Professional Documents
Culture Documents
Operations Management
William J. Stevenson
9th edition
Chapter 12
Aggregate planning
Planning Horizon
Aggregate planning: Intermediate-range
capacity planning, usually covering 2 to 12 months.
The goal of aggregate planning is to achieve a
production plan that will effectively utilize the
organizations resources to satisfy expected
demand.
Long range
Short
range
Now
Intermediate
range
2 months
1 Year
Long-range plans
Long term capacity
Location / layout
Planning Sequence
Figure 12.1
Corporate
strategies
and policies
Economic,
competitive,
and political
conditions
Aggregate
demand
forecasts
Business Plan
Establishes operations
and capacity strategies
Aggregate plan
Establishes
operations capacity
Master schedule
Establishes schedules
for specific products
Resources
Workforce/production rate
Facilities and equipment
Demand forecast
Policies
Subcontracting
Overtime
Inventory levels
Back orders
Costs
Inventory carrying
Back orders
Hiring/firing
Overtime
Inventory changes
subcontracting
Inventory
Output
Employment
Subcontracting
Backordering
Proactive
Reactive
Mixed
Some of each
Demand Options
Pricing
Promotion
Back orders
New demand
Pricing
Promotion
Advertising and any other forms of promotion,
such as displays and direct marketing, can
sometimes be very effective in shifting demand
so that it conforms more closely to capacity.
Timing of promotion and knowledge of
response rates and response patterns will be
needed to achieve the desired result.
There is a risk that promotion can worsen the
condition it was intended to improve, by
bringing in demand at the wrong time.
Back order
An organization can shift demand to other periods
by allowing back orders. That is , orders are taken
in one period and deliveries promised for a later
period.
The success of this approach depends on how
willing the customers are to wait for delivery.
The cost associated with back orders can be
difficult to pin down since it would include lost
sales, annoyed or disappointed customers, and
perhaps additional paperwork.
New demand
Manufacturing
Capacity Options
Hire and layoff workers
Overtime/slack time
Part-time workers
Inventories
Subcontracting (in- out)
Basic Strategies
Chase Approach
Advantages
Disadvantages
Level Approach
Advantages
Disadvantages
1.
2.
3.
4.
5.
6.
Mathematical Techniques
Linear programming: Methods for obtaining optimal
solutions to problems involving allocation of scarce
resources in terms of cost minimization.
Linear decision rule: Optimizing technique that seeks to
minimize combined costs, using a set of costapproximating functions to obtain a single quadratic
equation.
Simulation models: Developing a computerized models that
can be tested under a variety of conditions in an attempt
to identify reasonably acceptable (although not always
optimal) solutions to problem.
Technique
Solution
Characteristics
Graphical/charting
Trial and
error
Linear
programming
Linear
decision rule
Optimizing
Simulation
Trial and
error
Optimizing
Linear programming
Period
2
Period
3
Period n
Unused
capacity
capacity
Period
Beginning
inventory
2h
(n-1)h
I0
Regular
r+h
r+2h
r+(n-1)h
R1
Overtime
t+h
t+2h
t+(n-1)h
O1
subcontract
s+h
s+2h
s+(n-1)h
S1
Regular
r+b
r+h
r+(n-2)h
R2
Overtime
t+b
t+h
t+(n-2)h
O2
subcontract
s+b
s+h
s+(n-2)h
S2
Regular
r+2b
r+b
r+(n-3)h
R3
Overtime
t+2b
t+b
t+(n-3)h
O3
subcontract
s+2b
s+b
s+(n-3)h
S3
demand
D1
D2
D3
Dn
total
notes
Example
Given the following information set up the problem in a transportation table and
solve for the minimum cost plan.
period
1
550
700
750
Regular
500
500
500
Overtime
50
50
50
subcontract
120
120
100
demand
Capacity
Beginning inventory
100
Costs
Regular time
Solution
a.
b.
c.
d.
The transportation table and solution are shown in the next slide.
Some entries require additional explanation:
Inventory carrying cost, h = $1 per unit per period. Hence, units
produced in one period and carried over to a later period will
incur a holding cost that is a linear function of the length of time
held.
Linear programming models of this type require that supply
(capacity) and demand be equal. A dummy column has been
added (nonexistent capacity) to satisfy that requirement. Since it
does not cost anything extra to not use capacity in this case,
cell costs of $0 have been assigned.
No backlogs were needed in this example
The quantities (e.g., 100, 450 in column 1) are the amounts of
output or inventory that will be used to meet demand
requirements. Thus, the demand of 550 units in period 1 will be
met using 100 units from inventory and 450 obtained from
regular time output.
Period
1
Beginning
inventory
Regular
Period
1
Period
2
Period
3
Unused
capacity
100
capacity
100
60
50
61
62
500
Overtime
80
50
81
82
50
Total
cost is
subcontract
90
120
91
92
120
$124910
Regular
63
480
60
20
61
500
Overtime
83
80
50
81
50
subcontract
93
90
120
91
120
Regular
66
63
500
60
500
Overtime
86
83
50
80
50
subcontract
96
93
10
90
100
demand
450
550
700
750
90
90
2090
Period
1
Beginning
inventory
Regular
Optimal solution
Period
1
Period
2
Period
3
Unused
capacity
100
capacity
100
60
50
61
62
500
Overtime
80
50
81
82
50
subcontract
90
30
91
92
120
Regular
63
500
60
61
500
Overtime
83
50
80
81
50
subcontract
93
20
90
100
91
120
Regular
66
63
500
60
500
Overtime
86
83
50
80
50
subcontract
96
93
100
90
100
demand
450
550
700
750
90
90
2090
Total
cost is
$124730
Assumptions
1. The regular output capacity is the same in all periods.
2. Cost ( back order, inventory, subcontracting, etc) is a linear
function composed of unit cost and number of units.
3. Plans are feasible; that is, sufficient inventory capacity exists to
accommodate a plan, subcontractors with appropriate quality and
capacity are standing by, and changes in output can be made as
needed.
4. All costs associated with a decision option can be represented by a
lump sum or by unit costs that are independent of the quantity
involved
5. Cost figures can be reasonably estimated and are constant for the
planning horizon.
6. Inventories are built up and drawn down at a uniform rate and
output occurs at a uniform rate throughout each period.
number of
number of new
= workers at end of
+ workers at start
the previous period
of the period
Inventory
At the end of
A period
Cost for
a period
inventory
at the end of
previous period
number of laid-off
- workers at start of
the period
production
+ in the
current period
output cost
(Reg + OT + subcontract)
hire/layoff
cost
amount used to
satisfy demand in
current period
inventory
cost
back order
+
cost
Average
= Beginning Inventory + Ending Inventory
inventory
2
Cost calculation
Type of cost
How to calculate
Output
Regular
Overtime
Subcontract
Hire/layoff
Hire
Layoff
Inventory
Back order
Example 1
Planners for a company that makes several models of skateboards are about to prepare the
aggregate plan that will cover six periods. They now want to evaluate a plan that calls for
a steady rate of regular output, mainly using inventory to absorb the uneven demand but
allowing some backlog. Overtime and subcontracting are not used because they want a
steady output. They intend to start with zero inventory on hand in the first period. Prepare
an aggregate plan and determine its cost using the following information. Assume a level
of output rate of 300 unit per period with regular time. Note that the planned ending
inventory is zero. There are 15 workers, and each can produce 20 units per period.
period
total
forecast
200
200
300
400
500
200
1800
Cost:
Regular time = $2 per skateboard
Overtime = $3 per skateboard
Subcontract = $6 per skateboard
Inventory = $1 per skateboard per period on average inventory
Back orders = $5 per skateboard per period
Solution: example 1
Period
total
200
200
300
400
500
200
1800
300
300
300
300
300
300
1800
Overtime
Subcontract
100
100
(100)
(200)
100
100
200
200
100
Ending
100
200
200
100
Average
50
150
200
150
50
600
100
100
$600
600
600
600
600
600
$3600
Forecast
Output
Regular
Output-forecast
Inventory
Beginning
Backlog
Cost
Output
Regular
Example 2
After reviewing the plan developed in the preceding
example, planners have decided to develop an
alternative plan. They have learned that one is
about to retire from the company. Rather than
replace that person, they would like to stay with
the smaller workforce and use overtime to make
up for lost output. The reduced regular time output
is 280 units per period. The maximum amount of
overtime output per period is 40 units. Develop a
plan and compare it to the previous one.
Solution: example 2
Period
total
200
200
300
400
500
200
1800
280
280
280
280
280
280
1680
Overtime
40
40
40
120
Subcontract
80
80
20
(80)
(180)
80
Beginning
80
160
180
100
Ending
80
160
180
100
Average
40
120
170
140
50
520
80
80
Forecast
Output
Regular
Output-forecast
Inventory
Backlog
Cost
Output
Comment: example 2
Master scheduling
Aggregate
plan
Disaggregation
Master
Schedule
Master
schedule
Jan
Feb
Mar.
200
300
400
75
150
200
29
inch
25
50
100
Master Scheduling
Master schedule
Determines quantities needed to meet demand
Interfaces with
Master Scheduler
The duties of the master scheduler generally
include:
Evaluates impact of new orders
Provides delivery dates for orders
Deals with problems such as:
Production delays
Revising master schedule
Insufficient capacity
Outputs
Beginning inventory
Forecast
Customer orders
Projected inventory
Master
Scheduling
Master schedule
Inputs:
Beginning inventory; which is the actual inventory
on hand from the preceding period of the schedule
Forecasts for each period demand
Customer orders; which are quantities already
committed to customers.
Outputs
Projected inventory
Production requirements
The resulting uncommitted inventory which is
referred to as available-to-promise (ATP) inventory
Projected on-hand
=
inventory
Inventory from
previous week
Current weeks
requirements
Beginning
Inventory
64
Forecast
Customer Orders
(committed)
Projected on-hand
inventory
Customer orders are
larger than forecast in
week 1
1
30
JUNE
2
3
30 30
4
30
5
40
33
20
10
31
-29
JULY
6
7
40 40
8
40
Week
Inventory
from previous
week
Requirements Net
MPS
inventory
before MPS
Projected
inventory
64
33
31
31
31
30
30
-29
41
30
11
11
40
-29
41
40
40
-39
70
31
31
40
-9
70
61
70
41
11
70
41
1
The projected on-hand inventory and MPS are added to the master
schedule
Initial inventory
1
June
2
3
30
33
30
20
30
10
30 40 40
4 2
40
40
Projected on hand 31
inventory
41
11 41
31
61
70
56
70
68
70
70
70
70
64
Forecast
Customer orders
(committed)
MPS
Available to
promise inventory
11
July
6
7
Notes
The requirements equals the maximum of the
forecast and the customer orders
The net inventory before MPS equals the
inventory from previous week minus the
requirements.
The MPS = run size, will be added when the net
inventory before MPS is negative ( weeks 3, 5, 7,
and 8).
The projected inventory equals the net inventory
before MPS plus the MPS (70).
Time fences divide a scheduling time horizon into three sections or phases,
sometimes referred as frozen, slushy, and liquid, in reference to the firmness of
schedule:
Frozen phase: is the near-term phase that is so soon that delivery of a new order
would be impossible, or only possible using very costly or extraordinary options
such as delaying another delivery.
Slushy phase: is the next phase, and its time fence is usually a few periods beyond
the frozen phase. Order entry in this phase necessitate trade-offs, but is less costly
or disruptive than in frozen phase.
Liquid phase: is the farthest out on the time horizon. New orders or cancellations
can be entered with ease
Period
Figure 12.12
frozen
(firm or
fixed)
slushy
somewhat
firm
liquid
(open)