14-1 Aggregate Planning

Chapter 14

Aggregate Planning

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
14-2 Aggregate Planning

Planning Horizon

Aggregate planning: Intermediate-range

capacity planning, usually covering 2 to 12
months.

Long range

Intermediate
range
Short
range

Now 2 months 1 Year

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
14-3 Aggregate Planning

Overview of Planning Levels

• Short-range plans (Detailed plans)

– Machine loading
– Job assignments
• Intermediate plans (General levels)
– Employment
– Output
• Long-range plans
– Long term capacity
– Location / layout

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
14-4 Aggregate Planning

Planning Sequence

Economic,
Corporate competitive, Aggregate
strategies and political demand
and policies conditions forecasts

Establishes production
Business Plan
and capacity strategies

Establishes
Production plan
production capacity

Master schedule Establishes schedules

for specific products

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
14-5 Aggregate Planning

Aggregate Planning Inputs

• Resources • Costs
– Workforce – Inventory carrying
– Facilities
– Back orders
• Demand forecast
– Hiring/firing
• Policy statements
– Overtime
– Subcontracting
– Overtime – Inventory
– Inventory levels changes
– Back orders – subcontracting

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
14-6 Aggregate Planning

Aggregate Planning Outputs

• Total cost of a plan
• Projected levels of inventory
– Inventory
– Output
– Employment
– Subcontracting
– Backordering

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
14-7 Aggregate Planning

Demand Options

• Pricing
• Promotion
• Back orders
• New demand

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
14-8 Aggregate Planning

Capacity Options

• Hire and layoff workers

• Overtime/slack time
• Part-time workers
• Inventories
• Subcontracting

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
14-9 Aggregate Planning

Aggregate Planning Strategies

• Maintain a level workforce

• Maintain a steady output rate
• Match demand period by period
• Use a combination of decision
variables

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
14-10 Aggregate Planning

Basic Strategies

• Level capacity:
– Maintaining a steady rate of regular-time output
while meeting variations in demand by a
combination of options.
• Chase demand:
– Matching capacity to demand; the planned output
for a period is the expected demand for that
period.

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
14-11 Aggregate Planning

Techniques for Aggregate Planning

• Determine demand for each period
• Determine capacities for each period
• Identify policies that are pertinent
• Determine units costs
• Develop alternative plans and costs
• Select the best plan that satisfies objectives

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
14-12 Aggregate Planning

Cumulative Graph
Figure 14-3

Cumulative output/demand

Cumulative
production
Cumulative
demand

1 2 3 4 5 6 7 8 9 10

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
14-13 Aggregate Planning

Average Inventory

Average Beginning Inventory + Ending Inventory

=
inventory 2

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
14-14 Aggregate Planning

Mathematical Techniques

Linear programming: Methods for obtaining

optimal solutions to problems involving allocation of
scarce resources in terms of cost minimization.

Linear decision rule: Optimizing technique that

seeks to minimize combined costs, using a set of
cost-approximating functions to obtain a single
quadratic equation.

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
14-15 Aggregate Planning

Summary of Planning Techniques

Technique Solution Characteristics

G raphical/ Trial and Intuitively appealing, easy to
charting error understand ; solution not
necessarily optim al.
Linear O ptim izing Com puterized ; linear assum ptions
program m ing not alw ays valid.
Linear O ptim izing Com plex, requires considerable
decision rule effort to obtain pertinent cost
inform ation and to construct
m odel; cost assum ptions not
alw ays valid.
Sim ulation Trial and Com puterized m odels can be
error exam ined under a variety of
conditions.

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
14-16 Aggregate Planning

Aggregate Planning in Services

• Services occur when they are rendered

• Demand for service can be difficult to
predict
• Capacity availability can be difficult to
predict
• Labor flexibility can be an advantage in
services

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
14-17 Aggregate Planning

Disaggregating

• Master schedule: The result of

disaggregating an aggregate plan;
shows quantity and timing of specific
end items for a scheduled horizon.
• Rough-cut capacity planning:
Approximate balancing of capacity and
demand to test the feasibility of a
master schedule.

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
14-18 Aggregate Planning

Master Scheduling Process

Figure 14-5

Inputs Outputs
Beginning inventory Projected inventory
Master
Forecast Master production schedule
Scheduling

Customer orders Uncommitted inventory

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
 14-19 Aggregate Planning

Projected On-hand Inventory

Figure 14-8
Beginning
Inventory
JUNE JULY
64 1 2 3 4 5 6 7 8
Forecast 30 30 30 30 40 40 40 40
Customer Orders
(committed) 33 20 10 4 2
Projected on-hand
inventory 31 1 -29 Forecast is larger than
Customer orders in week 3

Customer orders are Forecast is larger than

larger than forecast in Customer orders in week 2
week 1

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
14-20 Aggregate Planning

Time Fences in MPS

Figure 14-12

Period
1 2 3 4 5 6 7 8 9 10 11 12

frozen firm full open

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
14-21 Aggregate Planning

Solved Problems: Problem 1

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.