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Production Systems
Lecture on
Aggregate Planning
The objectives
Meet changing demand (changes in the size of g g ( g manpower) Maintain a stable work force ( skilled labor ) Maximize profit
How to aggregate ? Unit of production Weight (ton of cement) g g Volume ( gallons of engine oil ) Man-hours $ of inventory
Example
Model A B C D E Man-hrs 3 3.5 4 4.5 45 6 % of sales 45 25 15 10 5 Selling $ 210 280 400 540 900
Same product family Can t C not use selling price (why ?) lli i ( h Can use man-hrs ( average man-hrs ) g Aggregate production unit:
an imaginary product requiring the average man hours A Aggregate production unit = t d ti it forecast of each type*its % of sales
If there is a large variety of g y products, selling price is used and it gives a good approximation
Input:
Demand forecast for product or service per unit time
We must have forecast of aggregate demand for the planning horizon. We ill W will assume no forecasting error!! f ti !!
Output: 1. Determine aggregate production quantity in each planning period i i h l i i d 2. Determine level of resources (manpower) Objective: maximize profit
Main issues in aggregate planning: 1. smoothing 2. bottleneck problems 2 b ttl k bl 3. planning horizon 4. treatment of demand
1. 1
2. 2
Bottleneck problems: Refers to large increases in the demand that can not be handled
3. 3 Planning horizon:
* Short horizons result in not meeting demand later * Long horizons result in inaccurate forecasts * Effect of end-of-horizon inventory * Use of rolling horizons * Long set up times result in frozen time periods
Costs involved
1. 2. 3. 4. 5. 6. 7. Hiring costs g y Firing/lay off cost Holding cost g Shortage cost Regular time cost g Overtime/ Subcontracting cost Idle time cost
1. Hiring costs
Time of recruiting team i f ii Ads, interviews Training T i i Will assume a linear function
3. Holding cost Cost due to having inventory It is based on a. unit value of inventory it l fi t b. level of inventory during the planning period or end of period Will assume a linear function 4. Shortage cost Cost due to shortage a. backlogged demand (common in manufacturing) g) b. lost demand ( common in retail) Will assume a linear function
Manpower Manpo er Direct and indirect material cost We assume a linear function
g 6. Overtime and subcontracting cost Pay to regular workers at overtime Cost paid to outside suppliers We assume a linear function
Example Month Demand Notes 1 1280 500 available 2 640 3 900 4 1200 5 2000 6 1400 600 ending invt
Example Month Demand 1 1280 2 640 3 900 4 1200 5 2000 6 1400 Net Demand 780 640 900 1200 2000 2000
How to include: minimum buffer of 200 i each month i i b ff f in h th Add the minimum buffer to the demand of the first month
Example Month Demand 1 1280 2 640 3 900 4 1200 5 2000 6 1400 Net Demand 980 640 900 1200 2000 2000
How to include a minimum bu e o 00 buffer of 200 in month 3? o t Add the minimum buffer to the demand of month 3 and subtract from month 4
Example Month Demand 1 1280 2 640 3 900 4 1200 5 2000 6 1400 Net Demand 780 640 1100 1000 2000 2000
Example
Cost f hiring C of hi i SR 500/ 500/worker k Cost of firing SR 1000/worker Cost f holding C of h ldi 1 unit of inventory i fi for 1 month SR 80
76 workers produced 245 units in it i 22 days Worker productivity/day = 245/( 76 * 22) = 0 14653 0.14653
Zero inventory plan Chase the demand plan Initial workforce is 300 Demo
524,260
Remarks R k 1. Labor cost is not included 2. Note the difference between Inventory and Extra quantity y q y 3. Frequent hiring and firing 4. 4 Include the holding cost of the ending inventory
The case of constant work force ork How large is it? Demo
worker productivity 0.146531 p y Initial work force 300 Firing cost 1000 Hiring Hi i cost t 500 Storage cost 80
How many to hire ? No shortage is allowed Workers needed Forecasted Working Cumulative Cumulative Month demand days demand work days
Jan 780 20 780 Feb 640 24 1420 March 900 18 2320 April 1200 26 3520 May 2000 22 5520 June 2000 15 7520 y The constant workforce which will satisfy
20 267 44 221 62 256 88 273 110 343 125 411 the demand is 411
worker productivity 0.1465 Initial work force Firing cost Hiring cost Storage cost 300 1000 500 80
Forecasted Working No of Cumulative Cumulative Month demand days workers Production Production Demand Inventory
20 24 18 26 22 15
531580
Remarks 1. Labor cost is not included 2. 2 Excessive inventory cost 3. Hiring or firing occurs only once 4. Include the holding cost of g y the ending inventory
Linear Programming 1. For larger problems 2. More constraints could be added 3. Regular and overtime labor cost can easily g y be included 4. 4 Guarantees optimal solution 5. Cost parameters may be time varying values
Decision variables Let T be the planning horizon Wt = workforce in period t Ht = workers hired in period t Ft = workers fi d in period t k fired i i d Pt = units produced during period t (during regular and overtime) Ot = units produced during overtime Ut = idle time in period t measured in product units St = units supplied by a subcontractor It = i inventory level in period t l li i d
Parameters Dt = demand in period t CH = cost of hiring one worker CF = cost of firing one worker CI = cost of holding 1 unit for 1 period CR = cost of producing 1 unit in regular time CO= cost of producing 1 unit in overtime CS = cost of 1 unit supplied by the subcontractor f i li d b h b nt = number of working days in period t K = number of units a worker can produce in a day W0 = initial workforce
= =
Inventory in period t1
+ +
+ +
Demand in period
t Dt
It
It 1
Pt
St
Production constraints
Units Idle time Production produced Units capacity in units in produced = in regular + of in period overtime time in i i production t time in t t t Pt = KntWt + Ot Ut
Solution may not be integer Can we get Ot > 0 and Ut > 0 Ht > 0 and Ft > 0 ?
MIN 500 H1 + 1000 F1 + 80 I1 + 500 H2 + 1000 F2 + 80 I2 + 500 H3 + 1000 F3 + 80 I3 + 500 H4 + 1000 F4 + 80 I4 + 500 H5 + 1000 F5 + 80 I5 + 500 H6 + 1000 F6 + 80 I6 ST W1 - H1 + F1 = 300 W2 - W1 - H2 + F2 = 0 W3 - W2 - H3 + F3 = 0 W4 - W3 - H4 + F4 = 0 W5 - W4 - H5 + F5 = 0 W6 - W5 - H6 + F6 = 0 I6 = 600 - I1 + P1 = 780 I1 - I2 + P2 = 640 I2 - I3 + P3 = 900 I3 - I4 + P4 = 1200 I4 - I5 + P5 = 2000 I5 I6 + P6 = 1400 P1 - 2.93062201 W1 = 0 P2 - 3.516746411 W2 = 0 P3 - 2.6375598094 W3 = 0 P4 - 3.809808612 W4 = 0 P5 - 3.223684211 W5 = 0 P6 - 2.197966507 W6 = 0 END GIN W1 GIN W2 GIN W3 GIN W4 GIN W5 GIN W6
The Th sum of the inventory constraints: f h i i I6 = 600 - I1 + P1 I1 - I2 + P2 I2 - I3 + P3 I3 - I4 + P4 I4 - I5 + P5 I5 I6 + P6 = 780 = 640 = 900 = 1200 = 2000 = 1400
From th manpower constraints: F the t i t P1 - 2.93062201 W1 = 0 P2 - 3.516746411 W2 = 0 P3 - 2.6375598094 W3 = 0 P4 - 3.809808612 W4 = 0 P5 - 3.223684211 W5 = 0 P6 - 2.197966507 W6 = 0 Pt is fractional
+ 2.93062201 W1 <= 1 + 3.516746411 W2 <= 1 + 2.6375598094 W3 <= 1 + 3.809808612 W4 <= 1 + 3.223684211 W5 <= 1 + 2.197966507 W6 <= 1
Period 1 2 3 4 5 6
Labor Hired Fired Production Inv 273 0 27 799.05 19.05 273 0 0 959.07 338.13 273 0 0 719.05 719 05 157.19 157 19 275 2 0 1047.05 4.24 737 462 0 2375.855 380.1 737 0 0 1619.901 600
Extensions: Minimum buffer Limits of hiring/firing Production capacity Backlog of excess demand
What if: Maximum production 2000 Period Labor Hired Fired P i d L b Hi d Fi d 1 2 3 4 5 6 300 300 300 377 620 620 0 0 0 77 243 0 0 0 0 0 0 0
Cost = 391,097
In addition, what if: Maximum manpower increase is 20% of previous value, Wt 1.2 Wt-1 Period Labor Hired Fired P i d L b Hi d Fi d 1 2 3 4 5 6 300 309 370 444 532 534 0 9 61 74 88 2 0 0 0 0 0 0
In addition, what if: inventory can not exceed 1000, It 1000 Period Labor Hired Fired P i d L b Hi d Fi d 1 2 3 4 5 6 300 300 359 430 516 610 0 0 59 71 86 94 0 0 0 0 0 0
Cost = 428,884.1
Skip 3.7 The linear decision rule g g 3.8 Modeling management behavior 3.9 Disaggregating aggregate plans