Professional Documents
Culture Documents
Chapter 3
Aggregate Planning
McGraw-Hill/Irwin
3-2
Goal: To plan gross work force levels and set firmwide production plans.
The Hierarchy of
Production Planning Decisions
3-3
3-4
3-5
Important Issues
3-6
Relevant Costs
Smoothing Costs
changing size of the work force
changing number of units produced
Holding Costs
primary component: opportunity cost of investment
Shortage Costs
Cost of demand exceeding stock on hand. Why should
shortages be an issue if demand is known?
Other Costs: payroll, overtime, subcontracting.
Cost of Changing
the Size of the Workforce
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3-8
$ Cost
Slope =
Ci
Slope =
CP
Back-orders
inventory
Positive
Inventory
3-9
Aggregate Units
The method is based on notion of aggregate
units. They may be
Actual units of production
Weight (tons of steel)
Volume (gallons of gasoline)
Dollars (Value of sales)
Fictitious aggregate units
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3-11
Example continued
3-12
3-13
Month
1(Jan)
2(Feb)
3(Mar)
4(Apr)
5(May)
6(June)
7(July)
8(Aug)
Net Predicted
Demand
220 220 22
280 500 16
460 960 23
190
1150
310
1460
145
1605
110
1715
225
1940
20
21
17
18
10
3-14
3-15
2000
1800
1600
1400
1200
1000
800
600
400
200
0
1
3-16
3-17
3-18
3-19
From the previous graph, we see that cum. net demand curve
is crossed at period 3, so that monthly production is 960/3 =
320. Ending inventory each month is found from:
Month
Cum. Net. Dem. Cum. Prod.
Invent.
1(Jan)
220
320 100
2(Feb)
500
640
140
3(Mar) 960
960
0
4(Apr.)
1150
1280
130
5(May)
1460
1600
140
6(June)
1605
1920
315
7(July)
1715
2240
525
8(Aug)
1940
2560
620
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3-21
3-22
Finding K
K= 520/(38*40) = 0.3421
= average number of units produced by
one worker in one day.
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3-24
# wk days
22
16
23
20
21
22
21
22
3-25
Addition of Costs
Holding Cost (per unit per month): $8.50
Hiring Cost per worker: $800
Firing Cost per worker: $1,250
Payroll Cost: $75/worker/day
Shortage Cost: $50 unit short/month
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3-27
3-28
3-29
3-30
Period
1
2
3
4
5
6
7
8
# hired
#fired
10
20
9
31
15
24
4
15
Cost of this
plan:
$555,704.50
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