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Production Planning Horizons
Long-Range
Long-Range Capacity Planning (years)
Medium-Range
Aggregate Planning (6-18 months)
Short-Range
Master Production Scheduling (weeks)
Very-Short-Range
Production Planning and Control Systems
(hours - days)
Production Planning: Units of Measure
Entire
Long-Range Capacity Planning Product Line
Product
Aggregate Planning Family
Specific
Master Production Scheduling Product Model
Labor, Materials,
Production Planning and Control Systems
Machines
The long term plan is defined at the corporate level. These
decisions are more strategic. This activity is often referred
to as "strategic planning". The following needs to be
addressed in a strategic plan
how to reach it ?
Here we need the monthly forecast for all the products for
the period considered (the intermediate term). These
forecasts are translated into aggregate units.
On the basis of this demand, we can select the best
production plan.
Aggregate Planning Objectives
Aggregate
plan
Managerial Inputs
Demand forecasts
Aggregate
plan
Managerial Inputs
Demand forecasts
Demand forecasts
Human resources
Labor-market conditions
Training capacity
Managerial Inputs
Demand forecasts
Operations
Current machine capacities
Plans for future capacities
Workforce capacities Demand forecasts
Current staffing level
Materials
Aggregate Accounting and finance
Supplier capabilities
Storage capacity plan Cost data
Materials availability
Determine
requirements for
planning horizon
Aggregate Planning Process
Determine
Identify alternatives,
requirements for
constraints, and costs
planning horizon
Aggregate Planning Process
Is the plan
acceptable?
Aggregate Planning Process
No
Is the plan
acceptable?
Aggregate Planning Process
No
Is the plan
acceptable?
Yes
Implement and
update the plan
Aggregate Planning Process
No
Is the plan
acceptable?
Yes
Move ahead
Implement and
to next
update the plan
planning session
Aggregate Planning Costs
• Regular-Time Costs
• Overtime Costs
• Hiring and
Layoff Costs
• Inventory
Holding Costs
• Backorder and Stockout Costs
Production Plan
1500 —
750 —
500 —
250 —
0—
| | | |
1 2 3 4
Quarter
Production Plan
1500 —
500 —
250 —
0—
| | | |
1 2 3 4
Quarter
Production Plan
Inventory
accumulation
1500 —
500 —
250 — 300
0 — 510
| | | |
1 2 3 4
Quarter
Production Plan
Inventory
accumulation
1500 —
250 — 300
0 — 510
| | | |
1 2 3 4
Quarter
Three Methods of Aggregate Planning
Attempt should be such that stock outs do not occur in the last
period of any aggregate plan.
TIME PERIOD
1 2 3 4 5 6 Total
Requirement* 6 12 18 15 13 14 78
Current employment = 10 part-time emp * Number of part-time employees
Level Strategy for Services Dock Aisle
TIME PERIOD
1 2 3 4 5 6 Total
Requirement* 6 12 18 15 13 14 78
Current employment = 10 part-time emp * Number of part-time employees
TIME PERIOD
1 2 3 4 5 6 Total
Requirement* 6 12 18 15 13 14 78
Current employment = 10 part-time clerks
Peak Requirement
1. No more than 10 new hires in any period
2. No backorders are permitted
3. Overtime can not exceed 20% of regular-time capacity
4. The following costs can be assigned:
Regular-time wage 2,000/period at 20 hours/week
Overtime wages 150% of regular-time
Hiring 1,000/person
Layoffs 500/person
Level Strategy for Services Dock Aisle
TIME PERIOD
1 2 3 4 5 6 Total
Requirement* 6 12 18 15 13 14 78
Current employment = 10 part-time clerks
Peak Requirement
1. No more than 10 new hires in any period
2. No backorders are permitted
1.20w = 18 employees in peak period
3. Overtime can not exceed 20% of regular-time capacity
4. The following costs can be assigned:
Regular-time wage 2,000/period at 20 hours/week
Overtime wages 150% of regular-time
Hiring 1,000/person
Layoffs 500/person
Level Strategy for Services Dock Aisle
TIME PERIOD
1 2 3 4 5 6 Total
Requirement* 6 12 18 15 13 14 78
Current employment = 10 part-time clerks
Peak Requirement
1. No more than 10 new hires in any period
2. No backorders are permitted
1.20w = 18 employees in peak period
3. Overtime can not exceed 20% of regular-time capacity
4. 18
The following costs can be assigned:
w =
Regular-time wage 2,000/period = 15
at employees
20 hours/week
1.20
Overtime wages 150% of regular-time
Hiring 1,000/person
Layoffs 500/person
TIME PERIOD
Total Cost
1 2 3 4 5 6
Requirement 6 12 18 15 13 14 78
level 15 15 15 15 15 15 90 180000
undertime 9 3 0 0 2 1 15
overtime 0 0 3 0 0 0 3 9000
Hires 5 0 0 0 0 0 5 5000
Fires 0 0 0 0 0 0 0 0
194000
LEVEL STRATEGY
Example 2
Know the demand
Beginning
400
Inventory
Production Required is determined by adding the forecast plus
the safety stock and subtracting the beginning inventory for
each period:
Beginning
400 450 375 275 225 275
Inventory
Required
1,850 1,425 1,000 850 1,150 1,850
Production
Starting Conditions
Worker-hours/unit = hrs/unit
Each unit that is held in inventory for one month will cost us
some amount. This cost includes the costs of
storage space
administrative costs
Often when employees work more than the regular time, they are
paid at a higher pay rate for the addition hours. This higher pay
rate is usually 1.5 times the Standard pay rate.
Penalties
Marginal Cost : the cost in addition (above and beyond) our cost
to produce that same unit (the manufacturing cost).
Total Cost : the amount the other business would receive for
producing one unit.
Hiring and Training Cost = Rs. /person
This is the cost to add another employee to our work force. This
includes the cost of:
advertising
less than full productivity for the new employee during the training
period
Layoff Costs = Rs. /person
Severance pay
For eg.
Beginning
400 450 375 275 225 275
Inventory
Days in a
22 19 21 21 22 20
month
Required
1,850 1,425 1,000 850 1,150 1,850
Production
Cum Prodn 1,850 3,275 4,275 5,125 6,275 8,125
How many workers?
Assume that each unit requires 5 labor hours and each worker
works 8 hours/day
For Jan.:
Beginning
400 450 375 275 225 275
Inventory
Days in a
22 19 21 21 22 20
month
8,500
Cum Production
7,000
5,500
4,000
2,500
1,000
0 1 2 3 4 5 6 7
Quarter
Shortage Costs
This cost is the number short in any period X the stock out cost
Storage Costs
This cost is the number excess in any period X the storage cost
Hiring Cost =
(41 required workers – 36 available workers) X hiring cost
Lay-off Cost = 0
53 - 36 = 17
Hiring Cost
For Feb., it is 53 - 47 = 6.
Layoff Cost
Inventory Cost
Number of units in Ending Inv. for any one month x holding Cost
The beginning inventory for Jan. is 0. We need 1850 units and
we produce 1866. The difference (1866 - 1850 = 16) is the Ending
Inv. for Jan.
2.5 hrs/gallon
65 days/quarter
8 hrs/day
Hiring cost = 1000
Firing cost = 2000
Inventory carrying cost = 50 per gallon per quarter
Stock out cost = 100 per gallon per quarter
Starting work force = 200
Find the following for Level and Chase strategies
Inventory costs
Independent
Demand
Dependent Demand
COMPONE
Master Production Scheduling
Weeks 1 2 3 4 5 6 7 8
Master Production Schedule
Shows the specific type
and quantity of bike to be
produced
Road bike 100 100 100 100
Hybrid bike 500 500 450 450
Mountain bike 300 100
Master Production Scheduling
WEEK
Demand Estimates
1 2 3 4 5 6
CUSTOMERS 500 1000 500 200 700 1000
BRANCH WAREHOUSES 200 300 400 500 300 200
MARKET RESEARCH 0 50 0 0 10 0
PRODUCTION RESEARCH 10 0 0 0 0 0
Master Production Scheduling
WEEK
1 2 3 4 5 6
CUSTOMERS 500 1000 500 200 700 1000
BRANCH WAREHOUSES 200 300 400 500 300 200
MARKET RESEARCH 0 50 0 0 10 0
PRODUCTION RESEARCH 10 0 0 0 0 0
WEEK
1 2 3 4 5 6
SCANNER PRODUCTION 0 1500 1500 0 1500 1500
Rough Cut Capacity Planning
WEEK
1 2 3 4 5 TOTAL
PRODUCTION 100 200 200 250 280 1030
LOAD 2400 4800 4800 6000 6720 24720
CAPACITY 5000 5000 5000 5000 5000 25000
UNDER or OVER LOAD 2600 200 200 1000 1720 280
Rough Cut Capacity Planning