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Aggregate operations planning refers to translating annual and quarterly business plans into labor and production outputs plan for the intermediate term The objective is to minimize the cost of resources required to meet the demand The end goal is an agreement between various departments on the best course of action to achieve the optimal balance between supply and demand. The idea is to put the operational plan in line with the business plan
8. Aggregate Planning 1
Planning Horizons
Short-range plans Job assignments Ordering Job scheduling Dispatching
Responsible: Operations managers, supervisors, foremen Responsible: Operations managers
Intermediate-range plans Sales planning Production planning and budgeting Setting employment, inventory, subcontracting levels Analyzing operating plans
Long-range plans R&D New product plans Capital expenses Facility location, expansion
Today
3 Months
1 year
5 years
3
Planning Horizon
8. Aggregate Planning
Work Force
MRP system
Key Terms
Master Production Schedule: MPS is a schedule of the amounts and times when specific items will be manufactured Rough-Cut-Capacity Planning: Verification that sufficient capacity exists to meet a MPS Material Requirement Planning: MRP takes the end product requirements from the MPS and breaks them down into their component parts and subassemblies to create a material plan 8. Aggregate Planning 5
The details and parameters resulting from the plan including staffing, subcontracting, inventor stocking, and weekly or monthly production levels will be provided by disaggregation which results in master production schedule.
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Intuitive Approach
Least desirable method Conflicts among departments in large organizations are not unusual Management sometimes uses the same plan from year to year and adjust it up or down just
This method helps planners to compare projected demand with existing capacity Steps followed are:
Determine the demand in each period Determine the capacity for regular time, overtime, and subcontracting each period Find labor cost, hiring and layoff costs, and inventory holding cost Consider company policy that may apply to the workers or to stock level 8. Aggregate Planning 9 Develop alternative plans and examine
Current workforce
Inventory levels
Internal to firm
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Subcontracting rates
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13
Level strategy: Maintain a stable workforce working at a constant output rate. Shortages and surpluses are absorbed by fluctuating levels, order backlogs, and lost sales
Employees benefit from stable work hour at the cost of decreased customer service levels and increased inventory costs which may become 8. Aggregate Planning
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Yield Management
It is the process of allocating the right type of capacity to the right type of customer at the right price and time to maximize revenue or yield. It can be a powerful approach to making demand more predictable, which is important to aggregate planning.
Yield management has existed as long as there has been limited capacity for serving customers
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Example
Month Expected demand Production days Demand per day
January February
March April May June
900 700
800 1200 1500 1100
22 18
21 21 22 20
41 39
38 57 68 55
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Example Continued
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ContinuedInterpretation
The graph shows how forecast differs from the average demand. To overcome this problem ,the firm may follow one of following strategies: Chase strategy stable workforce- variable work hours Level strategy Subcontracting Or combination of listed strategies
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2000
0 Jan 10000 8000 Feb Mar 9000 8000 6000 4500 Apr May Jun
6000
4000 2000 0
4000
4000
Jan
Feb
Mar
Apr
May
Jun 22
8. Aggregate Planning
Working days
22
19
21
21
22
20
125
Materials Holding costs Marginal cost of stockout Marginal cost of subcontracting Hiring and training cost Layoff costs Labor hours required Straight time labor cost Overtime cost ( time and a half) Beginning inventory Safety socks required
Rs 100/unit Rs 10/unit/month Rs 20/unit/month Rs 100/unit ( Rs 200 subcontracting cost less Rs 100 material savings) Rs 50/worker Rs 100/worker 4 hrs/unit Rs 12.50/hour Rs 18.75/hour 200 units O % of month demand
8. Aggregate Planning 23
Production Plan 1: Exact Production Vary Workforce production requirement production hours required@4 Working days per month Hours per month per worker@8 Workers required New workers hired Assuming ist month workforce as base Hiring cost @ 50 Workers laidoff Layoff cost@100 Straight time cost@ 12.5 Total cost 300 600 650 800 900 800
1200
22 176 7 0
2400
19 152 16 9
2600
21 168 15 0
3200
21 168 19 4
3600
22 176 20 1
3200
20 160 20 0
0 0 0 15000
450 0 0 30000
0 1 100 32500
200 0 0 40000
50 0 0 45000
0 0 0 40000
700
8. Aggregate Planning
Production Plan 2: Constant workforce, vary inventory and stockout beginning inventory Working days per month Production hours available@8x10 Actual production@4hr/unit Demand forecast 200 22 1760 440 500 140 19 1520 380 600 -80 21 1680 420 650 -310 21 1680 420 800 -690 22 1760 440 900 -1150 20 1600 400 800
Ending inv
shortage cost@20 safety stock units excess inventory cost @10 straight time cost Total cost #Asume a constant workforce of 10
140
0 0 140 1400 22000
-80
1600 0 0 0 19000
-310
6200 0 0 0 21000
-690
13800 0 0 0 21000
-1150
23000 0 0 0 22000
-1550
31000 0 0 0 20000 1,400 125,000 202,000 75,600
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production requirement Working days per month Hours per month per worker@8 Production hours available Actual production@4hr/unit Units subcontracted Subcontracting cost@100 Straight time cost@12.5 Total cost
440
0 0 22000
380
80 8000 19000
420
230 23000 21000
420
380 38000 21000
440
460 46000 22000
400
400 40000 20000 155,000 125,000 280,000
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