Lecture Fundamentals of operations management (4/e): Chapter 20 - Davis, Aquilano, Chase

Chappter 15 Aggregate planning, after studying this chapter you will be able to: Demonstrate how aggregate planning links long-range strategic planning and short-range scheduling, present alternate strategies for matching supply and demand: adjusting supply (an operations function) or adjusting demand (a marketing function), introduce strategies for developing aggregate plans and ways to identify their strengths and weaknesses,...

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• Introduce strategies for developing aggregate plans and ways to identify their strengths and weaknesses

• Define marginal costs and total costs as they pertain

to aggregate planning

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• Using aggregate planning to develop

intermediate-range plans that link the long-intermediate-range strategic plan and the short-range operational plan

• Developing aggregate plans that match the demand for products with the firm’s ability to supply the

products and to do so at minimum cost

• Coordinating marketing management and operations

to develop an aggregate plan that is both effective and efficient

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–Focuses on strategic issues relation to capacity,

process, selection, and plant location.

• Intermediate-Range Planning

–Focuses on tactical issues pertaining to

aggregate workforce and material requirements for the coming year.

• Short-Range Planning

–Addresses day-to-day issues of scheduling

workers on jobs at assigned work stations.

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15–6

Aggregate Planning

Aggregate Planning

• Aggregate Production Planning

–The process for determining the most cost

effective way to match supply and demand over the next 12–18 months.

• Master Production Scheduling (MPS)

–Short-term scheduling of specific end product

requirements for the next several quarters.

• Rough-Cut or Resource Capacity Planning

–Determining that adequate production capacity

and warehousing are available to meet demand.

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Aggregate Production Planning

Aggregate Production Planning

• Production Rate

–The capacity of output per unit of time (such as

units per day or units per week.

• Workforce Level

–Number of workers required to provide a

specified level of production.

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15–9

Aggregate Production Planning (cont’d)

Aggregate Production Planning (cont’d)

• Inventory on Hand

–The surplus of units that results when

production exceeds demand in a given time

period.

• Backlog (or Stockout)

–The deficit in units that results when demand

exceeds the number of units produced in a

given time period.

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15–10

Required Inputs to the Production Planning System

Required Inputs to the Production Planning System

Exhibit 15.2

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15–11

Production Planning Strategies

Production Planning Strategies

• Chase Strategy

–Matching the production rate to exactly meet the

order rate by hiring and laying off workers as

the order rate varies.

• Stable Workforce—Variable Work Hours

–Varying output by varying the number of hours

worked through flexible schedules or overtime.

• Level Strategy

–Maintain a stable workforce working at constant

output rate; absorb demand variations with

inventory, backlogs, or lost sales.

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15–12

Production Planning Strategies (cont’d)

Production Planning Strategies (cont’d)

• Pure Strategy

–Either a chase strategy when product exactly

matches demand or a level strategy when

production remains constant over a specified number of periods.

• Mixed Strategy

–A combination of chase and level strategies to

match supply and demand.

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15–13

Pure Chase and Pure Level Strategies

Pure Chase and Pure Level Strategies

Exhibit 15.3

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Aggregate Production Planning

Aggregate Production Planning

• Relevant Costs

–Basic production costs (fixed and variable)

–Costs associated with changes in the

production rate (e.g., labor costs)

–Inventory holding costs

–Backlog (stockout) costs

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15–15

Aggregate Planning Techniques

Aggregate Planning Techniques

• Trial and Error

–Costing out the production alternatives and

choosing the one with the lowest cost.

• Linear Programming

• Linear Decision Rule

• Various Heuristic Methods

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15–16

Aggregate Planning Techniques (cont’d)

Aggregate Planning Techniques (cont’d)

• Full Costs

–All of the actual, out-of-pocket costs associated

with a particular aggregate plan.

–Used for developing a labor and material

budget.

• Marginal (Incremental) Costs

–Unique costs attributable to a particular

aggregate plan that are above and beyond those required to build the product by its most

economical means.

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15–17

Forecasted  Demand and  Workdays for C&A 

Company

Forecasted  Demand and  Workdays for C&A 

Company

Exhibit 15.4

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First Alternative: Pure Chase Strategy

First Alternative: Pure Chase Strategy

Exhibit 15.5

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15–19

Second  Alternative: Pure  Level Strategy

Second  Alternative: Pure  Level Strategy Exhibit 15.6

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Third Alternative:  Minimum Workforce  with Subcontracting

Third Alternative:  Minimum Workforce  with Subcontracting

Exhibit 15.7

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Constant  Workforce  with Overtime  Strategy

Constant  Workforce  with Overtime  Strategy

Exhibit 15.8

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15–22

Summary of Costs for Aggregate Plans

Summary of Costs for Aggregate Plans

Exhibit 15.9

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• Actual Demand Requirement for Full-Time Direct

Employees and Full-Time Equivalent (FTE) Part-Time Employees

Exhibit 15.10

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Three Possible Plans for the Parks and Recreation Department

Three Possible Plans for the Parks and Recreation Department

Exhibit 15.11

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15–25

Comparison of Costs for All Three Alternatives

Comparison of Costs for All Three Alternatives

Exhibit 15.12

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Yield Management

Yield Management

• Yield (Revenue) Management

–The concept used in service operations with

high-fixed costs and low-variable costs that

attempts to match supply and demand (a chase strategy) to maximize capacity utilization.

• Yield Management Requires:

–The ability to segment the market

–High-fixed and low-variable costs where

additional sales create more profits

–Product perishability (cannot be inventoried)

–Lower-priced capacity that can be presold