02/01/2025 Aggregate Production Planning Sia STN RE RS Operations Management 1PE4103 ~ Fall 2023 Prof. Dr. Sarwar Morshed Aggregate Production Planning + Is it important? —Yes, itis a strategic planning process — Optimum utilization of the resources + Is it not important? Scanned with |\CamScannerLevels of Capacity Decisions Overview of Planning Organizations make capacity decisions on three levels: short-range plans (Detailed plans) Machine loading Qiob assignments intermediate plans (General levels) QEmployment requirements output, and inventories OLong-range plans QLong term capacity QLocation / layout plan Planning Sequence Economic, competitive, and political «conditions Establishes operations and capacity strategies Business Plan Enablishes operations capacity TEnablshes schedules for specific products 02/01/2025 Scanned with |\CamScannerAggregate Production Planning what are the types of planning? APP, MPS, MRP, MRPaI ERP, JT, Scheduling Chat is aggregate production planning? Oitis a macro production planning ‘Grmacro planning bepns with the forecast of demand Otis the problem of deciding number of employees the frm should retain Ciqvantty and mix of products tobe produced Coverall business strategy Aggregate Planning: Intermediate-range capacity planning, usually covering 2 to 12 months. Chat is the goal of APP? The goal of aggregate planning isto achieve a production plan that will effectively utilize the organization's resources to satisfy expected demand, Overview of Aggregate Production Planning Aggregate planning begins with a forecast of aggregate demand for the intermediate range. This is followed by a general plan to meet demand requirements by setting output, employment, and finished-goods inventory or service capacities. C Managers must consider a number of plans, each of which must be examined in light of feasibility and cost. Oifa plan is reasonably good but has minor difficulties, it may be reworked. Aggregate plans are updated periodically, often monthly, to take into account updated forecast and other changes 02/01/2025 ‘Scanned with |CamScannerAPP Inputs and Outputs + Resources ‘= Workforce/production rate = Facies and equipment ‘+ Demand forecast Policies Subcontracting = Overtime = ventory levels = Backorders = Hiring/ring = Overtime = tmventory changes = subcontracting Seay Breet asta Employment Stsetesirg reer APP Strategies Oproactive Olnvolve demand options: Attempt to alter demand to match capacity tom OMixed OProa OReactive Olnvolve capacity options: attempt to alter capacity atch demand tive and Reactive strategies 02/01/2025 Scanned with |\CamScannerAPP Strategies to Meet Demands OMaintain a level workforce (Constant workforce) Omaintain a steady output rate OMatch demand period by period QCombination of decision variables Aggregate Planning: Basic Strategies QLevel capacity strategy: Oaintaining a steady rate of regular-time output while meeting variations in demand by a combination of options such as: inventories, overtime, part-time workers, subcontracting and back orders. Ochase demand strategy: CO Matching capacity to demand; the planned output for a period is set at the expected demand for that period. 02/01/2025 Scanned wth G camscanner02/01/2025 APP Approaches + Level Approach Biers Oars St ane ad Tees cr Seer curd Rey Crome ad Rees Aggregate Production Planning Procedures 1. Determine demand for each period 2. Determine capacities (regular time, over time, and subcontracting) for each period 3. Identify policies that are pertinent 4. Determine units costs for regular time, overtime, subcontracting, holding inventories, back orders, firing, and other relevant costs 5. Develop alternative plans and compute the costs for each 6. Select the best plan that satisfies objectives. Otherwise return to step 5. G camscannerMathematical Techniques for APP Linear programming: Methods for obtaining optimal solutions to problems involving allocation of scarce resources in terms of cost minimization. Linear decision rule: Optimizing technique that seeks to minimize combined costs, using a set of cost- approximating functions to obtain a single quadratic equation. simulation models: Developing a computerized models that can be tested under a variety of conditions in an attempt to identify reasonably acceptable (although not always optimal) solutions to problem. Trial and Error Approach for APP rial and error approaches consist of developing simple tables or graphs that enable planners to visually compare projected demand requirements with existing capacity. Oifferent plans are conducted and evaluated in terms of their overall costs. The one with the minimum cost will be chosen. OThe disadvantage of such techniques is that they do not necessarily result in the optimal aggregate plan. 02/01/2025 ‘Scanned with |CamScannerSummery of APP Techniques ‘Technique [Solution —_ | Characteristics (Graphicalcharing | Trial and Intuitively appealing, easy to error understand; soluon not necessanly optimal. near ‘Optimizing | Computerized; inear assumptions programming not always vali Linear (Opbmazing | Complex, requres considerable decision le effort to obtain cost information and fo construct model, cost assumptions not always valid Simulation Talend (Computerized models can be ertor examined under a variety of conditions. APP Assumptions O The regular output capacity is the same in all periods. O Cost ( back order, inventory, subcontracting, etc) is a linear function composed of unit cost and number of units. Plans are feasible; that is, sufficient inventory capacity exists to accommodate a plan, subcontractors with appropriate quality and capacity are standing by, and changes in output can be made as needed. alt costs associated with a decision option can be represented bya lump sum or by unit costs that are independent of the quantity involved O Cost figures can be reasonably estimated and are constant for the planning horizon. O Inventories are built up and drawn down at a uniform rate and output occurs at a uniform rate throughout each period. 02/01/2025 ‘Scanned with |CamScannerRelations Among Variables Number of qumber of number ofnew numberof laid-off Workers in = workers atend of + workersat start. workers at start of ‘Aperiod the previous period of the period the period Cost fora period = output cose. Regular OT + subcontract) + He/Fre ost + inventory cost + Back order cost Cost Calculations Regular Regular cost per unit x Quantity of regular output Overtime [Overtime cost per unit x Overtime quantity Subsoniract | Subcontract cost per unit x subcontract quantity [Hie (Cost per hire x number hired Fire/Layoft | Cost perlaoff number aid off Taventory Cazrying cost per unit x average inventory Back order [Backorder cox per unit number of backorder unit 02/01/2025 ‘Scanned with |CamScannerExamples — IBM, Ford, Sun Micro Q1BM, AT&T in 1970's to retain workforce contrary to aerospace industry on cost saving: hiring - firing options OFord — vertical integration, keep manufacturing the primary products such as rubber from own rubber trees Osun Micro-system — dynamic environment, subcontract primary products, focus on product innovation and design, quality products from contractors rather manufacturing. Objectives of APP Oo react quickly to anticipated changes in demand requires making frequent and potentially large changes in the size of labour force (chase strategy) — cost effective and poor long run strategy Qbevelop Stable work force plan — large build-ups of inventories during the period of low demand QDevelop a production plan to maximize profit over planning horizon subject to the capacity 02/01/2025 10 Scanned wth G camscannerIssues Related to APP Smoothing: Constant workforce level (Hiring and Firing ofthe workforce) Bottleneck problem: inality of the system due to capacity restriction (OPT Rules) Planning Horizon: The number of periods the demand Isto be forecasted, hnce the numberof perio for which workforce and inventory levels ae tobe define, must be specified in advance 1 Treatment of demand: No butter for forecast error. © what ae the cost APP? ~ Smoothing cot = ue coun eve rom period to pid ence thee ofthe wonace | men elfompetodso pen Hoang cst withthe inventory Shortage cox Reulartime cos = Overtime ane sibeontat Aggregate and Disaggregate SIRE pees What is disaggregate in Sasa manag enaronmen? Pie Rinne) OProcess of breaking the COE ‘aggregate plan into greater chen details dsorerton SR ese Results into master pues roscoe cud ts) Gimareacorteat IMPS inputs to material eee requements paring (RE) reuse cuir IMPS defines timetable that eon ane pros planning stafling are and when, and address the ree ae pee a components for the final produ a 02/01/2025 a ‘Scanned with |CamScanner02/01/2025 Aggregate Units of Production Cwhat is Aggregate Units? QAn ‘average’ item, if many different items are produced — aggregate units in terms of weight (tons of steel), volume (gallons of gasoline), amount of work required (worker-years of programming time). Hax & Meal — Items, Families, & Types The Hierarchy of Production Planning Decisions Forecast of great dane raga Producton Plan Determination of aggapate production and "wor force lovols arf potod panning Renzon I Master reduction Schedule Prosucton aves by ern by tme pened ‘oleraa Reguromenia Pianaing Sysiem slated timetable for production and assembly Scanned with @ camscanner02/01/2025 Hierarchy of Production Planning * Forecast of aggregate demand © fora planning horizon » Aggregate Production Plan (NTH) + determine aggregate production levels and work forces. * Master Production Schedule * Production levels by item by time period q- Materials Requirements Planning Example -1: National Appliance ‘A plant manager working for large national appliance firm is considering in ple- ‘an aggregate planning system to determine the work force and production levels in his plant. This panicuar plant produces six models of washing mach nes. ‘The characteristics of the machines are ‘Mabe of Worker Hours Mode! Number «Required o Produce Selling Price A592 suas kon us Lose Bs 3100 as Mn 2 aso ns (RRR Tanger nicest he percentages of te ttl number of tle {or tese sx models hve been foil coodan, with valves of 32 percent for ASSS2, 21 perce for K&22, 17 percent for 19898, 14 percent for L3800, 10 “percent for M624, and 6 percent for MBBOO, He dies 0 define an agg Ahi of production as «ious washing machine reqlng (32X82) (200 B ‘Scanned with |CamScannerExample -1: National Appliance ‘The plant manager must decide on the particular aggregation scheme to uss. ‘One possibility is to define an aggrecate unit a8 one dollar of output. Unfortanitely, the selling prices of the various movels of washi with the number of worker-hours required to produce them. The ratio ofthe selling,» Price divided by the worker-hours 4s $67.86 for A5S32, and $125.00 for M3880. (The company bases its pricing on the fact that the less eapensive models have a higher sales volume.) The manager notices that the percentages of the total number of sales for these six models have been fairly constant with values of 32 percer [for 5532, 21 percent for K4242, 17 percent for L9898, 14 percent for L3800, 10, percent for M2624, and 6 percent for M3880. He decides to define an aggregate Cait ofprodocon av fetsous washing machine ogling (OON@I)F (NEO) Ginng Ne CLINE) FCIONS OF CONEY SNOT eo bare Ne ar [obtain sales forecasts for aggregate production units jn essentially the same way by ying the appropriate fracions by the forecasts for unit sales of each type of machine. Example — 2: Max Pure Strategies uaRTER SALES FORECAST (LI) peal Spring 0.000 si 50.00 fall 20,000 Winter 150.000 Hiring cost = $100 per worker Fring cost = $500 per worker Regular production cost per pound = $2.00 Inventory carrying cost = $050 pound per quarter Production per employee = 1,000 pounds per quarter Beginning work force = 100 workers 02/01/2025 14 ‘Scanned with |CamScannerChase Demand Strategy SALES PRODUCTION WORKERS WORKERS WORKERS UARTER FORECAST PLAN NEEDED WIRED FIRED ‘$0,000 $0,000 80 0 20 $0,000 $0,000 so o 30 139.000, 120,000 120 10 0 Winner 130,000 150,000 130 30 ° 100 so ‘Cost of Chase Demand Statesy => (400,000 X $2.00) + (100 $100) + (50. $500) = $835,000 SALES PRODUCTION ‘uanren FORECAST nu Spring 000 100.000 Sumer $0,000 100.000 Fall 120000 100.000 Water 180,000 100.000 00000 Cost of Level Production Strategy ==> (400,000 X $2.00) + (140,00 X'$$0)= $870,000 02/01/2025 35 Scanned with |CamScanner™Example-3: Densepack Densepack is to plan work force and production levels for month period January to June. The firm produces a line of disk drives for mainframe computers ‘that are plug compatible with several computers produced by major manufacturers. Forecasted demands over the next six months fora pantcula line of drives produced inthe Milpitas, California, plant are 1,280, 640, 900, 1,200, 2,000, and 1,400, There are currently (end of December) 300 workers employed in the Milpitas plant. Ending inventory in December is expected to be 500 units, and the firm would lke to have (600 units on hand at the end of June. Monsh Net Predicted Demand Net Cumulative Demand Ee heed Berens _Ne Gunite Base January 780 February 640 March $00 ‘Apail 1.200 & im Example -2: Densepack y= Cost of hiking one worker = $500, p= Cont of ing one worker = 51,000, {= Cost of holding one unit of inventory for one month = $80. We require « means of tating aggregate production in unit 0 wer force Inthe past, the plant managen observed that over 22 working days, with th work fore level constant at 76 workers, the frm produced 245 sk drivet. Th means that on average the production rc was 243122 = 11,1364 drives per fay when there were 76 workers employed atthe plant. I follows tha ore weeker reduced an average of 11.1364/76 = .14653 drives in one day. Hence, K = 14653 for this example. = 02/01/2025 16 ‘Scanned with |CamScannerExample -2: Densepack - Zero Inventory Calculations Evaluation of a Chase Sirategy (Zero Inventory Plan) ln this section we will develop » production plan for Densepack that minimizes the levels of inventory the firm must bold during the six-month planning horizon. “able 3-1 summarizes the input information for the ealeuatons and shows the minimum number of workers required in each month ‘One obtins the entries inthe final columa of Table 31, the minimum number of workers required each month, by dividing the forecasted net demand by the num- ber of unis produced per worker. The value of his rai is then rounded upward 0 the next higher integer We must round upward to gusranes that shonages do not ‘occur, As an example, consider the month of January. Forming te aio 80/2931 ives 26.12, which is rounded up to 267 workers. The numberof working days Densepack — Zero Inventory Calculations Anat Coteulatons for Zero Inventory Pl fr Densepac ey = Z 8 # Number of units produces = (Number of workers) x (Average number of aggregate units produced in a month by a single worker) 02/01/2025 uv ‘Scanned with |CamScannerF Scanned with itt ic le 8 a e 8 sui Ht |CamScanner™Example -2: Constant Workforce Plan : Constant Workforce Plan vary, which is (11) (500) = $55,500, giving a° total cost ofthis plan of $580,460. This is somewhat higher than the ost ofthe 2er0 inventory plan, which was $569,540, However, because costé of the'two plans are is Tly thé company’ would prefer the constant work fore plan in ordet to avoid any unaccounted for costs of making fequent changes in the work force. Which option is better? Justify your answer. 02/01/2025 Scanned with @ camscannerExample 3: Zoom Tech 200m Tech sto pla work fore and production levels forthe six-month period July to Secerter The mmbers of working day forecasted and net demands are given inthe tae ew The tm produces te of LED mont’ fo personal comput tht ae Plug. compatible with severl brands of computers produced. by the. major franufactrers. Theve are curently (end of June) 425 workers employed in that plant. Ending ventory in une i exectew to be S09 Unis, andthe firm would ike to have 605 units on hand atthe end of December The plant manager at Zoom Tech observed inthe past that over 22 working days, with the wororce level constant at 76 workers Bnd the frm produces 248 LED Monto What are the forecasted net demands? \What isthe minimum number of workers quired each month for ero Inventor Plan? What are the total cost for Zero nventory Pla’ or Constant Work Force Pan the Irertory holding costs £80 er month, cost oF rng 9 workers 1000 and cost of fring» worker £2000? Won rr 7 0 Tae Seotember| 1 30 Oe Eg Tr Dente | 5 Ta Example - 4: Green Tech Green Tech isto plan constant work force and production levels forthe six-month period July to December The numbers of working dys, forecasted and net demands bre given in the table below. The firm produces 2 line of DVD drive for laptop Computers that are plug compatible with several brands of computers produce by the major manufactrers. There are crremy fend of Jue) 523 workers employed ih that plan. Ending inventor n June i expectes tobe 620 uns, and the fm would Ite to have 635 units on hand atthe end of December The plant manager st Green Tech observed inthe past that over 25 working dys, withthe workforce level constant 2 80 workers and the frm produces 545 OVO dives. [Monn —[rmber ot Forced working bs | semand bay [a a3 out — [2s on Sestenber_[39 S03 foaaber [27 1200, November [25 noas December [a7 09 What ae the forecasted net demands? 2) ‘What isthe minimum number of workers required each month (decimal ound up)? (6), ‘What are the total costs for “Zero Inventory Plan’ or ‘Constant Work Force Plan, ithe Inventory holding costs £90 per month, cost of hiring a workers £2000 and cost of firing a worker is £30007 7) 02/01/2025 20 ‘Scanned with |CamScannerExample - 5: Problem of Harold Grey Harold Grey owns a small farm in the Salinas Valley that grows apricots. The lapricots are dried on the premises and sold to number of large supermarket Jchains. Based on past experiedce and committed contracts, he estimates that tales over the next ive years in thousands of packages Will be as follows: Year _(thonranat of pas kagen} Asume ‘currently has three workers on the payroll. Hi 30,000 packages on hd a the end of the current year. Assume thal on the average, each worker fe paid $25,000.00 pet yeur and ls responsible for ‘estimates that it coats $300 for each worker hired. Severance pay amounts to 51,000 per worker. 2 Kenuming that shortages are not allowed, determine «he minimum constant Srork forge that he will need over the nent five years 1b, Evaluate the cont of the plan found in part 02/01/2025 21 ‘Scanned with |CamScanner