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AGGREGATE PLANNING:Aggregate Planning Relationships, Master Scheduling

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Production and Operations Management ­MGT613
VU
Lesson 30
AGGREGATE PLANNING
Learning Objectives
In this lecture we will cover the basic aggregate planning strategies, Assumptions for Aggregate
Planning, different Aggregate Planning Relationships, Master Schedule and Master Scheduler. We will
study desegregating the aggregate plans for production control. This discussion would prepare us to
take a deeper look into Inventory Management and MRP/ERP. All this would allow us to become
effective operations manager to work for improving the operations as well as the systems of the
organizations we will work for.
Basic Strategies
Level capacity strategy: Maintaining a steady rate of regular-time output while meeting
variations in demand by a combination of options.
Chase demand strategy: Matching capacity to demand; the planned output for a period is set at
the expected demand for that period.
Chase Approach
Advantages
1. Investment in inventory is low
2. Labor utilization in high
Disadvantages
1. The cost of adjusting output rates and/or workforce levels
Level Approach
Advantages
1. Stable output rates and workforce
Disadvantages
1. Greater inventory costs
2. Increased overtime and idle time
3. Resource utilizations vary over time
Techniques for Aggregate Planning
1.
Determine demand for each period
2.
Determine capacities for each period
3.
Identify policies that are pertinent
4.
Determine units costs
5.
Develop alternative plans and costs
6.
Select the best plan that satisfies objectives. Otherwise return to step 5.
Assumptions for Aggregate Planning
1. The regular output capacity is the same for all periods.
2. Cost (Back Order, Inventory, Subcontracting etc) is a linear function composed of unit cost and
number of units. ( In reality cost is more of a step function)
3. Plans are feasible ( There is sufficient inventory exists to accommodate a plan, subcontractors
would provide quality products and outsourcers would be secure)
4. Assumptions for Aggregate Planning
5. All costs associated with a decision option can be represented by a lump sum or by unit costs
that are independent of the quantity involved.
6. Cost figures can be reasonably estimated and are constant over the planning horizon.
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Production and Operations Management ­MGT613
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7. Inventories are built up and draw down at a uniform rate and output occurs at a uniform rate
throughout each period. Backlogs are treated as if they exist for the entire period, even though
in reality they tend to build up towards the end of the period
Aggregate Planning Relationships
1. Number of workers in a period equals Number of Workers at the end of the previous period
PLUS Number of new Workers at the start of the current period - Number of laid off Workers at
the start of the current period
2. NOTE: SINCE the organization would not hire and layoff simultaneously, so at least one of the
last two terms will be "0".
3. Inventory at the end of a ( current) period equals Inventory at the end of the previous period
PLUS Production in the current period ­ Amount used to satisfy the demand in the current
period
4.  NOTE :The average Inventory for a period is equal to (Beginning Inventory Plus Ending
Inventory)/2
Average Inventory
Aggregate Planning Relationships
·Cost for a ( current) period equals Output Cost ( Regular +OT+ Subcontract) + Hire/Layoff Cost+
Inventory Cost + Backorder Cost
NOTE
The cost of a particular plan for a given period can be determined by summing the appropriate costs
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Production and Operations Management ­MGT613
VU
Aggregate Planning Relationships
Type of Costs
How to Calculate
Output
Regular
Regular Cost per Unit X Quantity of Regular
Output
Overtime
Overtime Cost per Unit X Overtime Quantity
Subcontract
Subcontract Cost per Unit X Subcontract
Quantity
Hire/Layoff
Hire
Cost Per Hire X Number Hired
Layoff
Cost per Layoff X Number laid off
Inventory
Carrying Cost per Unit X Average Inventory
Back Order
Back Order Cost Per Unit X Number of
Backorder Units
Mathematical Techniques
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.
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Production and Operations Management ­MGT613
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Summary of Planning Techniques
Technique
Solution
Characteristics
Graphical/charting
Trial and
Intuitively appealing, easy to
error
understand; solution not
necessarily optimal.
Linear
Optimizing
Computerized; linear assumptions
not always valid.
programming
Linear
Optimizing
Complex, requires considerable
decision rule
effort to obtain pertinent cost
information and to construct
model; cost assumptions not
always valid.
Simulation
Trial and
Computerized models can be
error
examined under a variety of
conditions.
Aggregate Planning in Services
1. Services occur when they are rendered .Unlike most manufacturing output, most services cannot
be inventoried. Services such as financial planning, tax counseling and oil changes cant be
inventoried/stockpiled. This removes the option of building up the inventories during a slow
period in anticipation of future demand.
2. Demand for service can be difficult to predict .The volume of demand for services is often
variable. In some situations, customers may need prompt service . e.g. police, fire, medical
emergency while in others they may not need prompt service and may be willing to find some
other service provider.
3. Capacity Availability can be difficult to predict. Processing requirements for services can
sometimes be quite variable, similar to the variability of work in a job shop setting.
4. Demand for service can be difficult to predict It is difficult to measure the capacity of a person
rendering a service, a dentist, a Montessorian, a bank teller in anticipation of future demand).
5. Labor Flexibility can be advantage in Services Labor often comprises a significant portion of
service compared to manufacturing. That coupled with the fact that service providers are often
able to handle a fairly wide variety of service requirements means that to some extent, planning
is easier than manufacturing
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Production and Operations Management ­MGT613
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Aggregate Plan to Master Schedule
Aggregat
e
Dissaggregatio
Master
Schedul
Disaggregating the Aggregate Plan
The Aggregate Plan is broken down into Master Schedules and Rough Cut Capacity Planning charts
respectively.
Master schedule: The result of disaggregating an aggregate plan; shows quantity and timing of
specific end items for a scheduled horizon.
Rough-cut capacity planning: Approximate balancing of capacity and demand to test the feasibility
of a master schedule.
WE WILL DISCUSS IT IN DETAIL WHEN WE COVER OUR MRP LECTURE
E.g. Suppose the organization is making 500 aggregate units of Air conditioners for the month of
March and April with breakup being 200 for window types, 300 type split units with further tonnage
capacities.
A master schedule shows the planned output for individual products rather than an entire product
group, along with the timing of production.
With Rough cut capacity planning we can check capacities of production and warehouses
constraints exist. This means checking capacities of production and warehouse facilities, labor and
vendors to ensure that no gross deficiencies exist that will render master schedule unworkable. The
master schedule then serves as the basis for short range planning.
MS is disaggregated in stages or phases, which may cover weeks or months.
Master schedule: Determines quantities needed to meet demand
Interfaces with
1. Marketing
2. Capacity planning
3. Production planning
4. Distribution planning
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Master Scheduling
A Master schedule indicates the quantity and timing ( i.e. delivery times) for a product, or a group
of products, but it does not show planned production. For a master schedule may call for delivery of
500 Air conditioners on April 1. But it may not require any production because of availability of
1000 air conditioners in inventory. Or if there are only 400 Air conditioners, 100 would be planned
for production.
Master Scheduler
Evaluates impact of new orders
Provides delivery dates for orders
Deals with problems
Production delays
Revising master schedule
Insufficient capacity
Projected On-hand Inventory
Projected on-hand
Inventory from
Current week's
-
=
inventory
previous week
requirements
Stabilizing the Master Schedule
Changes to a master schedule can be disruptive, particularly changes to the early, or near, portions
of the schedule.
Typically the further out in the future a change is, the less the tendency to cause problems.
Master Production Schedules are often divided into 4 stages or phases. The dividing lines between
phases are sometimes referred to as time fences.
Time Fences in MPS
In the first phase, usually the first few periods of the schedule, changes can be quite disruptive.
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Consequently, once established, that portion of the schedule is generally frozen, which implies that
all but the most critical changes cannot be made without permission from the highest levels in an
organization. This helps in achieving high degree of stability in the production system.
In the next stage, perhaps the next two days or three periods, changes are still disruptive, but not to
that extent that they are in first phase.
Management views the schedule as firm and only exceptional changes are made which helps an
organization gain some competitive advantage.
In the third stage, management views the schedule as full, meaning that all available capacity has
been allocated.
Although changes do impact the schedule, their effect is less dramatic and they are usually made if
there is good reason for doing so.
IN the final phase, management views the schedule as open, meaning that not all capacity has been
allocated. This is where new orders are usually in the Schedule.
.
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Table of Contents:
  1. INTRODUCTION TO PRODUCTION AND OPERATIONS MANAGEMENT
  2. INTRODUCTION TO PRODUCTION AND OPERATIONS MANAGEMENT:Decision Making
  3. INTRODUCTION TO PRODUCTION AND OPERATIONS MANAGEMENT:Strategy
  4. INTRODUCTION TO PRODUCTION AND OPERATIONS MANAGEMENT:Service Delivery System
  5. INTRODUCTION TO PRODUCTION AND OPERATIONS MANAGEMENT:Productivity
  6. INTRODUCTION TO PRODUCTION AND OPERATIONS MANAGEMENT:The Decision Process
  7. INTRODUCTION TO PRODUCTION AND OPERATIONS MANAGEMENT:Demand Management
  8. Roadmap to the Lecture:Fundamental Types of Forecasts, Finer Classification of Forecasts
  9. Time Series Forecasts:Techniques for Averaging, Simple Moving Average Solution
  10. The formula for the moving average is:Exponential Smoothing Model, Common Nonlinear Trends
  11. The formula for the moving average is:Major factors in design strategy
  12. The formula for the moving average is:Standardization, Mass Customization
  13. The formula for the moving average is:DESIGN STRATEGIES
  14. The formula for the moving average is:Measuring Reliability, AVAILABILITY
  15. The formula for the moving average is:Learning Objectives, Capacity Planning
  16. The formula for the moving average is:Efficiency and Utilization, Evaluating Alternatives
  17. The formula for the moving average is:Evaluating Alternatives, Financial Analysis
  18. PROCESS SELECTION:Types of Operation, Intermittent Processing
  19. PROCESS SELECTION:Basic Layout Types, Advantages of Product Layout
  20. PROCESS SELECTION:Cellular Layouts, Facilities Layouts, Importance of Layout Decisions
  21. DESIGN OF WORK SYSTEMS:Job Design, Specialization, Methods Analysis
  22. LOCATION PLANNING AND ANALYSIS:MANAGING GLOBAL OPERATIONS, Regional Factors
  23. MANAGEMENT OF QUALITY:Dimensions of Quality, Examples of Service Quality
  24. SERVICE QUALITY:Moments of Truth, Perceived Service Quality, Service Gap Analysis
  25. TOTAL QUALITY MANAGEMENT:Determinants of Quality, Responsibility for Quality
  26. TQM QUALITY:Six Sigma Team, PROCESS IMPROVEMENT
  27. QUALITY CONTROL & QUALITY ASSURANCE:INSPECTION, Control Chart
  28. ACCEPTANCE SAMPLING:CHOOSING A PLAN, CONSUMER’S AND PRODUCER’S RISK
  29. AGGREGATE PLANNING:Demand and Capacity Options
  30. AGGREGATE PLANNING:Aggregate Planning Relationships, Master Scheduling
  31. INVENTORY MANAGEMENT:Objective of Inventory Control, Inventory Counting Systems
  32. INVENTORY MANAGEMENT:ABC Classification System, Cycle Counting
  33. INVENTORY MANAGEMENT:Economic Production Quantity Assumptions
  34. INVENTORY MANAGEMENT:Independent and Dependent Demand
  35. INVENTORY MANAGEMENT:Capacity Planning, Manufacturing Resource Planning
  36. JUST IN TIME PRODUCTION SYSTEMS:Organizational and Operational Strategies
  37. JUST IN TIME PRODUCTION SYSTEMS:Operational Benefits, Kanban Formula
  38. JUST IN TIME PRODUCTION SYSTEMS:Secondary Goals, Tiered Supplier Network
  39. SUPPLY CHAIN MANAGEMENT:Logistics, Distribution Requirements Planning
  40. SUPPLY CHAIN MANAGEMENT:Supply Chain Benefits and Drawbacks
  41. SCHEDULING:High-Volume Systems, Load Chart, Hungarian Method
  42. SEQUENCING:Assumptions to Priority Rules, Scheduling Service Operations
  43. PROJECT MANAGEMENT:Project Life Cycle, Work Breakdown Structure
  44. PROJECT MANAGEMENT:Computing Algorithm, Project Crashing, Risk Management
  45. Waiting Lines:Queuing Analysis, System Characteristics, Priority Model