Operations management 12th stevenson ch11 aggregate planning and master scheduling

Chapter 11
Aggregate Planning and
Master Scheduling

McGraw-Hill/Irwin

Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.


Chapter 11: Learning Objectives

 You should be able to:
1.

Explain what aggregate planning is and how it is useful

2.

Identify the variables decision makers have to work with in aggregate planning and some of the
possible strategies they can use

3.

Describe some of the graphical and quantitative techniques planners use

4.

Prepare aggregate plans and compute their costs

5.

Describe the master scheduling process and explain its importance

Instructor Slides

11-2


Aggregate Planning

Aggregate planning
 Intermediate-range capacity planning that typically covers a time horizon of 2 to
18 months

 Useful for organizations that experience seasonal, or other variations in demand
 Goal:
Achieve a production plan that will effectively utilize the organization’s resources to
satisfy demand

Instructor Slides

11-3


Sales and Operations Planning

Some organizations use the term sales operations and planning
rather than aggregate planning

 Sales and operation planning
Intermediate-range planning decisions to balance

supply and demand, integrating

financial and operations planning

Since the plan affects functions throughout the organization, it is typically prepared with
inputs from sales, finance, and operations

Instructor Slides

11-4


Overview of Planning Levels
Overview of Planning Levels (chapter numbers shown)
Long-Range Plans

Intermediate Plans

Short-Range Plans

Long-term capacity} 5

(This Chapter)

Detailed plans:

Location} 8

General levels of:

Layout} 6
Product design} 4
Work system design} 7

Instructor Slides

• Employment
• Output
•Finished-goods inventories
•Subcontracting
•Backorders

•
•
•
•
•
•

Production lot size} 13
Order quantities} 13
Machine loading} 16
Job assignments} 16
Job sequencing} 16
Work schedules} 16

11-5

The Planning Sequence

Instructor Slides

11-6


Why Use Aggregate Planning

 Why do organizations need to do aggregate planning?

 Planning
 It takes time to implement plans
 Strategic
 Aggregation is important because it is not possible to predict with accuracy the timing and



volume of demand for individual items
It is connected to the budgeting process
It can help synchronize flow throughout the supply chain; it affects costs, equipment utilization;
employment levels; and customer satisfaction

Instructor Slides

11-7


Aggregation

 The plan must be in units of measurement that can be understood by the
firm’s non-operations personnel



Aggregate units of output per month



Dollar value of total monthly output



Total output by factory



Measures that relate to capacity such as labor hours

Instructor Slides

11-8


Dealing with Variation

Most organizations use rolling 3, 6, 9 and 12 month forecasts
 Forecasts are updated periodically, rather than relying on a once-a-year forecast
 This allows planners to take into account any changes in either expected demand
or expected supply and to develop revised plans

Instructor Slides

11-9


Dealing with Variation

 Strategies to counter variation:

 Maintain a certain amount of excess capacity to handle increases in demand
 Maintain a degree of flexibility in dealing with changes
 Hiring temporary workers
 Using overtime
 Wait as long as possible before committing to a certain level of supply capacity
 Schedule products or services with known demands first
 Wait to schedule other products until their demands become less uncertain

Instructor Slides

11-10


Overview of Aggregate Planning

Forecast of
aggregate demand
for the intermediate
range

Instructor Slides

Develop a general
plan to meet demand
requirements

Update the
aggregate plan
periodically (e.g.,
monthly)

11-11


Demand and Supply

 Aggregate planners are concerned with the
 Demand quantity
 If demand exceeds capacity, attempt to achieve balance by altering capacity, demand, or
both

 Timing of demand
 Even if demand and capacity are approximately equal, planners still often have to deal with
uneven demand within the planning period

Instructor Slides

11-12

Aggregate Planning Inputs

Resources

 Workforce/production rates
 Facilities and equipment

Demand forecast
Policies

 Workforce changes
 Subcontracting
 Overtime
 Inventory levels/changes
 Back orders

Instructor Slides

Costs

 Inventory carrying
 Back orders
 Hiring/firing
 Overtime
 Inventory changes
 subcontracting

11-13

Aggregate Planning Outputs

Total cost of a plan
Projected levels of
 Inventory
 Output
 Employment
 Subcontracting
 Backordering

Instructor Slides

11-14


Aggregate Planning Strategies

Proactive
 Alter demand to match capacity

Reactive
 Alter capacity to match demand

Mixed
 Some of each

Instructor Slides

11-15

Demand Options




Pricing



Used to shift demand from peak to off-peak periods



Price elasticity is important

Promotion





Advertising and other forms of promotion

Back orders



Orders are taken in one period and deliveries
promised for a later period



New demand

Instructor Slides

11-16


Supply Options

Hire and layoff workers
Overtime/slack time
Part-time workers
Inventories
Subcontracting

Instructor Slides

11-17


Aggregate Planning Pure Strategies

Level capacity strategy:
 Maintaining a steady rate of regular-time output while meeting variations in
demand by a combination of options:

inventories, overtime, part-time workers, subcontracting, and back orders

Chase demand strategy:
 Matching capacity to demand; the planned output for a period is set at the
expected demand for that period.

Instructor Slides

11-18


Uneven Demand and Two Strategies:

Instructor Slides

11-19


Chase Approach

Capacities are adjusted to match demand requirements over the
planning horizon

 Advantages
Investment in inventory is low
Labor utilization in high

 Disadvantages
The cost of adjusting output rates and/or workforce levels

Instructor Slides

11-20


Level Approach

Capacities are kept constant over the planning horizon
Advantages
 Stable output rates and workforce

Disadvantages
 Greater inventory costs
 Increased overtime and idle time
 Resource utilizations vary over time

Instructor Slides

11-21


Techniques for Aggregate Planning

General procedure:
1.

Determine demand for each period

2.

Determine capacities for each period

3.

Identify company or departmental policies that are pertinent

4.

Determine unit costs

5.

Develop alternative plans and costs

6.

Select the plan that best satisfies objectives. Otherwise return to step 5.

Instructor Slides

11-22


Trial-and-Error Techniques

 Trial-and-error approaches consist of developing simple table or graphs that enable
planners to visually compare projected demand requirements with existing capacity

 Alternatives are compared based on their total costs
 Disadvantage of such an approach is that it does not necessarily result in an optimal
aggregate plan

Instructor Slides

11-23


Trial-and-Error Technique Assumptions
1.

The regular output capacity is the same in all periods

2.

Cost is a linear function composed of unit cost and number of units

3.

Plans are feasible

4.

All costs are associated with a decision option can be represented by a lump sum

5.

Cost figures can be reasonably estimated and are constant for the planning period

6.

Inventories are built up and drawn down at a uniform rate throughout each period

7.

Backlogs are treated as if they exist the entire period

Instructor Slides

11-24


Cumulative Graph

Instructor Slides

11-25