Actual Customer Production Planning & Forecast

Demand Control Demand

Aggregate Planning
Revise the schedule Master Production Revise the schedule

Schedule No
No

MRP: CRP:
Are Yes Yes Is
materials capacity
sufficient sufficient
? ?
Production Activity Control or Shop
Floor Control –
Order release; Order scheduling;
Order progress
2
Dept. of ME, JSSATE, Bengaluru
Module – 4:
• Aggregate Planning
• Nature and scope of aggregate planning,
strategies of aggregate planning, techniques for
aggregate planning – graphical and charting
techniques, mathematical techniques.
• Master Scheduling
• The master production schedule, Master
scheduling process, Master scheduling methods.
(8 hours)
Dept. of ME, JSSATE, Bengaluru 3
Forecasting
Module Outcome:
At the end of this module, you will be able to:
Bloom’s
CO# Course Outcome
Level
Analyse the aggregate plan and master production
4 schedule for an organization, given its periodic 4
demand.

Learning Objectives:
After completing this module, you should be able to:

Dept. of ME, JSSATE, Bengaluru 4

Aggregate Planning - Introduction
• Aggregate refers to sales and operations planning for
product lines or families.
• AP determines the quantity and timing of production
of the entire product family of an organization for
the intermediate future (generally 6 - 18 months);
called the “planning horizon.”
• A managerial statement of time-phased:
• production rates,
• work-force levels, and
• inventory investment,
• The statement also takes into account customer
requirements and capacity limitations.
Dept. of ME, JSSATE, Bengaluru 5
Aggregate Planning - Factors

• Costs are important but so are:

– Customer service
– Operational effectiveness
– Workforce morale

Dept. of ME, JSSATE, Bengaluru 6

Aggregate Planning - Importance
• Achieving financial goals by reducing overall
variable cost and improving the bottom line.
• Maximum utilization of the available
production facility.
• Provide customer delight by matching
demand and reducing wait time for
customers.
• Reduce investment in inventory stocking.
• Able to meet scheduling goals thereby
creating a happy and satisfied work force.
Dept. of ME, JSSATE, Bengaluru 7
Aggregate Planning - Strategies
• One of the main objectives of AP:
• To develop an economic strategy for meeting demand
through:
• Adjusting capacity
– Producing at a constant rate and using inventory to absorb
fluctuations in demand (level production)
– Hiring and firing workers to match demand (chase demand)
– Maintaining resources for high-demand levels
– Increasing or decreasing working hours (overtime and
undertime)
– Subcontracting work to other firms
– Using part-time workers
– Providing the serviceDept.
orofproduct at a later time period
ME, JSSATE, Bengaluru 8
(backordering)
AP Strategy - Level Production
• Production at a fixed rate
(usually to meet average
demand) and inventory is used
to absorb variations in
demand.
• During periods of low
demand, overproduction is
stored as inventory, which is
depleted in periods of high
demand.
• The cost of this strategy is the
cost of holding inventory,
including the cost of obsolete
or perishable items that may
have to be discarded. Source: OM by Russel & Taylor
Dept. of ME, JSSATE, Bengaluru 9
AP Strategy – Chase Demand
• The production plan is
matched to the demand
pattern.
• Variations in demand are
absorbed by ‘hiring and firing’
of workers & other strategies.
• During periods of low demand,
production is cut back and
workers are laid off. During
periods of high demand,
production is increased and
additional workers are hired.
• The cost of this strategy is the
cost of hiring and firing
Source: OM by Russel & Taylor
workers.
Dept. of ME, JSSATE, Bengaluru 10
AP Strategy – Resources for High
Demand Level
• Maintaining enough resources for meeting peak
demand levels ensures high levels of customer service.
• It is costly in terms of the investment in extra workers
and machines that remain idle during low-demand
periods.
• Used when superior customer service is important or
when customers are willing to pay extra for the
availability of critical staff or equipment.
• Examples: Special professional services, Defence
services, Hospital services, etc.

Dept. of ME, JSSATE, Bengaluru 11

Source: OM by Russel & Taylor
AP Strategy – Overtime & Undertime
• A common strategy used when demand fluctuations
are not extreme.
• A competent workforce is maintained, hiring and firing
costs are avoided, and demand is met temporarily
without investing in permanent resources.
• Disadvantages: Extra wages paid for overtime work, a
tired and potentially less efficient workforce, and the
possibility that overtime alone may be insufficient to
meet peak demand periods.
• Undertime can be achieved by working fewer hours
during the day or fewer days per week.
Dept. of ME, JSSATE, Bengaluru 12
Source: OM by Russel & Taylor
AP Strategy – Subcontracting
• Subcontracting lets outside companies complete the
work.
• It is a feasible alternative if a supplier can reliably meet
quality and time requirements.
• It is a common solution for component parts when
demand exceeds expectations for the final product.
• Requires maintaining strong ties with possible
subcontractors and first-hand knowledge of their work.
• Disadvantages: reduced profits, loss of control over
production, long lead times, and the potential that the
subcontractor may become a future competitor.
Dept. of ME, JSSATE, Bengaluru 13
Source: OM by Russel & Taylor
AP Strategy – Part-time workers
• It is feasible for unskilled jobs or in areas with large
temporary labor pools (such as students, homemakers,
or retirees).
• Part-time workers are less costly than full-time
workers—they receive no health-care or retirement
benefits—and are more flexible—their hours usually
vary considerably.
• Part-time workers have been the mainstay of retail,
fast-food, and other services for some time and are
becoming more accepted in manufacturing as well as
service and government jobs.
Dept. of ME, JSSATE, Bengaluru 14
Source: OM by Russel & Taylor
AP Strategy – Backordering, Backlogs
• A backorder is an order for a good or service that
cannot be filled at the current time due to a lack of
available supply.
• The item may not be held in the company's available
inventory but could still be in production, or the
company may need to still manufacture more of the
product.
• Allowing to backorder means giving your customers an
option to still purchase your products even when you
don't have enough in stock.
• If the customer is unwilling to wait for the backordered
item, the sale will be lost.
Dept. of ME, JSSATE, Bengaluru 15
AP Strategy – Backordering, Backlogs

• Companies that offer customized products and services

accept customer orders and fill them at a later date.
• The accumulation of these orders creates a backlog
that grows during periods of high demand and is
depleted during periods of low demand.

Dept. of ME, JSSATE, Bengaluru 16

Source: OM by Russel & Taylor
Working out Aggregate Plans
• Procedure for Aggregate Planning (Steps in AP):
• Determine demand for each period.
• Determine capacities (regular time, overtime, subcontracting) for
each period.
• Identify company or departmental policies that are pertinent
(e.g., maintain a safety stock of 5 percent of demand, maintain a
reasonably stable workforce).
• Determine unit costs for regular time, overtime, subcontracting,
holding inventories, back orders, layoffs, and other relevant
costs.
• Develop alternative plans and compute the cost for each.
• If satisfactory plans emerge, select the one that best satisfies
objectives. Otherwise, return to step 5.
Dept. of ME, JSSATE, Bengaluru 17
Source: OM by W J Stevenson
Working out Aggregate Plans
• Problem 1:
• A company has developed forecast for a group of items
that has the following demand pattern:
Quarter 1 2 3 4 5 6 7 8
Demand 270 220 470 670 450 270 200 370
Cumulative 270 490 960 1630 2080 2350 2550 2920
demand

• Plot the demand as histogram. Determine the

production rate required to meet the average demand
and plot the average demand forecast on the graph.
• Plot the actual cumulative forecast demand over time
and compare them with the average forecast
requirements.
Dept. of ME, JSSATE, Bengaluru 18
Source: OM by Panneerselvam
Working out Aggregate Plans
• Solution 1: The production rate = 2920/8 = 365 units

Dept. of ME, JSSATE, Bengaluru 19

Source: OM by Panneerselvam
Working out Aggregate Plans

Dept. of ME, JSSATE, Bengaluru 20

Source: OM by Panneerselvam
Working out Aggregate Plans
• Problem 2:
• Given the following costs and quarterly sales forecasts,
determine whether (a) level production, or (b) chase
demand would more economically meet the demand:

Quarter Forecast Demand Cost element Cost, $

(Pounds) Hiring 100 / worker
I 80,000 Firing 500 / worker
II 50,000 Inventory carrying 0.50 /pound /quarter
III 120,000 Regular production 2 / pound
IV 150,000 Production per employee = 1000 pounds
per quarter
Beginning workforce = 100 workers
Dept. of ME, JSSATE, Bengaluru 21
Source: OM by Russel & Taylor
Working out Aggregate Plans
• Solution:
• Determine the average production quantity/quarter
• = (80,000 + 50,000 + 120,000 + 150,000)/4
• = 400,000/4 = 100,000 pounds per quarter.
• This is the planned production per quarter.
• Each worker can produce 1000 pounds a quarter (given)
• Hence, 100 workers will be needed each quarter to
meet the production requirements of 100,000 pounds.
• Production in excess of demand is stored in inventory,
where it remains until it is used to meet demand in a
later period.
Dept. of ME, JSSATE, Bengaluru 22
Source: OM by Russel & Taylor
Working out Aggregate Plans
• Production Plan (Level Production Strategy):

Quarter Forecast Regular Inventory

Demand Production
I 80,000 100,000 100,000 - 80,000 = 20,000
II 50,000 100,000 20,000 + 100,000 - 50,000 = 70,000
III 120,000 100,000 70,000 +100,000 -120,000 = 50,000
IV 150,000 100,000 50,000 + 100,000 - 150,000 = 0
Total 400,000 400,000 140,000

Cost of Level Production Strategy

= 400,000 * $2 + 140,000 * $.5 = $870,000
Dept. of ME, JSSATE, Bengaluru 23
Source: OM by Russel & Taylor
Working out Aggregate Plans
• Production Plan (Chase strategy):
Quarter Forecast Regular Workers Workers Workers
Demand Production needed Hired Fired
I 80,000 80,000 80,000/1000 -- 20
= 80
II 50,000 50,000 50,000/1000 -- 30
= 50
III 120,000 120,000 120,000/1000
= 120 70 --
IV 150,000 150,000
150,000/1000 30 --
= 150
Total 400,000 400,000 100 50

Cost of Chase Strategy = 400,000 * $2 + 100 * $100 + 50 * $500 =

$835,000
Dept. of ME, JSSATE, Bengaluru 24
Source: OM by Russel & Taylor
Working out Aggregate Plans
• Problem 3:
• A small manufacturing company produces umbrellas.
The company presently is producing executive type of
umbrellas. The demand and other details are shown
below:
Month Forecast Demand No. of working days
(units)
Jan 4500 22
Feb 5500 19
March 7000 21
April 10000 21
May 8000 22
June 6000 20
Dept. of ME, JSSATE, Bengaluru 25
Working out Aggregate Plans
• Problem 2: The cost details
Cost & Other Information Values
Materials cost $5 / unit
Holding cost $1 / unit / month
Hiring & Training cost $200 / worker
Layoff cost $250 / worker
Straight time labour cost $8 / hour
Labour hours required 0.15 hours / unit
Productive hours 7.25 hours /worker/day
Paid straight hours 8 hours/day
Beginning inventory 250 units
Beginning number of workers 7
Stock out cost $1.25/unit/month

Dept. of ME, JSSATE, Bengaluru 26

Working out Aggregate Plans
• Solution: Level Strategy
Month Forecast Demand Regular Inventory
(units) production units
Jan 4500 6833.33  6834 6834 – 4500 = 2334
Feb 5500 6833.33  6834 2334 + 6834 – 5500 = 3668
March 7000 6833.33  6834 3668 + 6834 – 7000 = 3502
April 10000 6833.33  6834 3502 + 6834 – 10000 = 336
May 8000 6833.33  6834 336 + 6834 – 8000 = -830
June 6000 6833.33  6834 -830 + 6834 – 6000 = 4
Total = 41000 41000  41004 9844

Average Production / month = 6833.33 or 6834 units

Dept. of ME, JSSATE, Bengaluru 27

Working out Aggregate Plans
• Solution: Level Strategy
Total material cost = 41004*$5/unit = $205,020

Grand total cost of level production strategy

Total inventory carrying cost = 9844*$1/unit/month = $9844

= $(205020+9844+1037+56000) = $271901
Total stockout cost = 830*$1.25/unit/month = $1037.5
Labour Cost:
Month No. of days Labour cost, $
Jan 22 $8 /hr * 8 * 22 * 7 = 9856
Feb 19 $8 /hr * 8 * 19 * 7 = 8512
March 21 $8 /hr * 8 * 21 * 7 = 9408
April 21 $8 /hr * 8 * 21 * 7 = 9408
May 22 $8 /hr * 8 * 22 * 7 = 9856
June 20 $8 /hr * 8 * 20 * 7 = 8960
Total labour cost = $56,000
Dept. of ME, JSSATE, Bengaluru 28
 Working out Aggregate Plans
• Solution: Chase Strategy (Adjust workforce level)
• Calculations for the month of January: Units required = 4500
• Hour available/worker = 159.5 (22 days * 7.25 hours/day)
• Labour hours required / worker /unit = 0.15
• Hence, number of units produced by each worker = 159.5 / 0.15 =
1063.33
• Initial number of units available in inventory = 250
• Net units required = 4500 -250 = 4250
• Number of workers required to meet demand = 4250/1063.33 =
3.99  4
• No. of workers fired = 3; Cost of firing = $250 / worker * 3 = $750
• Material cost = $5/unit * 4250 = $21250
• Total labour cost = $8*8*22*4 = $5632
• Grand Total cost = $27632 Dept. of ME, JSSATE, Bengaluru 29
 Working out Aggregate Plans
• Calculations for the month of February:
• Units required = 5500
• Hour available/worker = 137.75 (19 days * 7.25 hours/day)
• Labour hours required / worker /unit = 0.15
• Hence, number of units produced by each worker = 137.75 / 0.15 =
918.33
• Initial number of units available in inventory = 0
• Number of workers required to meet demand = 5500/918.33 =
5.989  6
• No. of workers to be hired = 2; Cost of hiring = $200 / worker * 2 =
$400
• Material cost = $5/unit * 5500 = $27500
• Labour cost = $8*8*19*6 = $7296
• Total cost in February = $(27500+7296+400)
Dept. of ME, JSSATE, Bengaluru = $35196 30
 Working out Aggregate Plans
• Calculations for the month of March:
• Units required = 7000
• Hour available/worker = 152.25 (21 days * 7.25 hours/day)
• Labour hours required / worker /unit = 0.15
• Hence, number of units produced by each worker = 152.25 / 0.15 =
1015
• Initial number of units available in inventory = 0
• Number of workers required to meet demand = 7000/1015 = 6.89
7
• No. of workers to be hired = 1; Cost of hiring = $200 / worker * 1 =
$200
• Material cost = $5/unit * 7000 = $35000
• Labour cost = $8*8*21*7 = $9408
• Total cost in March = $(35000+9408+200)
Dept. of ME, JSSATE, Bengaluru = $44608 31
 Working out Aggregate Plans
• Calculations for the month of April:
• Units required = 10000
• Hour available/worker = 152.25 (21 days * 7.25 hours/day)
• Labour hours required / worker /unit = 0.15
• Hence, number of units produced by each worker = 152.25 / 0.15 =
1015
• Initial number of units available in inventory = 0
• Number of workers required to meet demand = 10000/1015 = 9.85
 10
• No. of workers to be hired = 3; Cost of hiring = $200 / worker * 3 =
$600
• Material cost = $5/unit * 10000 = $50000
• Labour cost = $8*8*21*10 = $13440
• Total cost in April = $(50000+13440+600)
Dept. of ME, JSSATE, Bengaluru = $64040 32
 Working out Aggregate Plans
• Calculations for the month of May:
• Units required = 8000
• Hour available/worker = 159.5 (22 days * 7.25 hours/day)
• Labour hours required / worker /unit = 0.15
• Hence, number of units produced by each worker = 159.5 / 0.15 =
1063.33
• Initial number of units available in inventory = 0
• Number of workers required to meet demand = 8000/1063.33 =
7.52  8
• No. of workers to be fired = 2; Cost of firing = $250 / worker * 2 =
$500
• Material cost = $5/unit * 8000 = $40000
• Labour cost = $8*8*22*8 = $11264
• Total cost in May = $(40000+11264+500)
Dept. of ME, JSSATE, Bengaluru = $51764 33
 Working out Aggregate Plans
• Calculations for the month of June:
• Units required = 6000
• Hour available/worker = 145 (20 days * 7.25 hours/day)
• Labour hours required / worker /unit = 0.15
• Hence, number of units produced by each worker = 145 / 0.15 =
966.67
• Initial number of units available in inventory = 0
• Number of workers required to meet demand = 6000/966.67 =
6.20  6
• No. of workers to be fired = 2; Cost of firing = $250 / worker * 2 =
$500
• Material cost = $5/unit * 6000 = $30000
• Labour cost = $8*8*20*6 = $7680
• Total cost in June = $(30000+7680+500)
Dept. of ME, JSSATE, Bengaluru= $38180 34
 Working out Aggregate Plans
• Total cost of Chase Strategy
• = $(27362 +35196 +44608+64040 +51764+38180) = $261,420
Jan Feb Mar April May June
Demand 4500 5500 7000 10000 8000 6000
Beginning inv. 250 0 0 0 0 0
Net reqt. 4250 5500 7000 10000 8000 6000
Beginning # workers 7 4 6 7 10 8
Required workers 4 6 7 10 8 6
Workers hired/fired -3 2 1 3 -2 -2
Prodn. Qty. 4250 5500 7000 10000 8000 6000
Ending inventory 0 0 0 0 0 0

Dept. of ME, JSSATE, Bengaluru 35

 Working out Aggregate Plans
• Total cost of Chase Strategy
• = $(27362 +35196 +44608+64040 +51764+38180) = $261,420

Jan Feb Mar April May June

Material cost, $ 21250 27500
Labour cost, $ 5632 7296
Hiring cost, $ - 400
Firing cost, $ 750 -
Total cost, $ 27632 35196 44608 64040 51764 38180

Dept. of ME, JSSATE, Bengaluru 36

 Working out Aggregate Plans
• Problem 4:
• A company has developed forecast for a group of items that
has the following demand pattern:
Quarter 1 2 3 4 5 6 7 8
Demand 270 220 470 670 450 270 200 370

• The company has estimated that it costs Rs. 150/unit to

increase the production rate, Rs. 200/unit to decrease the
production rate, Rs. 50/unit/quarter to carry the inventory
and Rs. 100/unit if subcontracted (Consider regular
production capacity as 200 units/quarter). Compare the total
costs of pure strategies. Shortages are not allowed.
Dept. of ME, JSSATE, Bengaluru 37
 Working out Aggregate Plans
• Solution: (Chase Strategy)
Quarter Forecast Cost of Cost of decreasing
Demand, increasing the the production,
units production, Rs. Rs.
1 270 -- --
2 220 -- 10,000
3 470 37,500 --
4 670 30,000 --
5 450 -- 44,000
6 270 -- 36,000
7 200 -- 14, 000
8 370 25,500 --
Total cost = Rs. 197,000
Dept. of ME, JSSATE, Bengaluru 38
 Working out Aggregate Plans
• Solution: (Inventory or Level Production Strategy)
Quarter Forecast Regular Inventory
Demand, units production
1 270 365 365-270 = 95

2 220 365 95+365-220 = 240

3 470 365 240+365-470 = 135
4 670 365 135+365-670 = -170
5 450 365 -170+365-450 = -255
6 270 365 -255+365-270 = -160
7 200 365 -160+365-200 = 5
8 370 365 5+365-370 = 0
Ave. Production rate = 2920/8 = 365
Dept. of ME, JSSATE, Bengaluru 39
 Working out Aggregate Plans
• No shortages are allowed Adjusted
Quarter Forecast Regular Inventory Inventory with
255 at the
Demand, units production beginning period
1 270 365 95 95 + 255 =
350
2 220 365 240 495
3 470 365 135 390
4 670 365 -170 85
5 450 365 -255 0
6 270 365 -160 95
7 200 365 5 260
8 370 365 0 255
Ave. Production rate = 2920/8 = 365
Dept. of ME, JSSATE, Bengaluru 40
 Working out Aggregate Plans
• No shortages are allowed
Adjusted Inventory Cost of holding the
with 255 at the inventory @ Rs.
beginning period 50/unit/quarter

95 + 255 = 350 350*50 = 17500

495 495*50 = 24,750

390 390*50 = 19,500
85 85*50 = 4250
0 0
95 95*50 = 4750
260 260*50 = 13,000 Total cost of the strategy
255 255*50 = 12,750 = Rs. 96,500
Dept. of ME, JSSATE, Bengaluru 41
 Working out Aggregate Plans
• Subcontracting @ Rs. 100 / Unit; Assume regular production as
200 units

Total cost of the strategy = Rs. 132,000

Dept. of ME, JSSATE, Bengaluru 42
 Working out Aggregate Plans
• Problem 5:
• The following information is available regarding a product:
• Regular time production capacity = 2500 units / month
• Overtime (OT) capacity = 600 units/months
• Overtime (OT) production cost = Rs. 10/unit
• Inventory carrying cost = Rs. 3/unit/month
• Backlog cost = Rs. 5/unit/month
• Beginning inventory = 400 Units;
• Demand in units for four months is 4000, 3500, 2500, & 2800
respectively. Develop a level output plan that yields zero
inventory at the end of 4th month. Compute also the total
cost of this plan.
Dept. of ME, JSSATE, Bengaluru 43
 Working out Aggregate Plans
• Solution 5:
Total forecast demand = 12,800 units; Beginning inv. = 400 units

Average production output required considering beginning

inventory of 400 units = (12,800 – 400)/4 = 3100 units.

Month Forecast Average Regular Ending Overtime

demand prodn. prodn. units inventory units
rate
0 -- -- -- 400 --

1 4000 3100 2500 -500 600

2 3500 3100 2500 -900 600

3 2500 3100 2500 -300 600

4 2800 3100 2500 0 600

Dept. of ME, JSSATE, Bengaluru 44
 Working out Aggregate Plans
• Solution 5:
Total forecast demand = 12,800 units; Beginning inv. = 400 units

Average production output required considering beginning

inventory of 400 units = (12,800 – 400)/4 = 3100 units.

Total cost (other than RT Cost), in Rs.

= OT cost + IC cost + Backlog cost

= (600 *4*10) + Nil + [(500*1) + (900*1) + (300*1)] * 5

= 24000 + (1700*5)

= Rs. 32,500

Dept. of ME, JSSATE, Bengaluru 45

 Working out Aggregate Plans
• Problem 6:
• The following information is available regarding a product:
• Regular time production capacity = 50 units / month
• Regular time production cost = Rs. 20/unit
• Overtime (OT) capacity = 10 units/months
• Overtime (OT) production cost = Rs. 26/unit
• Inventory carrying cost = Rs. 3/unit/month
• Subcontract cost = Rs. 29/unit
• Develop an economic production plan for the following demand
Month 1 2 3 4 5 6 7 8 9 10 11 12
Demand, 10 12 15 40 130 200 100 40 30 20 40 10
Units
Dept. of ME, JSSATE, Bengaluru 46
Working out Aggregate Plans
Month Forecast demand RT Production OT Production SC Production
1 10 10 -- --
2 12 12
3 15 15
4 40 40
5 130 50 10 70
6 200 50 10 140
7 100 50 10 40
8 40 40
9 30 30
10 40 40
11 20 20
12 10 10
Total 647 367 30 250
Dept. of ME, JSSATE, Bengaluru 47
Working out Aggregate Plans
• Total cost of the Plan:
• Total products produced in RT = 367
• Total RT cost = Rs. (367*20) = Rs. 7340
• Total products produced in OT = 30
• Total OT cost = Rs. (30*26) = Rs. 780
• Total products produced in SC = 250
• Total SC cost = Rs. (250*29) = Rs. 7250
• TOTAL COST = Rs. (7340+780+7250) = Rs.15,370
• Is it optimum (minimum) cost ?
• If not, what is it? How to find it?
Dept. of ME, JSSATE, Bengaluru 48
Working out Aggregate Plans
Month Forecast demand RT Production OT Production SC Production
1 10 10 -- --
2 12 12 (2), 35 (5), 3
(6)
3 15 15 (3), 35 (5)
4 40 40 (4), 10 (5)
5 130 50 10 (6)
6 200 50 10 127
7 100 50 10 40
8 40 40
9 30 30
10 40 40
11 20 20
12 10 10
Dept. of ME, JSSATE, Bengaluru 49
Working out Aggregate Plans
• Total cost (optimum) of the Plan:
• Total products produced in RT = 367
• Total RT cost = Rs. (367*20) = Rs. 7340
• Total products produced in OT = 20
• Total OT cost = Rs. (20*26) = Rs. 520
• Total products produced in SC = 167
• Total SC cost = Rs. (167*29) = Rs. 4843
• Products produced in RT & OT and carried to next months:
• 35 for 3 months; 3 for 4 months; 35 for 2 months; 10 for 1
month; 10 in OT for 1 month
• = (35*20 + 35*3*3) + (3*20 + 3*3*4) + (35*20 + 35*3*2) +
(10*20 + 10*3*1) + (10*26 + 10*3*1) = Rs. 2328
• TOTAL COST = Rs. (7340+520+2328 + 4843) = Rs.15,244/-
Dept. of ME, JSSATE, Bengaluru 50
 Working out Aggregate Plans
• Problem 7: A company has forecasted demand for one of its
products for the next six months. The company works on
single shift of 8 hours. Each unit requires 10 labour hours
with a labour cost of Rs.6/hour. It will be Rs. 9/hour/labour
for OT. The subcontracting cost is Rs. 208/unit & the RT cost
is Rs. 200/unit. There are currently 20 workers in the
company. The hiring & firing costs/labour are Rs. 300 & Rs.
400 respectively. The company’s policy is to retain a safety
stock of 20% of monthly forecast and each month’s safety
stock becomes next month’s beginning inventory. The
beginning inventory in January is 50 units. The ICC is Rs.
2/unit/month. Stock out cost is Rs. 20/unit/month. Work out
the best plan out of the following three:
Dept. of ME, JSSATE, Bengaluru 51
 Working out Aggregate Plans
• Problem 7 (cont’d):

• Plan 1: Vary the work force size to accommodate the demand

• Plan 2: Maintain a constant workforce of 20 and use OT & IT to
meet the demand.
• Plan 3: Maintain a constant workforce of 20 and build inventory
or incur stock out cost.

Month Jan Feb Mar April May June

Demand, Units 300 500 400 100 200 300
Work days/month 22 19 21 21 22 20

Dept. of ME, JSSATE, Bengaluru 52

 Working out Aggregate Plans
• Solution 7:
• Step 1: Compute the net demand or production requirememts
per month considering the beginning inventory & safety stock

Month Jan Feb Mar April May June

Demand, Units (A) 300 500 400 100 200 300
Safety stock @20% 60 100 80 20 40 60
of FD (B)
Beginning inv. (50) 50 60 100 80 20 40
(C)
Production 310 540 380 40 220 320
requirements
(A) + (B) – (C)

Dept. of ME, JSSATE, Bengaluru 53

 Working out Aggregate Plans
• Plan 1: Vary the workforce size:
Month Jan Feb Mar April May June
Prodn. required 310 540 380 40 220 320
Prodn. Hours reqd. @ 3100 5400 3800 400 2200 3200
10 hrs/unit
No. of days worked 22 19 21 21 22 20
No. of hrs. worked by 176 152 168 168 176 160
each worker/month
No. of workers reqd. 18 36 23 3 13 20
No. of workers hired -- 18 -- -- 10 7
No. of workers fired 2 -- 13 20 -- --
Hiring cost, Rs. -- 5400 -- -- 3000 2100
Firing cost, Rs. 800 -- 5200 8000 -- --
Rs. 24,500
Dept. of ME, JSSATE, Bengaluru 54
 Working out Aggregate Plans
• Plan 2: Maintain a constant workforce of 20 and use OT, IT
Month Jan Feb Mar April May June
Prodn. required 310 540 380 40 220 320
Prodn. Hours reqd. @ 3100 5400 3800 400 2200 3200
10 hrs/unit
No. of days worked 22 19 21 21 22 20
No. of hrs. worked by 176 152 168 168 176 160
each worker/month
Total labour hours 176*20 3040 3360 3360 3520 3200
available with 20 workers = 3520
No. of OT hours reqd. -- 2360 440 -- -- Nil
No. of IT hours 420 -- -- 2960 1320 --
OT cost @ Rs. 9/hour -- 21240 3960 -- -- --
IT cost @ Rs. 6/hour 2520 -- -- 17760 7920 --
Dept. of ME, JSSATE, Bengaluru Rs. 53,400 55
 Working out Aggregate Plans
• Plan 3: Maintain a constant workforce of 20, use inv. or SO cost
Month Jan Feb Mar April May June
Prodn. required 310 540 380 40 220 320
No. of days worked 22 19 21 21 22 20
No. of hrs. worked by 176 152 168 168 176 160
each worker/month
Total labour hours 176*20 3040 3360 3360 3520 3200
available with 20 workers = 3520
No. of OT hours reqd. -- 2360 440 -- -- Nil
No. of units produced 352 304 336 336 352 320
at 10 hrs/unit
Inv. Surplus/shortage 42 -194 -238 58 190 190
Cost, Rs. 2/unit/month 84 3880 4760 116 380 380
& Rs. 20/unit/month
Rs. 9600
Dept. of ME, JSSATE, Bengaluru 56
 Working out Aggregate Plans – Transportation
Table Method
Source of
supply

Dept. of ME, JSSATE, Bengaluru 57

Source: OM by W J Stevenson
 Working out Aggregate Plans
• Problem 9: Given the following information, set up the problem in
a transportation table and solve for the minimum-cost plan.

• Costs:
• Regular Time cost/unit = $20; Overtime cost/unit = $25
• Subcontracting cost/unit = $28
• Inventory carrying cost/unit/quarter = $3
• Beginning inventory = 300 units

Dept. of ME, JSSATE, Bengaluru 58

Source: OM by Russel & Taylor
 Working out Aggregate Plans
• Production Plan
Quarter Demand RT OT SC Ending Inv. =
Production Production Production (RT+OT+SC) –
Demand
1 900 1000 100 0 500
2 1500 1200 150 250 600
3 1600 1300 200 500 1000
4 3000 1300 200 500 0
Total 7000 4800 650 1250 2100

Total cost of the plan is:

4800 * $20 + 650 * $25 + 1250 * $28 + 2100 * $3 = $153,550

Dept. of ME, JSSATE, Bengaluru 59
Source: OM by Russel & Taylor
 Working out Aggregate Plans
• Problem 9: Given the following information, set up the problem in
a transportation table and solve for the minimum-cost plan.

Dept. of ME, JSSATE, Bengaluru 60

Source: OM by W J Stevenson
 Working out Aggregate Plans
• Production Plan
Period Demand RT OT SC Ending Inv. =
Production Production Production (RT+OT+SC) –
Demand
1 550 500 50 30 130
2 700 500 50 120 100
3 750 500 50 100 0
Total 2000 1500 150 250 230

Total cost of the plan is:

1500 * $60 + 150 * $80 + 250 * $90 + 230 * $1 = $124,730

Dept. of ME, JSSATE, Bengaluru 61
Source: OM by W J Stevenson
 Part – II
Master Production Schedule
(Master Schedule)

Dept. of ME, JSSATE, Bengaluru 62

Master Production Schedule
Aggregate Plan
Month Jan Feb March April May June
Electric Motors 80 50 110 60 60 100

Master Production Schedule

Month Jan Feb March April May June
Induction, 3Ph Motors, AC, 30 15 65 10 10 35
10 Hp
DC Motors, 24V 10 5 20 20 20 15
Stepper Motors, 200 steps 10 5 10 10 10 15
AC Motors, 0.5 Hp 25 20 10 10 10 25
Servo Motors, 1 Micron 05 05 05 10 10 10
resolution
Total 80 50 110 60 60 100
Dept. of ME, JSSATE, Bengaluru 63
Master Production Schedule
• The master production schedule (MPS), also called the
master schedule, specifies which end items or finished
products a firm is to produce, how many are needed, and
when they are needed.
• The master production schedule works within the
constraints of the aggregate production plan but produces a
more specific schedule by individual products.
• The time frame is more specific, usually expressed in days or
weeks and may extend over several months to cover the
complete manufacture of the items.
• One of the inputs to Material Requirements Planning (MRP).
• MPS coordinates with marketing, capacity, production &
distribution planning.
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Master Production Schedule - Objectives

• To schedule specific end items to be completed

promptly and when promised to customers.

• To avoid overloading or underloading of production

facility so that the production capacity (RT, OT) is
efficiently utilized and low production costs result.

Dept. of ME, JSSATE, Bengaluru 65

Master Production Schedule - Functions
• Translating aggregate plans:
– From product families to specific end items in specific
time periods.
• Evaluating alternative master schedule
– MPS is done on trial-and-error basis, initially. Material &
capacity requirements are verified.
• Generating material & capacity requirements
• Facilitating information processing – when deliveries
are to be made..finance, marketing, other sections.
• Effectively utilizing the capacity - load and utilization
requirements for machines and equipment.
Dept. of ME, JSSATE, Bengaluru 66
 Master Production Schedule – Time fences

• Changes to MPS at its early stage can be disruptive.

• High-performance organizations have an effective
master scheduling process.
• Time fence is a time period for effective scheduling by
facilitating order promising and the entry of orders into
the system.
• Time fences divide a scheduling time horizon into three
sections or phases, referred to as frozen, slushy, and
liquid, in reference to the firmness of the schedule.

Dept. of ME, JSSATE, Bengaluru 67

Master Production Schedule – Time fences

Dept. of ME, JSSATE, Bengaluru 68

Master Production Schedule - Process

Outputs
Projected
Inputs inventory of
finished goods
Beginning
Inventory Master Master
Production
Forecasts Scheduling Schedule
Customer orders
Uncommitted
inventory (ATP)

Dept. of ME, JSSATE, Bengaluru 69

Master Production Schedule - Process
• Inputs
• The beginning inventory is the actual quantity on hand
from the preceding period
• Forecasts for each period of the schedule
• Customer orders are the quantities already committed
to customers
• Other factors include:
• Hiring or firing restrictions imposed by HR, skill levels,
limits on inventory such as available space, whether
items are perishable, and whether there are some
market lifetime (e.g., seasonal or obsolescence)
considerations.
Dept. of ME, JSSATE, Bengaluru 70
Master Production Schedule - Process
• Outputs
• The projected on-hand inventory is calculated as follows:
• Projected on-hand inventory = (Inventory from previous
period) – (Current period’s requirements)
• Available-To-Promise (ATP) is a minimum amount of a
given product available in the warehouse so that the
inventory space is used efficiently.
• ATP number can change unlike SS where the number is
fixed.
• A positive value of ATP - inventory available to sell
• A negative value of ATP - inventory is below safety stock
quantity.
Dept. of ME, JSSATE, Bengaluru 71
Master Production Schedule - Problems
• Problem: A company has certain demand for a specific
type of electric motor. The details of various demands
are shown in the table below. There are presently 60
motors in stock and the lot size is 90 units. Develop a
tentative MPS.

Sources of Electric Motor

demand Week
1 2 3 4 5 6 7 8 9 10
Customer forecast - 5 30 40 50 40 50 50 50 50
Interplant forecast - - 5 - - 5 - - 5 50
Customer orders 40 40 30 10 10 5 - - - -
Warehouse orders 15 10 - 5 - - - - - -

Dept. of ME, JSSATE, Bengaluru 72

Master Production Schedule - Problems
• Tentative MPS:

Order Quantity = Electric Motor

90 Week
Beg. Inv. = 60 1 2 3 4 5 6 7 8 9 10
Gross
55 55 65 55 60 50 50 50 55 50
requirements
Beg. Inventory 60 5 40 65 10 40 80 30 70 15
Prodn. Required
- 90 90 - 90 90 - 90 - 90
(MPS)
Ending inv.
5 40 65 10 40 80 30 70 15 55
(available on hand)

Dept. of ME, JSSATE, Bengaluru 73

Master Production Schedule - Problems
• Problem: A company produces tow products P & Q on
MTS basis. The demand for the products comes from
various sources. The estimated demand for the
products for the next 5 weeks is given below:
Sources of Product P Product Q
demand Week Week
1 2 3 4 5 1 2 3 4 5
Intra company
-- -- 20 10 10 -- -- 10 -- 10
orders
Branch
-- 20 -- -- -- -- -- -- 20 --
warehouse orders
R & D orders -- 10 10 -- -- -- -- -- 10 10
Customer demand
25 25 20 25 20 30 30 25 25 20
(forecast + inv.)
Dept. of ME, JSSATE, Bengaluru 74
Master Production Schedule - Problems
• Solution:
MPS for Products P & Q
Product Data Week
1 2 3 4 5
Product - P: Total demand 25 55 50 35 30
(Beginning Inv. = Beginning inventory 50 25 30 40 65
50, Lot Size = 60,
Required production -- 60 60 60 --
Safety Stock = 25)
Ending inventory 25 30 40 65 35
Product - Q: Total demand 30 30 35 55 40
(Beginning Inv. = Beginning inventory 60 30 70 35 50
60, Lot Size = 70,
Required production -- 70 -- 70 70
Safety Stock = 30)
Ending inventory 30 70 35 50 80

Dept. of ME, JSSATE, Bengaluru 75