The Aggregate Operations Plan

An aggregate plan links strategic goals and objectives of the organization with the plans for individual products, services and their various components. Aggregate Production Planning is planning about how many units of the product are to be produced on a weekly or monthly basis for the coming Six to Eighteen Months ensuring the plan to be in line with the overall business plan of the company. Main purpose is to specify the optimal combination of production rate (units completed per unit of time) workforce level (number of workers) inventory on hand (inventory carried from previous period) with a view to minimize the overall production costs.

Aggregate Planning Objectives

To Maximize Customer Service and Profits

To Minimize Costs:

Minimize Investment in Inventory Minimize Changes in Production Rates Minimize Changes in Workforce Levels and Maximize Utilization of Plant and Equipment

Aggregate Planning Process

Determine requirements for planning horizon

Aggregate Planning Process

Determine requirements for planning horizon

Identify alternatives, constraints, and costs

Aggregate Planning Process

Determine requirements for planning horizon

Identify alternatives, constraints, and costs

Prepare prospective plan for planning horizon

Aggregate Planning Process

Determine requirements for planning horizon

Identify alternatives, constraints, and costs

Prepare prospective plan for planning horizon

Is the plan acceptable?

Aggregate Planning Process

Determine requirements for planning horizon

Identify alternatives, constraints, and costs

Prepare prospective plan for planning horizon

No

Is the plan acceptable?

Aggregate Planning Process

Determine requirements for planning horizon

Identify alternatives, constraints, and costs

Prepare prospective plan for planning horizon

No

Is the plan acceptable?

Yes Implement and update the plan

Aggregate Planning Process

Determine requirements for planning horizon

Identify alternatives, constraints, and costs

Prepare prospective plan for planning horizon

No

Is the plan acceptable?

Move ahead to next planning session

Yes Implement and update the plan

An Overview of Aggregate Production Planning System

Corporate Plan External capacity Cap.Installed / Utilized Funds Avail. Manpower available

Aggregate Prodn Plan

Investment Plan

Manpower Hiring/ Lay off Plan

Sub contract plan

Aggregate Production Planning

Strategies for Aggregate Planning

Chase

Level

Minimum Manpower

Mixed

Strategies for Aggregate Planning (contd.) Chase Strategy - As demand changes, hire and layoff work force to produce the units required. Some inventory also has to be accounted for, because of rounding errors. Level Strategy - Constant Work Force. As demand changes inventory build-up & stock outs occur. Minimum Manpower Strategy - Use of minimum manpower based upon minimum demand during the plan period and meeting the additional demand through overtime and or subcontract. Mixed Strategy - Use any or all of the production variables to determine the lowest cost plan.

The Chase Strategy

The Level Strategy

Cont.

Example on Aggregate Planning

M/s ABC Ltd. has projected sales of 300, 500, 400, 100, 200 and 300 for the six months Jan to June and the number of working days in the corresponding month are 22, 19, 21, 21, 22 & 20 respectively. The company at present employs 20 workers and each unit requires 10 labour hours for its production. The hiring costs are Rs 300 and layoff costs are Rs 400 per person. Company policy is to retain a safety stock equal to 20% of the monthly forecast. There are currently 50 units in stock carried at Rs 2/- per unit - month. Stock outs have been assigned a cost of Rs.20/- per unit month. Labour cost /hr is Rs 6/- and Rs 9/- on regular & O.T. basis respectively. Suggest an aggregate plan based upon the following strategies:1. Chase 2. Constant Work force of 20 & using O.T. & Idle times to meet the demand 3. Constant Workforce of 20 & build inventory /occur stock out cost.

Solution to the problem on Aggregate Planning Chase Straegy

Month Days DJ
JAN FEB MAR APR MAY JUN 22 19 21 21 22 20
Safety Stock (20%)

Op. Prodn Man Stock Reqd reqd

50 ?

Hiring/ Retrenchment

300 60 500 100 400 100 200 300

Solution to the problem on Aggregate Planning Chase Straegy

Month Days DJ
JAN FEB MAR APR MAY JUN 22 19 21 21 22 20
Safety Stock (20%)

Op. Prodn Man Stock Reqd reqd

50
?

Hiring/ Retrenchment

300 60 500 100 400 100 200 300

310

Solution to the problem on Aggregate Planning Chase Straegy

Month Days DJ
JAN FEB MAR APR MAY JUN 22 19 21 21 22 20
Safety Stock (20%)

Op. Prodn Man Stock Reqd reqd

50 60 310 540

Hiring/ Retrenchment

300 60 500 100 400 100 200 300

Solution to the problem on Aggregate Planning Chase Straegy

Month Days DJ
JAN FEB MAR APR MAY JUN 22 19 21 21 22 20
Safety Stock (20%)

Op. Prodn Man Stock Reqd reqd

50 60 100 80 20 40 310 540

Hiring/ Retrenchment

300 60 500 100 400 80 100 20 200 40 300 60

Solution to the problem on Aggregate Planning Chase Straegy

Month Days DJ
JAN FEB MAR APR MAY JUN 22 19 21 21 22 20

Safety Op. Prodn Man Stock Stock Reqd reqd

50 60 100 80 20 40 310 540 380 40 220 320 ?

Hiring/ Retrenchment

300 60 500 100 400 80 100 20 200 40 300 60

Solution to the problem on Aggregate Planning Chase Straegy

Month Days DJ JAN FEB MAR 22 19 21
Safety Stock (20%)

Op. Prodn Man Stock Reqd reqd 50 60 100 310 540 380
(310x10) (22x8)= 18

Hiring/ Retrenchment

300 60 500 100 400 80

APR
MAY JUN

21
22 20

100 20
200 40 300 60

80
20 40

40
220 320

Solution to the problem on Aggregate Planning Chase Straegy

Month Days DJ JAN FEB MAR APR 22 19 21 21
Safety Stock (20%)

Op. Prodn Man Stock Reqd reqd 50 60 100 80 310 540 380 40
18
(310x10)176

Hiring/ Retrenchment

300 60 500 100 400 80 100 20

(540x10) 152=36

MAY JUN

22 20

200 40 300 60

20 40

220 320

Solution to the problem on Aggregate Planning Chase Straegy

Month Days DJ JAN FEB MAR APR MAY 22 19 21 21 22
Safety Stock (20%)

Op. Prodn Man Stock Reqd reqd 50 60 100 80 20 310 540 380 40 220
18
(310x10)176

Hiring/ Retrenchment

300 60 500 100 400 80 100 20 200 40

36 23 3 13

JUN

20

300 60

40

320

20

Solution to the problem on Aggregate Planning Chase Straegy

Month Days DJ JAN FEB MAR APR MAY 22 19 21 21 22
Safety Stock (20%)

Op. Prodn Man Stock Reqd reqd 50 60 100 80 20 310 540 380 40 220
18
(310x10)176

Hiring/ Retrenchment

300 60 500 100 400 80 100 20 200 40

(2)

36 23 3 13

JUN

20

300 60

40

320

20

Solution to the problem on Aggregate Planning Chase Straegy

Month Days DJ JAN FEB MAR APR MAY 22 19 21 21 22
Safety Stock (20%)

Op. Prodn Man Stock Reqd reqd 50 60 100 80 20 310 540 380 40 220
18
(310x10)176

Hiring/ Retrenchment

300 60 500 100 400 80 100 20 200 40

(2) 18

36 23 3 13

JUN

20

300 60

40

320

20

Solution to the problem on Aggregate Planning Chase Straegy

Month Days DJ JAN
FEB MAR
Safety Stock (20%)

Op. Prodn Man Stock Reqd reqd 50

60 100

Hiring/ Retrenchment

22
19 21

300 60
500 100 400 80

310
540 380

18
(310x10)176

(2)
18 (13)

36 23

APR
MAY JUN

21
22 20

100 20
200 40 300 60

80
20 40

40
220 320

3
13 20

(20)
10 7

Solution to the problem on Aggregate Planning-Chase Strategy (contd.)

RUPEES
Cost of Hiring Manpower Cost of Retrenchment Cost of Regular Prodn

TOTAL COST OF CHASE STRATEGY

1,33,100

Solution to the problem on Aggregate Planning-Chase Strategy (contd.)

RUPEES
Cost of Hiring Manpower (18+10+7)x300/Cost of Retrenchment Cost of Regular Prodn 10,500

TOTAL COST OF CHASE STRATEGY

1,33,100

Solution to the problem on Aggregate Planning-Chase Strategy (contd.)

RUPEES
Cost of Hiring Manpower (18+10+7)x300/Cost of Retrenchment (2+13+20)x400/Cost of Regular Prodn 10,500 14,000

TOTAL COST OF CHASE STRATEGY

1,33,100

Solution to the problem on Aggregate Planning-Chase Strategy (contd.)

RUPEES
Cost of Hiring Manpower (18+10+7)x300/Cost of Retrenchment (2+13+20)x400/Cost of Regular Prodn 1810x10x6/10,500 14,000 1,08,600

TOTAL COST OF CHASE STRATEGY

1,33,100

Solution to the problem on Aggregate Planningconstant work force with O.T./ Idle time strategy
Month Prodn Hrs Days Hrs O.T. Avai* Hrs Reqd Reqd JAN FEB 310 540 3100 22 5400 19 21 3520 3040 2360 Idle Hrs 420 Cost

MAR 380

APR JUN

40 320

21
22

MAY 220

20

--

*Hours Available=Days*Manpower*Working Hrs./Day

Solution to the problem on Aggregate Planningconstant work force with O.T./ Idle time strategy
Month Prodn Hrs Days Hrs O.T. Avai* Hrs Reqd Reqd Idle Hrs Cost

JAN FEB
APR JUN

310 540
40 320

3100 22 5400 19
3800 21 400 21 2200 22 3200 20

3520 3040 2360

3360 440 3360 3520 3200 -

420

MAR 380 MAY 220

*Hours Available=Days*Manpower*Working Hrs./Day

Solution to the problem on Aggregate Planningconstant work force with O.T./ Idle time strategy
Month Prodn Hrs Days Hrs O.T. Reqd Reqd Avail Hrs Idle Hrs Cost

JAN
FEB APR JUN

310
540 40 320

3100 22
5400 19 3800 21 400 21 2200 22 3200 20

3520
3040 2360 3360 440 3360 3520 3200 -

420

MAR 380 MAY 220

2960 1320 --

Solution to the problem on Aggregate Planningconstant work force with O.T./ Idle time strategy
Month Prodn Hrs Days Hrs O.T. Reqd Reqd Avail Hrs Idle Hrs Cost
2,520 (Rs6)

JAN
FEB APR JUN

310
540 40 320

3100 22
5400 19 3800 21 400 21 2200 22 3200 20

3520
3040 2360 3360 440 3360 3520 3200 -

420

MAR 380 MAY 220

2960 1320 --

Total cost of strategy=?

Solution to the problem on Aggregate Planningconstant work force with O.T./ Idle time strategy
Month Prodn Hrs Days Hrs O.T. Reqd Reqd Avail Hrs Idle Hrs Cost
2,520 (Rs6)
7,080 (Rs3)

JAN
FEB APR JUN

310
540 40 320

3100 22
5400 19 3800 21 400 21 2200 22 3200 20

3520
3040 2360 3360 440 3360 3520 3200 -

420

MAR 380 MAY 220

2960 1320 --

Total cost of strategy=?

Solution to the problem on Aggregate Planningconstant work force with O.T./ Idle time strategy
Month Prodn Hrs Days Hrs O.T. Reqd Reqd Avail Hrs Idle Hrs Cost

JAN
FEB APR JUN

310
540 40 320

3100 22
5400 19 3800 21 400 21 2200 22 3200 20

3520
3040 2360 3360 3360 3520 3200 440

420

2,520
7,080 1,320

MAR 380 MAY 220

2960 1320 -

17,760 7,920 --

Total cost of strategy=?

Solution to the problem on Aggregate Planningconstant work force with O.T./ Idle time strategy
Month Prodn Hrs Days Hrs O.T. Reqd Reqd Avail Hrs Idle Hrs Cost

JAN
FEB APR JUN

310
540 40 320

3100 22
5400 19 3800 21 400 21 2200 22 3200 20

3520
3040 2360 3360 3360 3520 3200 440

420

2,520
7,080 1,320

MAR 380 MAY 220

2960 1320 -

17,760 7,920 --

Total cost of strategy=18100x6 + 8400 +28200= 1,45,200

Solution to the problem on Aggregate Planningconstant work force with Invy/stock out strategy
Month Prodn Days Hrs Reqd Avail
Actual Prodn

Cum Cum Prodn Reqd

Excess/ (Short)

JAN
FEB APR JUN

310
540 40 320

22
19 21 21 22 20

3520 352
3040 304

MAR 380 MAY 220

Total cost of strategy=?

Solution to the problem on Aggregate Planningconstant work force with Invy/stock out strategy
Month Prodn Days Hrs Reqd Avail
Actual Prodn

Cum Cum Prodn Reqd

Excess/ (Short)

JAN
FEB APR JUN

310
540 40 320

22
19 21 21 22 20

3520 352
3040 304 3360 336 3360 336 3520 352 3200 320

MAR 380 MAY 220

Total cost of strategy=?

Solution to the problem on Aggregate Planningconstant work force with Invy/stock out strategy
Month Prodn Days Hrs Prodn Cum Cum Reqd Avail Prodn Reqd Excess/ (Short)

JAN
FEB APR JUN

310
540 40 320

22
19 21 21 22 20

3520 352
3040 304 3360 336 3360 336 3520 352 3200 320

352
656 992 1328 1680 2000

MAR 380 MAY 220

Total cost of strategy=?

Solution to the problem on Aggregate Planningconstant work force with Invy/stock out strategy
Month Prodn Days Hrs Prodn Cum Cum Reqd Avail Prodn Reqd Excess/ (Short)

JAN
FEB APR JUN

310
540 40 320

22
19 21 21 22 20

3520 352
3040 304 3360 336 3360 336 3520 352 3200 320

352 310
656 850 992 1230 1328 1270 1680 1490 2000 1810

MAR 380 MAY 220

Total cost of strategy=?

Solution to the problem on Aggregate Planningconstant work force with Invy/stock out strategy
Month Prodn Days Hrs Prodn Cum Cum Reqd Avail Prodn Reqd Excess/ (Short)

JAN
FEB APR JUN

310
540 40 320

22
19 21 21 22 20

3520 352
3040 304 3360 336 3360 336 3520 352 3200 320

352 310
656 850 992 1230 1328 1270 1680 1490 2000 1810

42
194 238 58 190 190

MAR 380 MAY 220

Total cost of strategy=?

Solution to the problem on Aggregate Planningconstant work force with Invy/stock out strategy
Month Prodn Days Hrs Prodn Cum Cum Reqd Avail Prodn Reqd Excess/ (Short)

JAN
FEB APR JUN

310
540 40 320

22
19 21 21 22 20

3520 352
3040 304 3360 336 3360 336 3520 352 3200 320

352 310
656 850 992 1230 1328 1270 1680 1490 2000 1810

42
194 238 58 190 190

MAR 380 MAY 220

Total cost of strategy=20000x6 + 432x20 +480x2= 1,29,600