Operations

Management
Chapter 13
Aggregate Planning

13 1

Aggregate Planning
Determining most cost effective
way to match supply and
demand.

13 2

Aggregate Planning
Determine quantity and timing of
production for immediate future
Minimize cost by adjusting

Production rates
Labor levels
Inventory levels
Overtime work
Subcontracting rates

13 3

13 4

Aggregate Planning Strategies

Capacity Options
1.
2.
3.
4.

Inventories absorb changes in demand

Varying workforce size
Use part-timers, overtime or idle time
Use subcontractors and maintain a stable
workforce
5. Change prices or other factors to
influence demand

13 5

Demand Options
Influencing demand
6. Use advertising/ promotion
7. Shift demand to slow
periods

13 6

Capacity Options
Changing inventory levels
Increase inventory in low demand
periods
Increases costs with storage,
insurance, handling, obsolescence
and capital investment
Shortages can mean lost sales

13 7

Capacity Options
Varying workforce size by hiring
or layoffs
Training and separation costs
New workers learning curves
Laying off affects morale and
productivity

13 8

Capacity Options
Varying production rate through
overtime or idle time
Constant workforce
Difficult to meet large increases
Overtime costs and productivity
levels
What to do with idle time?

13 9

Capacity Options
Subcontracting
Temporary measure
Costly
Assuring quality and timely
delivery difficult
Exposes customers to a possible
competitor

13 10

Capacity Options
Using part-time workers
For unskilled or low skilled
positions, especially in services

13 11

Demand Options
Back ordering during highdemand periods
Customers wait for an order
without loss of goodwill or order
Effective when few substitutes for
product or service
Results in lost sales

13 12

Demand Options
Counterseasonal mixing
May lead to products/ services
outside companys expertise

13 13

Mixing Options to
Develop a Plan
Chase strategy
Match output rates to demand
forecast for each period
Vary workforce levels or vary
production rate
Favored by service organizations

13 14

Mixing Options to
Develop a Plan
Level strategy
Uniform daily production
Inventory/ idle time as buffer
Stable production leads to better
quality and productivity

Mixed strategy
Combination of capacity options
13 15

Graphical Method
1. Determine demand per period
2. Determine regular time, overtime,
subcontracting capacity per period
3. Find labor, hiring and layoff, inventory
holding costs
4. Consider company policy on workers and
stock levels
5. Develop plans and examine total costs
13 16

Roofing Supplier Example

Month

Expected Demand

Production
Days

Demand Per Day

(computed)

Jan

900

22

41

Feb

700

18

39

Mar

800

21

38

Apr

1,200

21

57

May

1,500

22

68

June

1,100

20

6,200

124

Total expected demand

Average
=
Number of production days
requirement

55
Table 13.2

6,200
=
= 50 units per day
124
13 17

Production rate per working day

Roofing Supplier Example

Forecast demand

70
60

Level production using average

monthly forecast demand

50
40
30

0
Jan

Feb

Mar

Apr

May

June

22

18

21

21

22

20

Figure 13.3

= Month
= Number of
working days
13 18

Sample Problem
Brooke Cashion, operations manager
at Kansas Furniture, has received the
following demand: July (1000), Aug
(1200), Sept (1400), Oct (1800), Nov
(1800), Dec (1600)
Assuming stockout costs for lost sales
of $100, inventory carrying costs of
$25/unit/mo and zero ending
inventory.
13 19

Sample Problem
Plan A: Produce at a steady rate (equal
to minimum requirements) of 1,000
units/mo and subcontract additional
units at a $60/unit premium cost.
Plan B: Vary the workforce, which
performs at a current production
level of 1,300 units/mo. The cost of
hiring is $3,000 per 100 units while
layoffs cost $6,000 per 100 units cut
back.
13 20

Sample Problem

13 21

Sample Problem

13 22

Transportation Method
Demand
Capacity:
Regular
Overtime
Subcontracting
Beginning inventory
Regular time
Overtime
Subcontracting
Carrying

Costs
$40
$50
$70
$2

Sales Period
Mar
Apr
May
800
1,000
750
700
700
50
50
150
150
100 tires
per tire
per tire
per tire
per tire per month

700
50
130

Table 13.6
13 23

13 24

Sample
Problem
Set the following
problem up in
transportation model
format and solve for
the minimum cost
plan.

Demand
Capacity
Regular
Overtime
Subcontract
Beginning Inventory
Costs
Regular time
Overtime
Subcontract
Inventory carrying
Back order

Feb
55
50
5
12
10

Period
Mar
70

Apr
75

50
5
12

50
5
10

$60 per unit

$80 per unit
$90 per unit
$1 per unit per month
$3 per unit per month
13 25

Practice Problems

13 26