OPERATIONS MANAGEMENT

BBM V SEM ASAS KOCHI

What is operations management?

INPUTS

OUTPUT

Eg: Food stall put up by BBM V students for Sports Day

Unit 1 Aggregate Production Planning

An organization can finalize its business plans on the recommendation of demand forecast. Once business plans are ready, an organization can do backward working from the final sales unit to raw materials required. Thus annual and quarterly plans are broken down into labour, raw material, working capital, etc. requirements over a medium-range period (6 months to 18 months). This process of working out production requirements for a medium range is called aggregate planning.

Aggregate planning
Organisations need to estimate resource requirements so that they can satisfy market demand for their products. Easy if its for single product, but for multiple products it becomes difficult. Demand for different products may be fluctuating . So the products have to be grouped together and an aggregate output has to be worked out. Eg- Textiles in total metres of cloth, paint in total litres of paint The aggregate output units helps managers to decide overall resource requirement , workforce, equipment allocations, subcontracting overtime etc.

Definition
Aggregate production planning is concerned with planning overall production of all products combined(in tonnes of steel, lts of paint, etc), over a planning horizon (6 months to 1 year) for a given forecast demand schedule.

Need/ Importance for APPAggregate planning helps in: achieving balance between operation goal, financial goal and overall strategic objective of the organization. Managing capacity and demand planning. Achieving financial goals by reducing overall variable cost and improving the bottom line Maximum utilization of the available production facility Provide customer delight by matching demand and reducing wait time for customers Reduce investment in inventory stocking Able to meet scheduled goals thereby creating a happy and satisfied work force.

Aggregate Planning Strategies

An aggregate plan is prepared after considering different variables. Aggregate planners may adopt a number of strategies in terms of capacity options to meet fluctuating demand. Each option involves a tangible/intangible cost. Management has to choose the best option. Fluctuations in demand can be effectively managed by varying the size and utilisation of workforce, inventory, plant capacity etc. If only a single strategy is adopted to meet demand it is called pure strategy. If a combination of the strategies is used then its is called as mixed strategy. Chase strategy seeks to match demand by varying work force or production rate Level strategy use constant workforce and production rate, and inventories and backorders are used to meet peaks and valleys in demand

Types of Aggregate planning strategies

1. Varying size of inventory with constant workforce: Under this strategy the firm maintains constant level of workforce and production. When demand is low, the excess inventories are accumulated. Later, when demand is high, the additional requirement is met by utilising the accumulated inventories. Here there is no cost of idle time or overtime but there is inventory carrying cost. 2. Varying size of workforce : Size of workforce is varied by hiring and laying off workers according to demand levels. Workforce requirement is determined based on average worker productivity. Workers are hired during increased demand and fired during decreased demands. Results in training cost, hiring cost, affects employee morale etc. But no inventory costs.

Types of Aggregate planning strategies contd.

3. Subcontracting : In this, orders can be placed with a subcontractor to produce your products , generally during periods of high demand , so as to increase capacity. Disadvantage is that subcontractor may become competitor in future. 4. Varying the utilisation of workforce: The firm maintains stable workforce and varied the utilisation of workforce in accordance with demand. This results in idle hours during lean period and overtime in peak demand periods. Here there is no hiring/training costs, but workers tend to become inefficient and become prone to job-related accidents in peak periods as they are overworked. Idle hours affect employee morale and loss of interest.

Types of Aggregate planning strategies contd.

5. Carry backorders or tolerate lost sales during peak periods: In backorder strategy current order commitments are fulfilled in future. But this can result in loss of customer. Backorder refers to a situation where a customer places an order and waits , because there is no stock. Lost sale is a situation where customer doesnt wait for the stock to arrive. 6. Vary capacity through changes in plant and equipment : It is a long term strategy where plant and equipment can be sold or bought to meet demand 7. Making changes in demand patterns: To even out the fluctuations in demand, company can offer discounts during off-season. Eg- discount on air coolers in winter.

Aggregate planning techniques/ methods/ models

1. Graphical method : It is a two dimensional model relating cumulative demand to cumulative production. It is one of the techniques used in developing and evaluating various alternative plans. The best plan is evaluated and identified through trial and error.

GRAPHICAL METHOD
Quarter 1 2 Demand Forecast 270 220 Cumulative Demand 270 490 Average Production 365 365

3
4 5 6 7 8

470
670 450 270 200 370

960
1630 2080 2350 2550 2920

365
365 365 365 365 365

2920/8 = 365 (average production)

GRAPHICAL METHOD
Graphical Method
800 700 600 500 400 300 200 100 0 1 2 3 4 5 6 7 8

Demand Forecast

Average production

Cumulative Demand and Production

3500

3000

2500

2000

1500

shortage of supply
1000

back orders

500

0 1 2 3 4 5 6 7 8

Cumulative production

Cumulative Demand

Aggregate planning techniques/ methods/ models (contd.)

2. Heuristic model - In this method, a list of pure and mixed strategies are generated and evaluated in terms of cost, and the strategy with the least cost is selected for implementation.
a) Trial and error method Managers generate or enumerate few alternative plans and each one is evaluated to see which plan has least total cost. It is a simple method, using Excel spreadsheets. Usefulness of this method depends upon the choice of alternatives brought up for consideration. b) Computer Search Models Search methods are useful in ensuring that good alternatives are not missed out during the enumeration process. Here, certain parameters are chosen and alternatives are generated by systematically varying the parameter values. As the parameters are varied, the computer program gives all possible combinations of these variables, based on specific search conditions and rules, which are evaluated in terms of cost and production requirements.

 Advantage of heuristic methods is that they are simple to use and can be analysed quickly. Disadvantage is that they do not enumerate all possible alternatives. So the effectiveness depends upon the alternatives chosen for consideration. It may or may not be the optimal solution. Advantage of graphical method is that it is simple to analyse and can be generated quickly by managers. It gives clarity to managers. But it does not take into consideration the cost aspect.

Aggregate planning techniques/ methods/ models (contd.)

3. Linear Programming The aggregate planning problem can be formulated as a linear programming model, with all its variables explicitly included. The LP algorithm provides an optimal solution with a mixed strategy such that the total cost of the problem is minimised. It is not trial and error. 4. Transportation model By representing the problem in the form of a transportation table, one can very easily solve it using existing computer software like STORM, ORS, LINDO etc. The transportation model is a special case of linear programming, which deals with the issue of shipping commodities from multiple sources to multiple destinations by minimising transportation cost. This tool can be used for aggregate production planning.

Aggregate planning techniques/ methods/ models (contd.)

5. Linear Decision rules It is a set of equations for calculating the optimal workforce, aggregate production rate and inventory level for each time period. It is similar to linear programming. However, in LP it is assumed that all costs are linear, whereas in LDR, costs are represented as quadratic equations.

Master Production Scheduling

Aggregate planning is a rough capacity planning exercise on the basis of demand forecast of all products. It ensures that adequate capacity is available in a period by period basis. Whereas, MPS is a process where disaggregation of varieties is done and using this information additional planning is carried out to assign required capacity to each variety. A Master Production Schedule is a product-wise plan for manufacturing products. Aggregate planning aims at overall plan without distinguishing products. But MPS aims to prepare a product-wise schedule which is consistent with the aggregate plan. This process of generating a feasible master production schedule is called disaggregation planning. It specifies :
Size and timing of production orders for specific items Sequencing of individual jobs Short term allocation of resources to individual activities

Materials Requirement Planning

MRP is a computerised information system that helps in the planning of materials in manufacturing organisations. In manufacturing a product the firm has to plan materials by taking the MPS into account.