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Unit 3

Scheduling Operations
Chapter 12: Aggregate Planning
Lesson 40 - AGGREGATE PLANNING FOR SERVICE ORGANIZATIONS
Learning Objectives

After reading this lesson you will be able to understand


Master plan
Scheduling
Aggregate planning in the context of service organization

My dear friends, today we shall learn to extend the concepts learnt during the previous
lectures to service organizations.

Service organizations can also use aggregate planning. The typical service operation, however, is
make – to – order than make-to-stock. Consequently, finished goods are not available for responding
to demand fluctuations. Instead, backlogs of customer requests can be increased or decreased to
utilize capacity at desired levels.

The following example shows how a city's parks and recreation department could use the
alternatives of full-time employees, part-time employees, and subcontracting to meet its commitment
to provide a service to the city.
Tucson Parks and Recreation Department has an operation and maintenance budget of $9.760.000.
The department is responsible for developing and maintaining open space, all public recreational
programs, adult sports leagues, golf courses, tennis courts, pools, and so forth. There are 336 full-
time-equivalent employees (FTEs). Of these, 216 are full-time permanent personnel who provide the
administration and year-round maintenance to ail areas. The remaining 120 FTE positions are staffed
with part-timers; about three-quarters or them are used during the summer and the remaining quarter
in the fall, winter. and spring seasons. The three-fourths (or 90 FTE positions) show up as
approximately 800 part-time summer jobs: lifeguards, baseball umpires, and instructors in summer
programs for children. Eight hundred part-time jobs came from 90 FTEs because many last only for
a month or two, while the FTEs are a year long.
Currently, the only parks and recreation work subcontracted amounts to less than $100,000. This
is for the golf and tennis pros and for grounds maintenance at the libraries and veterans' cemetery.
Because of the nature of city employment, the probable bad public image, and civil service rules,
the option to hire and fire full-time help daily or weekly to meet seasonal demand is out of the
question. However, temporary part-time help is authorized and traditional. Also, it is virtually
impossible to have regular (full-time) staff for all the summer jobs. During the summer months, the
approximately 800 part-time employees are staffing many programs that occur simultaneously,
prohibiting level scheduling over a norma140-hour week. A wider variety of skills are required (such
as umpires, coaches, lifeguards, and teachers of ceramics, guitar, karate, belly dancing, and yoga)
than can be expected from full-time employees.
Three options are open to the department in its aggregate planning:

1 The present method, which is to maintain a medium-level full-time staff and schedule work during
off-seasons (such as rebuilding baseball fields during the winter months) and to use part-time help
during peak demands.
2 Maintain a lower level of staff over the year and subcontract all additional
work presently done by full-time staff (still using part-time help).
3 Maintain an administrative staff only and subcontract all work, including
part-time help. (This would entail contracts to landscaping firms and pool
maintenance companies as well as to newly created private firms to
employ and supply part-time help.)

The common unit of measure of work across all areas is full-time equivalent jobs or employees.
For example, assume in the same week that 30 lifeguards worked 20 hours each, 40 instructors
worked 15 hours each, and 35 baseball umpires worked 10 hours each. This is equivalent to (30 x
20) + (40 x 15) + (35 x 10) = 1,550 -:- 40 = 38.75 FTE positions for that week. Although a
considerable amount of workload can be shifted to off-season, most of the work must be done when
required.
Full-time employees consist of three groups: (1) the skeleton group of key department personnel
coordinating with the city, setting policy, determining budgets, measuring performance, and so forth;
(2) the administrative group of supervisory and office personnel who are responsible for or whose
jobs are directly linked to the direct-labor workers; and (3) the direct-labor workforce of 116 full-
time positions. These workers physically maintain the department's areas of responsibility, such as
cleaning up, mowing golf greens and ball fields. trimming trees, and watering grass.
Cost information needed to determine the best alternative strategy is

FULL time DIRECT LABOR EMPLOYEES


• average wage rate $ 4.45 per hour
• Fringe benefits 17 % of wage rate
• Administrative costs 20 % of wage rate
PART TIME EMPLOYEES
• average wage rate $ 4.03 PER HOUR
• Fringe benefits 11 % OF WAGE RATE
• Administrative costs 25 % OF WAGE RATE.
subcontracting at full time fobs $ 1.) million
Subcontracting all part time jobs $ 1.85 million.

Table 16 Actual Requirement for full Time Direct Employees and Full Time equivalent
Part Time Employee.

SE
JAN. FEB MAR. APR. MAY JUNE JULY AUG. OCT. Nov. Dee. TOTAL
P
ays 22 20 21 22 21 20 21 21 21 23 18 22 252
Fuli-time
employees 66 28 130 go 195 290 325 92 45 32 29 60 Full Time days are derived by
- - - - - -- - - - - - multiplying
- the number of
Fuli-time days in each month by the
days. 1.452 560 2,730 1.980 4.095 5.800 6,825 1.932 .945 736 522 1.320 28.897
number of workers.
Full-time
equivalent
part-time
employees 41 75 72 68 72 302 576 72 0 68 84 27

FTE days 902 1.500 1.512 1.496 1.512 6.040 12.096 1,512 0 1.564 1.512 594 30.240
Full Time FTE part time
equivalent
employees
required
100

Monthly Requirement for full time direct labors Employees


( other than Key Personnel) and Full Time equivalent Part time employees.

June and July are the peak demand seasons in Tucson. Table 16 and graph10 show the high
requirements for June and July personnel. The part-time help reaches 576 full-time equivalent
positions (although in actual numbers, this is approximately 800 different employees). After a low
fall and winter staffing level, the demand shown as "full-time direct" reaches 130 in March (when
grounds are reseeded and fertilized) and then increases to a high of 325 in July. The present method
levels this uneven demand over the year to an average of 116 fu-time year-round employees by early
scheduling of work. As previously mentioned, no attempt is made to hire and layoff fuil-time
workers to meet this uneven demand.
Table 11 shows the cost calculations for all three alternatives. Exhibit 12 compares the total costs for
each alternative. From this analysis, it appears that the department is already using the lowest-cost
alternative (Alternative1)

Three Possible Plans for the Parks and Recreation


Department
Alternative 1: Maintain 116 full-time regular direct workers, Schedule work during
off-seasons to level workload throughout the year. Continue to use 120 full-time
equivalent (FTE) part-time employees to meet high demand periods,

COSTS
252 ADMINISTRAT
HOURS
116 full- IVE
time regular (EMPLO FRINGE COST (FULL -
employees WAGES
YEES BENEFITS TIME,
120 part-time X DAYS (FULL -TIME, (FULL- 20%; PART-
employees X $4.45; TIME,17%; TIME,
252
8 PART-TIME. PART-
25%)
Total cost = $2.751,619 HOURS) $4.03) TIME,l1%)
233,856 $1,040,659 $176,912 $208.132
241,920 974.938 107.243 243.735
$2,015.597 $284,155 $451.867
Alternative 2: Maintain 50 full-time regular direct workers and the present 120 FTE
part-time employees. Subcontract jobs releasing 66 full-time regular employees.
Subcontract Cost. $1,100.000,

administrat
hours
ive
(employee fringe cost (full-
wages
s benefits time.
days per (full-time, (full-time. 20%; part- subcontr
x days x
year $4.45; 17%; time, .ct
(exhibit part-time, part-
cost 8 hours) 2s%) cost
13.7) $4.03) time,l1%)
50 full-
time
employ 252 100,800 $ 448,560 $ 76.255 $ 89.712
ees
120 fte
part-time 252 241.920 974.938 107.243 243,735
employees
subcontract
ing
$1.100.
cost
000
- - -
$1,100.
total cost = $3,040.443 $1.423.498 $183.498 $333.447
000

Alternative 3: Subcontract all jobs previously performed by 116 full-time regular


employees. Subcontract cost $1.600,000. Subcontract all jobs previously performed
by 120 FTE part-time employees. Subcontract cost $1.850.000.
.

0 full-time
employees
0 part-time
employees $1,600,000
Subcontract full-
time jobs 1.850,000
Subcontract part- $3.450.000
time jobs
Total cost

_ $3..150
,000
Table 12 Comparison of Costs for All Three Alternatives

ALTERNATIVE ALTERNATIV ALTERNATIV


1: E 2: E 3:
116 FULL-TIME 50 FULL-TIME SUBCONTRA
DIRECT-LABOR DIRECT- CTING JOBS
EMPLOYEES. LABOR FORMERLY
120 FULL-TIME EMPLOYEES. PERFORMED
120 FULL- BY 116
TIME DIRECT-
EQUIVALENT LABOR FULL-
PART-TIME TIME
EMPLOYEES, EMPLOYEES
SUBCONTRAC AND 120 FTE
TING PART-TIME
EMPLOYEES

Wages $2.015.597 . $1.423.498


Fringe 284,155 183.498
benefits

Administrati
ve costs 451,867 333.447
Subcontracti
ng. Full $1.600,000
Time Jobs 1,100,000

Subcontracti
ng. Part
Time Jobs 1.850.000

TOTAL
COSTS 2,751,619 3,040,443 3,450,000
Problem 1

Level Strategy with Overtime and Under time

The Barberton Municipal Division of Road Maintenance is charged with road repair in
the city of Barberton and surrounding area. Cindy Kramer, road maintenance director,
must submit a staffing plan for the next year based on a set schedule for repairs and on
the city budget. Kramer estimates that the labor hours required for the next four quarters
are 6,000, 12,000, 19,000, and 9,000, respectively. Each of the 11 workers on the work
force can contribute 520 hours per quarter. Overtime is limited to 20 percent of the
regular-time capacity in any quarter. Subcontracting is not permitted.

a. Find a level work-force plan that allows no delay in road repair and minimizes under
time. Overtime can be used to its limits in any quarter.

Quarter
1 2 3 4 Total
Requirement (hrs) 6,000 12,000 19,000 9,000 46000
Workforce level
(workers)
Undertime (hours)
Overtime (hours)
Productive time (hours)
Hires (workers)
Layoffs (workers)

b. Payroll costs are $6,240 in wages per worker for regular time worked up to 520 hours,
with an overtime pay rate of $18 for each overtime hour. Although unused overtime
capacity has no cost, unused regular time is paid at $12 per hour. The cost of hiring a
worker is $3,000, and the cost of laying off a worker is $2,000. What is the cost of your
level work-force plan?

Costs
Productive time
Undertime
Overtime
Hires
Layoffs

Total Cost
Chase Strategy with Hiring and Layoffs

a. Now use a chase strategy for the Barberton Municipal Division that varies the work-
force level without using overtime. Undertime should be minimized, except for the
minimal amount mandated because the quarterly requirements are not integer multiples
of 520 hours.

Quarter
1 2 3 4 Total
Requirement (hrs) 6,000 12,000 19,000 9,000 46000
Workforce level (workers)
Undertime (hours)
Overtime (hours)
Productive time (hours)
Hires (workers)
Layoffs (workers)

b. What is the total cost of this plan?

Costs
Productive time
Undertime
Overtime
Hires
Layoffs

Total Cost

Problem 2

Bob Carlton’s golf camp estimates the following work-force requirements for its services
over the next two years.

Quarter 1 2 3 4 5 6 7 8
Demand 4200 6400 3000 4800 4400 6240 3600 4800
Each certified instructor puts in 480 hours per quarter regular time and can work an
additional 120 hours overtime. Regular-time wages and benefits cost Carlton $7,200 per
employee per quarter for regular time worked up to 480 hours, with an overtime cost of
$20 per hour. Unused regular time for certified instructors is paid at $15 per hour. There
is no cost for unused overtime capacity. The cost of hiring, training, and certifying a new
employee is $10,000. Layoff costs are $4,000 per employee. Currently, eight employees
work in this capacity.

a. Find a level work-force plan that allows for no delay in service and minimizes
undertime. What is the total cost of this plan?
b. Use a chase strategy that varies the work-force level without using overtime or
undertime. What is the total cost of this plan?
c. Can you propose a better plan?

Problem 3

The Cranston Telephone Company employs workers who lay telephone cables and
perform various other construction tasks. The company prides itself on good service and
strives to complete all service orders within the planning period in which they are
received.

Each worker puts in 600 hours of regular time per planning period and can work as much
as an additional 100 hours overtime. The operations department has estimated the
following workforce requirements for such services over the next four planning periods:

Planning Period 1 2 3 4
Demand (hours) 21,000 18,000 30,000 12,000

Cranston pays regular-time wages of $6,000 per employee per period for any time
worked up to 600 hours(including undertime). The overtime pay rate is $15 per hour
over 600 hours. Hiring, training, and outfitting a new employee costs $8,000. Layoff
costs are $2,000 per employee. Currently, 40 employees work for Cranston in this
capacity. No delays in service, or backorders, are allowed.

a. Develop a level workforce plan that uses only the overtime and undertime
alternatives. Maximize the use of overtime during the peak period so as to
minimize the workforce level and amount of undertime.
b. Prepare a chase strategy without using overtime and undertime.
c. Propose an effective mixed-strategy plan.

With that, we have come to the end of today’s discussions. I hope it has
been an enriching and satisfying experience.

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