Aggregate planning

Rajendran Ananda Krishnan

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 Aggregate planning
Aggregate planning involves planning the best quantity to produce in
the intermediate-range horizon (3 months to one year) and planning the
lowest cost method of providing the adjustable capacity to
accommodate the production requirements.
For Example
At the end of the aggregate production planning exercise , a garments
manufacturer may arrive at the following plan
Produce at the rate of 9000 meters of cloth everyday during the
months of January to march
Increase it to 11000 meters during April to august and change the
production rate 10,000 meters during September to December
Carry 10% of monthly production as inventory during the first nine
months of production
Work on a one-shift basis throughout the year with 20% overtime
during July to October
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Model Machine Hrs Monthly
Type(bicycle) Required Demand
Basic 30 1000
Deluxe 60 500
Sports 90 250

Aggregate units for production planning

Sl.No Product Aggregate unit of Capacity
1 Phenyl Acetic acid Metric tonnes
2 Data entry system Numbers
3 Mini Computer Value in Rs
4 Printed circuit board Square meters
5 Alloy iron casing Metric tonnes
6 Cement https://www.facebook.com/ialwaysthinkpr
Metric tonnes
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Inputs to and Outputs from Aggregate Production Planning

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 Necessary
Demand fluctuation
Ex- Demands for garments in India-high (aug-sept) –festive
season
Capacity fluctuations
Capacity available- 10% lower in the month of Feb
Difficulty level in altering production rates
Ex- manufacturing Diesel gen sets at the rate of 4000- 5000
Benefits of multi-period planning

Supply and demand not match exactly on a period by period

basis in an organization

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 A framework for aggregate production planning

Forecasting Alternatives for

modifying demand

Arriving at effective period

Targeted demand to be
by period demand to be
fulfilled
met

Actual period-by-period Arriving at period-by-period

supply schedules supply schedules

Alternatives for
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 Alternatives for managing demand
1. Reservations of capacity
Shifting the demand from one period to another
Ex- Multi specialty health care unit-appointment system
Electronic equipment

2. Influencing demand
Influence the demand during a particular period through some
mechanisms and induce the customers to voluntarily shift the
demand to other periods when there is a low demand
Differential tariffs- telecommunication co’s
Special off-season discounts
Videocon and BPL – Wait-buy-save scheme

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 Alternatives for managing Supply
Modifying supply can be done in one of the following ways
1. Inventory based alternatives
Ex- Arvind Mills- forecast demand for denim
April-june-35000 mts/mnt, july-sept- 55000, Avg production
capacity-45000
Fast food restaurant
Back ordering- is a method of pushing an order to future period on
account of insufficient inventory or capacity to supply during the
current period
Stock out – inability to supply
Ex - watch manufacturing company
October actual demand- 40000, capacity- 30,000 , on hand
inventory- 5000.
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• Capacity Adjustment Alternatives
Two factors affect capacity in any organization
 The number of working hours
 The number of people employed
 Hiring/layoff workers
 Varying Shifts
 Varying working hours- OT
• 3. Capacity augmented alternatives
 Subcontracting- ITI –PCB boards
 Rescheduling maintenance
 New capacity

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 Strategies for aggregate planning

APP APP alternatives applicable

Strategy
Level Inventory based alternatives
Strategy A. Build inventory
B. Back order
Chase Capacity augmentation alternatives
Strategy a. Over time/ under time
b. Vary no. of shifts
c. Hire/layoff workers
Capacity augmentation alternatives
Subcontract/ outsource
Add a new capacity
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 Master Production Scheduling
MPS sets the quantity of each end item to be completed in each
time period ( week /month/quarter) of the short-range planning
horizon

Objectives of Master Production Scheduling

1. To schedule end items to be completed promptly and when
promised to customers.
2. To avoid overloading or under loading the production
facility so that production capacity is efficiently utilized
and low production costs result.
Functions of MPS:
• Translating aggregate plans
• Evaluating alternative master schedules
• Generating material and capacity requirements
• Facilitating information processing
• Maintaining priorities
• Utilizing the capacity effectively
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Master Production Schedule - Flow Chart

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 Material Requirements Planning
Material Requirements Planning is a computerized information
system that aids the planning of materials in manufacturing
organizations.
MRP is a computer based system in which the given MPS is
exploded in to the required amounts of raw materials, parts and
sub assemblies ,needed to produce the end items in each time
period (week or month) of the planning horizon
 Objectives of MRP
1. To improve customer service by meeting delivery schedules
promised and shortening delivery lead times.
2. To reduce inventory costs by reducing inventory levels.
3. To improve plant operating efficiency by better use of productive
resources.
 Three main purposes of a basic MRP system are to:
• Control inventory levels
• Assign operating priorities
• Assign capacity to load production systems.
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Operation of MRP System

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 Bills of material or product structure file
• This file provides the information regarding all the materials,
parts and sub-assemblies that go in to the end of the product. Is
having series of levels each of which represents a stage in the
manufacture of the end product

• The product structure graphically depicts the dependency

relationships among various items that make up the end product

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 Telephone

Connecting Connecting jack

Base Unit 1 Hand Set 1
Level Table 1 2

Micro
Operating Panel B.Cover Speaker H.Cover
phone
Unit 1 Board 1 plate 1 1 plate 2
1

Button Control
Assy 1 Panel 1

Button 12 Screw 12 Dial 3 Screw 3 Screw 4 Screw

4

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 Inventory status file
• The inventory status file gives the complete and up-tp-date
information on the on-hand quantities, gross requirements,
scheduled receipts and planned order releases for the item. It also
includes other information such as lot sizes, lead times, safety
stock levels and scrap allowances etc…
Net requirement for a period =
Gross requirement for the period – Scheduled receipt for the period
+ on hand inventory at the end of the period

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 MRP -Outputs
• Primary
1. Planned orders- A schedule indicating the amount and timing of
future orders
2. Order Release- authorizing the execution of planned orders
3. Changes- to planned orders , revision of due dates, order
quantities, cancellation of orders.
 Secondary
 Performance control reports- evaluation of system operations
 Planning Reports- data useful for assessing future MRP
 Exception reports- any major discrepancies encountered , late
and over due orders, excessive scraps

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 Capacity Requirement Planning

• It is a technique for determining what labor /personnel

equipment capacities are needed to meet the production
objectives symbolized in the master production schedule and
MRP
• The process of determining the short range capacity
requirements

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Capacity Requirement Planning

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 CRP
CRP Inputs
 Planned orders and Released orders from the MRP System
 Loading information from the work centre status file
 Routing information from the shop routing file
 Changes with modify capacity, give alternative routings or
alterd planned orders
CRP Outputs
• Rescheduling information which call for capacity
modifications or revisions of MPS
• Verification of planned orders for MRP system
• Load Reports

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• Automobile factory- no of vehicles
• Steel mill- tonnes of steel

Airlines- no of seats
Hospitals- no of beds
University- no of students

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Hierarchical Approach ton planning
Business Plan

Marketing Plan Financil plan

Production plan ( Capacity)

MPS

MRP CRP

Detail Scheduling

Shop floor Control

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 Capacity Planning
• Production capacity is defined as the maximum production
rate of a facility or a plant
Measurement of Capacity
Capacity of a plant can be expressed as the rate of output, units
per day or per week or per month, tonnes per month, gallons
per hour, labor hour per day
Capacity may be measured in terms of inputs or output of the
conversion process

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• Capacity Decisions
• Major considerations in capacity decisions are
a. What size of plant? How much capacity to install?
b. When capacity is needed? When to phase-in capacity or
phase-out capacity?
c. At what cost? How to budget for the cost?
• Factors Affecting Determination of Plant Capacity
1. Market demand for a product/service.
2. The amount of capital that can be invested.
3. Degree of automation desired.
4. Level of integration (i.e., vertical integration).
5. Type of technology selected.
6. Flexibility for capacity addition

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 Capacity planning involves activities such as:
a. Assessing existing capacity
b. Forecasting future capacity needs
c. Identifying alternative ways to modify capacity
d. Evaluating financial, economical and technological capacity
alternatives
e. Selecting a capacity alternative most suited to achieve the
strategic mission of the firm. Capacity planning involves
capacity decisions that must merge consumer demands with
human, material and financial resources of the organization.

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 Types of capacity
• 1. Fixed capacity
• Adjustable Capacity
• Design Capacity
• System Capacity
• Potential Capacity
• Immediate capacity
• Effective Capacity
• Normal Capacity
• Actual Capacity
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