DAVIS

F O U R T H E D I T I O N

AQUILANO CHASE

chapter 15

Aggregate Planning
PowerPoint Presentation by Charlie Cook

The McGraw-Hill Companies, Inc., 2003

Chapter Objectives
Demonstrate how aggregate planning links long-range strategic planning and short-range scheduling. Present alternate strategies for matching supply and demand: adjusting supply (an operations function) or adjusting demand (a marketing function).

Introduce strategies for developing aggregate plans and ways to identify their strengths and weaknesses.
Define marginal costs and total costs as they pertain to aggregate planning.

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Chapter Objectives (contd)

Introduce the concept of yield management as a tool for matching supply and demand in service operations.

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Managerial Issues
Translating long-range strategic plans into daily work schedules for the shop floor. Using aggregate planning to develop intermediaterange plans that link the long-range strategic plan and the short-range operational plan. Developing aggregate plans that match the demand for products with the firms ability to supply the products and to do so at minimum cost. Coordinating marketing management and operations to develop an aggregate plan that is both effective and efficient.

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Overview of Operational Planning Activities

Long-Range Planning
Focuses on strategic issues relation to capacity, process, selection, and plant location.

Intermediate-Range Planning
Focuses on tactical issues pertaining to aggregate workforce and material requirements for the coming year.

Short-Range Planning
Addresses day-to-day issues of scheduling workers on jobs at assigned work stations.
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Aggregate Planning
Aggregate Production Planning
The process for determining the most cost effective way to match supply and demand over the next 1218 months.

Master Production Scheduling (MPS)

Short-term scheduling of specific end product requirements for the next several quarters.

Rough-Cut or Resource Capacity Planning

Determining that adequate production capacity and warehousing are available to meet demand.

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Overview of Manufacturing Planning Activities

Exhibit 15.1
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Aggregate Production Planning

Production Rate
The capacity of output per unit of time (such as units per day or units per week.

Workforce Level
Number of workers required to provide a specified level of production.

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Aggregate Production Planning (contd)

Inventory on Hand
The surplus of units that results when production exceeds demand in a given time period.

Backlog (or Stockout)

The deficit in units that results when demand exceeds the number of units produced in a given time period.

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Required Inputs to the Production Planning System

Exhibit 15.2
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Production Planning Strategies

Chase Strategy
Matching the production rate to exactly meet the order rate by hiring and laying off workers as the order rate varies.

Stable WorkforceVariable Work Hours

Varying output by varying the number of hours worked through flexible schedules or overtime.

Level Strategy
Maintain a stable workforce working at constant output rate; absorb demand variations with inventory, backlogs, or lost sales.
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Production Planning Strategies (contd)

Pure Strategy
Either a chase strategy when product exactly matches demand or a level strategy when production remains constant over a specified number of periods.

Mixed Strategy
A combination of chase and level strategies to match supply and demand.

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Pure Chase and Pure Level Strategies

Exhibit 15.3
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Aggregate Production Planning

Relevant Costs
Basic production costs (fixed and variable) Costs associated with changes in the production rate (e.g., labor costs) Inventory holding costs Backlog (stockout) costs

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Aggregate Planning Techniques

Trial and Error
Costing out the production alternatives and choosing the one with the lowest cost.

Linear Programming Linear Decision Rule Various Heuristic Methods

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Aggregate Planning Techniques (contd)

Full Costs
All of the actual, out-of-pocket costs associated with a particular aggregate plan. Used for developing a labor and material budget.

Marginal (Incremental) Costs

Unique costs attributable to a particular aggregate plan that are above and beyond those required to build the product by its most economical means.

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Forecasted Demand and Workdays for C&A Company

Exhibit 15.4
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First Alternative: Pure Chase Strategy

Exhibit 15.5

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Exhibit 15.6

Second Alternative: Pure Level Strategy

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Third Alternative: Minimum Workforce with Subcontracting

Exhibit 15.7
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Constant Workforc e with Overtime Strategy

Exhibit 15.8
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Summary of Costs for Aggregate Plans

Exhibit 15.9
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Aggregate Planning Applied to Services: Tucson Parks and Recreation Department

Actual Demand Requirement for Full-Time Direct Employees and Full-Time Equivalent (FTE) Part-Time Employees

Exhibit 15.10
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Three Possible Plans for the Parks and Recreation Department

Exhibit 15.11
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Comparison of Costs for All Three Alternatives

Exhibit 15.12
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Yield Management
Yield (Revenue) Management
The concept used in service operations with high-fixed costs and low-variable costs that attempts to match supply and demand (a chase strategy) to maximize capacity utilization.

Yield Management Requires:

The ability to segment the market High-fixed and low-variable costs where additional sales create more profits Product perishability (cannot be inventoried) Lower-priced capacity that can be presold
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