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Aggregate planning / scheduling

Medium range plan - what we will make over the next 3-18 months. general demand controllable variables / forms of capacity
production rates labor levels inventory levels outsourcing overtime

does not include investments in facilities


Aggregate planning 1

Linkages
Marketing:
when will products be available ? Lead times ? Excess inventory (good time for a sale?)

Accounting and Finance:


cash flows- will we be making more than we are selling? do we have to finance inventory? when will suppliers need to be paid?

Human resources
timing of hiring, firing and training

Information Systems
what to track linkages to other supply chain members

Aggregate planning 2

Aggregate planning strategies


Companies can do any or all of the following:
Use inventory to absorb changes in demand Vary the size of the workforce Vary work hours
part timers overtime

Outsource
parts they could make the entire product

Demand management
Aggregate planning 3

Examples of different strategies: tool and die shops


1) Atlas Tool and Die (competes on cost)
as demand increases working hours increase until both shifts are working 65 hours a week once the shop is effectively running 24 a day they start to outsource. If there is enough demand they will outsource the entire project. as demand decrease they bring work back in house and then cut work hours

Aggregate planning 4

Examples: DieCast 2) DieCast (competes on innovation / knowledge)


work hours set at 50 a week
size of workforce driven by decision to keep people working 50 hours a week all the time.

usually outsource simple work never outsource entire project when demand decreases they bring work back in house - have never laid off when demand outstrips their capacity they turn work down
Aggregate planning 5

Examples: Grand Rapids Mold and Die 3) GRMD (competes on speed)


machine capacity set at maximum level of demand hire workers as they get busier and fire when work slows down only outsource if every machine is running 24 hours a day- and then only until they can get another machine

Aggregate planning 6

Aggregate planning options: capacity


Changing inventory levels Varying workforce size by hiring or firing
Grand Rapids Construction unions

Over and idle time


why do companies prefer overtime to hiring new people?

Part time or temps Adjunct faculty members Outsourcing


Aggregate planning 7

Outsourcing pluses and minuses


Pluses
increased flexibility increased quality (?) decreased costs (?)

Minuses
decreased control can be very expensive in certain situations suppliers can become competitors

Aggregate planning 8

Aggregate planning options: demand management


Directly influence demand promotions early bird specials and happy hour Back-orders MTO verses MTS Product mixing Sea-doo / Ski-doo The golf / ski shop
Aggregate planning 9

Level verses chase strategies


Level production strategies: if possible the best plan is to keep production level and use inventory or backlogs (note DieCast is level with no inventory) to act as a buffer between production and demand. requires fairly stable demand (or very low inventory / backorder costs) why is this preferred Chase demand production strategies: vary the level of production to match demand using a combination of the previously discussed options. What must our capacity be to chase?

Aggregate planning 10

Methods of aggregate planning

Mathematical approaches: a number of mathematical approaches to scheduling exist- but they are very complex, often do not work for large problems, and or take a very long time to run. So... Graphical / logical models tend to be used in practice
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An example
Month Jan. Feb. Mar. Apr. May June Total Demand 900 700 800 1200 1500 1100 6200 Production days 22 18 21 21 22 20 124 Demand per day 41 39 38 57 68 55 50

Aggregate planning 12

Cost info. for example


Inventory carrying costs Subcontracting costs Average pay rate Overtime pay rate Labor hours per unit units per day costs to hire an employee cost to fire an employee $5 unit per month $10 unit $ 5 hour ($40 a day) $ 7 an hour (after 8 hours) 1.6 5 per employee (8 hours) 500 700

Aggregate planning 13

A level demand strategy


Produce 50 units a day - increasing inventory in Jan., Feb., and Mar., and decreasing it the last 3 months Workers required = 10 per day no O.T. Beginning inventory and ending inventory = 0

Aggregate planning 14

The level plan


Month Jan. Feb. Mar. Apr. May June Production 1100 900 1050 1050 1100 1000 Demand 900 700 800 1200 1500 1100 Inventory change +200 +200 +250 -150 -400 -100 Ending inventory 200 400 650 500 100 0

Aggregate planning 15

Costs of level plan


Costs
Inventory carrying Regular-time labor other costs Total costs

Calculations

9250 49,600 0 58,850

= 1850 units carried * $5 unit / month = 10 workers * 40 per day * 124 days

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Another option: outsourcing In this option we choose to set production at the level of the lowest demand month (like DieCast) and outsource the remaining work. The lowest demand month is March where we make 38 units per day - so 38 units per day is our production plan. In order to achieve this we need 7.6 workers (38 /5)
Aggregate planning 17

Outsourcing costs
In house production = 38 * 124 = 4712 7.6 workers * $ 40 per day * 124 days = 37,696 Outsourced production = 6200 - 4712 = 1488 1488 * 10 unit = 14,880

Total costs =
37.696 + 14,880 = 52,576

Aggregate planning 18

Your turn
Do a chase demand plan Use only whole employees Remember to include hire and fire costs Use overtime not idle time

Aggregate planning 19

Chase strategy
Deman Days d 900 700 800 1200 1500 22 18 21 21 22 Produc Emplo e yee 41 39 38 57 68 8 7 7 11 13 RT 7040 5040 5880 9240 11440 OT 246.4 806.4 705.6 470.4 739.2 Hire costs 0 0 0 2000 1000 Fire costs 0 700 0 0 0 Total 7286.4 6546.4 6585.6 11710. 4 13179. 2

1100

20

55

11

8800

1400

10200
55508

Aggregate planning 20

Try this Use the same cost data but


Add backorder costs of $10 a unit

Plan split level: 1 level of production for Jan- March, a second for April June Use overtime not idle time If you did not want to have backorders what could you do?
Aggregate planning 21

The basics of the split plan


Month day month 865.57 708.2 826.23 Demand 900 700 800 1200 1500 1100 Jan. 39.34 Feb. 39.34 Mar. 39.34 Inventory change -34.43 8.2 26.23 66.67 -173.02 106.35 Ending inventory -34.43 -26.23 0 66.67 -106.35 0

Apr. 60.32 1266.67 May 60.32 1326.98 June 60.32 1206.35

Aggregate planning 22

Costs for the split plan


Employ ment 7 7 RT OT Ending Invento ry -34.43 -26.23 Invento ry 0 0 backord er 344 262 hire Fire total

6160 5040

1070..4 3 875.80

0 0

0 0

7574.69 6178.1

7
12 12

5880
10080 10560

1021.77 0
74.67 78.22 66.67 -106.35

0
333 0

0
0 1063

6901.77
12988 11701.71

2500 0 0 0

12

9600

71.11

9671.11
55015.38

Aggregate planning 23

Aggregate planning conclusions

These were only a few of a number of options. We generally focused on the price Other goals besides lowest price ?
customer service employee morale etc. Should be linked to strategy
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