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Aggregate Sales and Operations Planning

Process planning

Long range Intermediate Forecasting & demand range management Manufacturing

Master scheduling

Strategic capacity planning

Sales and operations (aggregate) planning Sales plan Aggregate operations plan

Services

Material requirements planning Weekly workforce and customer scheduling Daily workforce and customer scheduling

Short range

Order scheduling

Sales and Operations Planning Activities

Long-range planning

Greater than one year planning horizon Usually performed in annual increments

Medium-range planning

Six to eighteen months Usually with weekly, monthly or quarterly increments

Short-range planning

One day to less than six months Usually with weekly or daily increments

The Aggregate Operations Plan

Main purpose: Specify the optimal combination of

production rate (units completed per unit of time)

workforce level (number of workers) inventory on hand (inventory carried from previous period)

Product group or broad category (Aggregation)

This planning is done over an intermediaterange planning period of 3 to18 months

Balancing Aggregate Demand and Aggregate Production Capacity

10000

Suppose the figure to the right represents forecast demand in units Now suppose this lower figure represents the aggregate capacity of the company to meet demand What we want to do is balance out the production rate, workforce levels, and inventory to make these figures match up

10000 8000 8000 6000 4000 5500 4500 7000 6000

2000
0 Jan Feb Mar 9000 8000 6000 Apr May Jun

10000 8000

6000
4000 2000 0

4500

4000

4000

Jan

Feb

Mar

Apr

May

Jun

Required Inputs to the Production Planning System

Competitors behavior External capacity Raw material availability Market demand Economic conditions

External to firm

Planning for production

Current physical capacity

Current workforce

Inventory levels

Activities required for production

Internal to firm

Key Strategies for Meeting Demand

Chase

Level

Some

combination of the two

Aggregate Planning Examples: Unit Demand and Cost Data

Suppose we have the following unit demand and cost information:
Demand/mo Jan 4500 Feb 5500 Mar 7000 Apr 10000 May 8000 Jun 6000

Materials Holding costs Marginal cost of stockout Hiring and training cost Layoff costs Labor hours required Straight time labor cost Beginning inventory Productive hours/worker/day Paid straight hrs/day

Rs5/unit Rs1/unit per mo. Rs1.25/unit per mo. Rs200/worker Rs250/worker .15 hrs/unit Rs8/hour 250 units 7.25 8

Cut-and-Try Example: Determining Straight Labor Costs and Output

Given the demand and cost information below, what are the aggregate hours/worker/month, units/worker, and dollars/worker? Demand/mo Jan 4500 Feb 5500 Mar 7000 Apr 10000 May 8000 Jun 6000

Productive hours/worker/day Paid straight hrs/day

Jan 22 Feb 19

7.25 8
Mar 21 Apr 21 May 22 Jun 20

Days/mo Hrs/worker/mo Units/worker Rs/worker

Cut-and-Try Example: Determining Straight Labor Costs and Output

Given the demand and cost information below, what are the aggregate hours/worker/month, units/worker, and dollars/worker?

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Demand/mo Jun

Jan

Feb

Mar 7000 7.25

Apr 10000

May 8000

7.25x2 2

4500 5500 Productive hours/worker/day 6000 hrs/day Paid straight

22x8hrsxRs8=Rs1 Jan 408

Days/mo Hrs/worker/mo Units/worker Rs/worker

7.25/0.15=48.33 & 48.33x22=1063.33

Mar 21 152.25 1015 1,344 Apr 21 152.25 1015 1,344 May 22 159.5 1063.33 1,408 Jun 20 145 966.67 1,280

22 159.5 1063.33 1,408

Feb 19 137.75 918.33 1,216

Chase Strategy (Hiring & Firing to meet demand)

Days/mo Hrs/worker/mo Units/worker Rs/worker Jan 22 159.5 1,063.33 1,408
Lets assume our current workforce is 7 workers.

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Jan Demand Beg. inv. Net req. Req. workers Hired Fired Workforce Ending inventory

3 4 0

Chase Strategy (Hiring & Firing to meet demand)

Days/mo Hrs/worker/mo Units/worker Rs/worker Jan 22 159.5 1,063.33 1,408
Lets assume our current workforce is 7 workers.

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First, calculate net requirements for production, or 4500-250=4250 units

Demand Beg. inv. Net req. Req. workers Hired Fired Workforce Ending inventory

Jan 4,500 250 4,250 3.997 3 4 0

Then, calculate number of workers needed to produce the net requirements, or 4250/1063.33=3.997 or 4 workers
Finally, determine the number of workers to hire/fire. In this case we only need 4 workers, we have 7, so 3 can be fired.

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Below are the complete calculations for the remaining months in the six month planning horizon
Days/mo Hrs/worker/mo Units/worker Rs/worker Jan 22 159.5 1,063 1,408 Feb 19 137.75 918 1,216 Mar 21 152.25 1,015 1,344 Apr 21 152.25 1,015 1,344 May 22 159.5 1,063 1,408 Jun 20 145 967 1,280

Demand Beg. inv. Net req. Req. workers Hired Fired Workforce Ending inventory

Jan 4,500 250 4,250 3.997 3 4 0

Feb 5,500 5,500 5.989 2 6 0

Mar 7,000 7,000 6.897 1 7 0

Apr 10,000 10,000 9.852 3 10 0

May 8,000 8,000 7.524 2 8 0

Jun 6,000 6,000 6.207 1 7 0

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Below are the complete calculations for the remaining months in the six month planning horizon with the other costs included
Demand Beg. inv. Net req. Req. workers Hired Fired Workforce Ending inventory Jan 4,500 250 4,250 3.997 3 4 0 Feb 5,500 5,500 5.989 2 6 0 Mar 7,000 7,000 6.897 1 7 0 Apr 10,000 10,000 9.852 3 10 0 May 8,000 8,000 7.524 2 8 0 Jun 6,000 6,000 6.207 1 7 0

Jan Material Labor Hiring cost Firing cost

Feb

Mar

Apr

May

Jun

Costs

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Below are the complete calculations for the remaining months in the six month planning horizon with the other costs included
Demand Beg. inv. Net req. Req. workers Hired Fired Workforce Ending inventory Jan 4,500 250 4,250 3.997 3 4 0 Feb 5,500 5,500 5.989 2 6 0 Mar 7,000 7,000 6.897 1 7 0 Apr 10,000 10,000 9.852 3 10 0 May 8,000 8,000 7.524 2 8 0 Jun 6,000 6,000 6.207 1 7 0

Material Labor Hiring cost Firing cost

Jan 21,250.00 5,627.59 750.00

Feb 27,500.00 7,282.76 400.00

Mar 35,000.00 9,268.97 200.00

Apr 50,000.00 13,241.38 600.00

May Jun 40,000.00 30,000.00 10,593.10 7,944.83 500.00 250.00

Costs 203,750.00 53,958.62 1,200.00 1,500.00 260,408.62

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Level Workforce Strategy (Surplus and Shortage Allowed)

Lets take the same problem as before but this time use the Level Workforce strategy This time we will seek to use a workforce level of 6 workers

Jan Demand Beg. inv. Net req. Workers Production Ending inventory Surplus Shortage

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Level Workforce Strategy (Surplus and Shortage Allowed)

Lets take the same problem as before but this time use the Level Workforce strategy This time we will seek to use a workforce level of 6 workers

Demand Beg. inv. Net req. W orkers P roduction Ending inventory Surplus Shortage

Jan 4,500 250 4,250 6 6,380 2,130 2,130

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Below are the complete calculations for the remaining months in the six month planning horizon
Jan 4,500 250 4,250 6 6,380 2,130 2,130 Feb 5,500 2,130 3,370 6 5,510 2,140 2,140 Mar 7,000 2,140 4,860 6 6,090 1,230 1,230 Apr 10,000 1,230 8,770 6 6,090 -2,680 2,680 May 8,000 -2,680 10,680 6 6,380 -1,300 1,300 Jun 6,000 -1,300 7,300 6 5,800 -1,500 1,500

Demand Beg. inv. Net req. Workers Production Ending inventory Surplus Shortage

Note, if we recalculate this sheet with 7 workers we would have a surplus

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Below are the complete calculations for the remaining months in the six month planning horizon with the other costs included
Jan 4,500 250 4,250 6 6,380 2,130 2,130 Feb 5,500 2,130 3,370 6 5,510 2,140 2,140 Mar 7,000 10 4,860 6 6,090 1,230 1,230 Apr 10,000 -910 8,770 6 6,090 -2,680 2,680 Jan 8,448.00 31,900.00 2,130.00 Feb Mar Apr 7,296.00 8,064.00 8,064.00 27,550.00 30,450.00 30,450.00 2,140.00 1,230.00 3,350.00 May 8,000 -3,910 10,680 6 6,380 -1,300 1,300 May 8,448.00 31,900.00 1,625.00 Jun 6,000 Note, total -1,620 costs under 7,300 this strategy 6 5,800 are less than -1,500

Chase at Rs260.408.62 1,500

48,000.00 Labor 181,250.00 Material 5,500.00 Storage 6,850.00 Stockout 241,600.00

Jun 7,680.00 29,000.00 1,875.00