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

Aggregate Planning
The McGraw-Hill Companies, Inc., 2003
chapter 15
DAVIS

AQUILANO

CHASE












PowerPoint
Presentation
by
Charlie
Cook

Fundamentals of Operations Management 4e The McGraw-Hill Companies, Inc., 2003 152
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.

Fundamentals of Operations Management 4e The McGraw-Hill Companies, Inc., 2003 153
Chapter Objectives (contd)
Introduce the concept of yield management as a tool
for matching supply and demand in service
operations.


Fundamentals of Operations Management 4e The McGraw-Hill Companies, Inc., 2003 154
Managerial Issues
Translating long-range strategic plans into daily work
schedules for the shop floor.
Using aggregate planning to develop intermediate-
range 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.

Fundamentals of Operations Management 4e The McGraw-Hill Companies, Inc., 2003 155
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.

Fundamentals of Operations Management 4e The McGraw-Hill Companies, Inc., 2003 156
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.

Fundamentals of Operations Management 4e The McGraw-Hill Companies, Inc., 2003 157
Overview of
Manufacturing
Planning
Activities
Exhibit 15.1

Fundamentals of Operations Management 4e The McGraw-Hill Companies, Inc., 2003 158
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.

Fundamentals of Operations Management 4e The McGraw-Hill Companies, Inc., 2003 159
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.

Fundamentals of Operations Management 4e The McGraw-Hill Companies, Inc., 2003 1512
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

Fundamentals of Operations Management 4e The McGraw-Hill Companies, Inc., 2003 1516
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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Second
Alternative:
Pure Level
Strategy
Exhibit 15.6

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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