing Options to Develop a Plan
Operations Management, 9e
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Anheuser-Busch Anheuser-Busch
Anheuser-Busch produces nearly 40% Product-focused facility with high fixed
of the beer consumed in the U.S. costs
Matches fluctuating demand by brand High utilization requires effective
to plant, labor, and inventory capacity aggregate planning of the four basic
to achieve high facility utilization stages of production
High facility utilization requires Selection and delivery of raw materials
Meticulous cleaning between batches Brewing process from milling to aging
Effective maintenance Packaging
Efficient employee and facility scheduling Distribution
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Aggregate
Aggregate Planning
Planning
Combines appropriate resources
into general terms
Part of a larger production planning
system
Disaggregation breaks the plan
down into greater detail
Disaggregation results in a master
production schedule
Figure 13.2
3
Capacity Options Capacity Options
Subcontracting Using part-time workers
Temporary measure during Useful for filling unskilled or low
periods of peak demand skilled positions, especially in
May be costly services
outside the companys areas of Varying Avoids the costs Hiring, layoff, Used where size
workforce of other and training of labor pool is
expertise size by alternatives. costs may be large.
hiring or significant.
layoffs
Table 13.1
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Aggregate Planning Options Aggregate Planning Options
Option Advantages Disadvantages Some Comments Option Advantages Disadvantages Some Comments
Varying Matches Overtime Allows flexibility Using part- Is less costly High turnover/ Good for
production seasonal premiums; tired within the time and more training costs; unskilled jobs in
rates fluctuations workers; may aggregate plan. workers flexible than quality suffers; areas with large
through without hiring/ not meet full-time scheduling temporary labor
overtime or training costs. demand. workers. difficult. pools.
idle time
Influencing Tries to use Uncertainty in Creates
Sub- Permits Loss of quality Applies mainly in demand excess demand. Hard marketing
contracting flexibility and control; production capacity. to match ideas.
smoothing of reduced profits; settings. Discounts draw demand to Overbooking
the firms loss of future new customers. supply exactly. used in some
output. business. businesses.
Table 13.1
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Graphical Methods Graphical Methods
Easy to understand and use 2. Determine the capacity for regular time,
overtime, and subcontracting each period
Trial-and-error approaches that do 3. Find labor costs, hiring and layoff costs,
not guarantee an optimal solution and inventory holding costs
Require only limited computations 4. Consider company policy on workers and
stock levels
5. Develop alternative plans and examine
their total costs
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Roofing Supplier Example 2 Roofing Supplier Example 2
Monthly 7,000
Costs
Cost Information
Production at Demand Calculations
Inventory Ending
50
Month carry
Inventory Units
cost per Day $9,250
Forecast $ 5Change
perunits
unit per Inventory
month 6,000
Inventory carrying (= 1,850 carried x $5 Reduction
0
Jan Feb Mar Apr May June = Month
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Roofing Supplier Example 3 Roofing Supplier Example 4
Cost Information Production Demand Per Day
Month Expected Demand Days (computed)
Inventory carry cost $ 5 per unit per month
Jan 900 22 41
In-housecost
Subcontracting production
per unit = 38$10units
per unitper day
Feb 700 18 39
Average pay rate x $124
5 perdays
hour ($40 per day) Mar 800 21 38
Overtime pay rate
= 4,712
$ 7 perunits
hour Apr 1,200 21 57
(above 8 hours per day) May 1,500 22 68
Costs Subcontract
Labor-hours units
to produce a unit = Calculations
6,200 - 4,712
1.6 hours per unit June 1,100 20 55
Regular-time
Cost labor
of increasing $37,696
daily production = (=
rate 7.6 workers
1,488
$300 per unit x $40 per
units 6,200 124
(hiring and training) day x 124 days)
Table 13.2
Cost of decreasing daily production
Subcontracting 14,880rate (= $600
1,488per unitx $10 per
units
(layoffs)
unit)
Table 13.3
Total cost $52,576 Production = Expected Demand
Cost
May of decreasing
1,500 68daily production
12,000
$3,300
rate $600 per unit
15,300 Subcontracting 0 14,880 0
(= 11 x $300)
(layoffs)
$7,800 Total cost $58,850 $52,576 $68,200
June 1,100 55 8,800 16,600
(= 13 x $600)
Table 13.3
$49,600 $9,000 $9,600 $68,200
Table 13.4
Plan 2 is the lowest cost option Table 13.5
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Mathematical Approaches Transportation Method
Sales Period
Useful for generating strategies Mar Apr May
Transportation Method of Linear Demand 800 1,000 750
Programming Capacity:
Regular 700 700 700
Produces an optimal plan Overtime 50 50 50
Management Coefficients Model Subcontracting 150 150 130
Beginning inventory 100 tires
Model built around managers
experience and performance Costs
Regular time $40 per tire
Other Models
Overtime $50 per tire
Linear Decision Rule Subcontracting $70 per tire
Simulation Carrying $2 per tire per month Table 13.6
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Management Coefficients
Transportation Model
Example
Builds a model based on managers
experience and performance
A regression model is constructed
to define the relationships between
decision variables
Objective is to remove
inconsistencies in decision making
Table 13.7
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Other Models Summary of Aggregate
Planning Methods
Linear Decision Rule
Solution
Techniques Approaches Important Aspects
Minimizes costs using quadratic cost curves
Graphical Trial and Simple to understand and
Operates over a particular time period methods error easy to use. Many
solutions; one chosen
Simulation may not be optimal.
Transportation Optimization LP software available;
Uses a search procedure to try different method of linear permits sensitivity
combinations of variables programming analysis and new
constraints; linear
Develops feasible but not necessarily optimal functions may not be
solutions realistic.
Table 13.8
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Law Firm Example Five Service Scenarios
Labor-Hours Required Capacity Constraints
(1)
(2) (3)
Forecasts
(4) (5)
Maximum
(6)
Number of
Airline industry
Category of Best Likely Worst Demand in Qualified
Legal Business (hours) (hours) (hours) People Personnel Extremely complex planning
Trial work 1,800 1,500 1,200 3.6 4 problem
Legal research 4,500 4,000 3,500 9.0 32
Corporate law 8,000 7,000 6,500 16.0 15 Involves number of flights,
Real estate law 1,700 1,500 1,300 3.4 6
Criminal law 3,500 3,000 2,500 7.0 12
number of passengers, air and
Total hours 19,500 17,000 15,000 ground personnel, allocation of
Lawyers needed 39 34 30 seats to fare classes
Resources spread through the
Table 13.9 entire system
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Quadrant 3: Quadrant 4:
Unpredictable
30
Restaurants Continuing care
Golf courses hospitals
Internet service
providers
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Making Yield Management
Work
1. Multiple pricing structures must
be feasible and appear logical to
the customer
2. Forecasts of the use and duration
of use
3. Changes in demand
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