Operations management 12th stevenson ch11 aggregate planning and master scheduling

Sales and Operations Planning Some organizations use the term sales operations and planning rather than aggregate planning  Sales and operation planning Intermediate-range planning d

Aggregate Planning and Master Scheduling

Chapter 11

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

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

Overview of Planning Levels

The Planning Sequence

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

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

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

or expected supply and to develop revised plans

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

Forecast of aggregate demand for the intermediate

range

Develop a general plan to meet demand requirements

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

Overview of Aggregate Planning

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

Aggregate Planning Inputs

Aggregate Planning Outputs

 Total cost of a plan

Aggregate Planning Strategies

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

Aggregate Planning Pure Strategies

 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

expected demand for that period.

Uneven Demand and Two Strategies:

Chase Approach

planning horizon

Investment in inventory is low

Labor utilization in high

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

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

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

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

Cumulative Graph

Mathematical Techniques

 Simulation models

acceptable solutions to problems

Aggregate Planning in Services

 Hospitals:

 Aggregate planning used to allocate funds, staff, and supplies to meet the demands of patients for their

medical services

 Airlines:

 Aggregate planning in this environment is complex due to the number of factors involved

 Capacity decisions must take into account the percentage of seats to be allocated to various fare classes in

order to maximize profit or yield

 Restaurants:

 Aggregate planning in high-volume businesses is directed toward smoothing the service rate, determining

workforce size, and managing demand to match a fixed capacity

 Can use inventory; however, it is perishable

Aggregate Planning in Services

 The resulting plan in services is a time-phased projection of service staff

requirements

 Aggregate planning in manufacturing and services is similar, but there are some key

differences related to:

1. Demand for service can be difficult to predict

2. Capacity availability can be difficult to predict

3. Labor flexibility can be an advantage in services

4. Services occur when they are rendered

Aggregate Plan

Aggregate Plan

Disaggregation

Master Schedule

Master Schedule

Disaggregating the Aggregate Plan

Master schedule:

Master Scheduling

 The heart of production planning and control

 It determines the quantity needed to meet demand from all sources

 Provides senior management with the ability to determine whether the business plan and its

strategic objectives will be achieved

The Master Scheduler

 The master scheduler’s duties:

 Providing delivery dates for orders

Evaluating the impact of production or delivery delays

Revising master schedule when necessary because of insufficient supplies or capacity

Bring instances of insufficient capacity to the attention of relevant personnel so they

can participate in resolving conflicts

Time Fences

Period

“frozen”

(firm or fixed)

“slushy”

somewhat firm

“liquid”

(open)

1 2 3 4 5 6 7 8 9

The Master Scheduling Process

Master Production Schedule

Master Scheduling Process

 The master production schedule (MPS) is one of the primary outputs of the

master scheduling process

 Once a tentative MPS has been developed, it must be validated

 Rough cut capacity planning (RCCP) is a tool used in the validation process

 Approximate balancing of capacity and demand to test the feasibility of a master schedule

 Involves checking the capacities of production and warehouse facilities, labor, and vendors to

ensure no gross deficiencies exist that will render the MPS unworkable

MPS – Forecasts and Customer Orders

MPS – Projected On Hand

Determining MPS and

Projected On Hand

Week

Inventory from Previous Week Requirements

Inventory before MPS

(70) MPS

Projected Inventory

Adding MPS and Projected On Hand

to the MPS

Available-to-Promise