A Presentation

on
AGGREGATE
PRODUCTION PLANNING
Presented By :
 Kausar Hayat

 Manju
 Priyanka Vatsh
 Lipika Roy
 Kanika Sharma
 Charu
September SinghSECTION-A
23, 2009 PGDM 4TH TRIMESTER 1
 PLANNING
Planning is a process of logical
thinking or brain
storming and outcome of planning
is a plan.

In industries planning means

integration of
activities required for conversion
of sales
SECTION-A PGDM 4TH
orders into actual
September 23, 2009
products or
TRIMESTER
2
 Objectives of Planning
 To meet desired production schedules
in terms of quantity, quality and time.
 Optimum utilization of resources
through :
 Minimizing number of setups
 Effective in process inventory
control(work in progress)
 Proper material handling system
 Minimizing idle time of machines
and manpower.
September 23, 2009 SECTION-A PGDM 4TH 3
TRIMESTER
Two Basic Strategies
are:-
APP strategy APP alternatives Key features
applicable
Level strategy Inventory based Inventory as the
alternatives critical link between
a)Build inventory the periods; made-to-
b)Backlog /backorder stock environment;
products with low risk
of obsolescence
Chase strategy Capacity adjustment no inventory carried
alternatives from one period to
a)Over time/undertime another; several
b)Vary no.of shifts
service systems
c)hire/lay off workers

Capacity
augmentation
alternatives:-
a)sub-
contract/outsource
September 23, 2009 SECTION-A PGDM 4
b)De-bottleneck
4TH TRIMESTER
 MIXED STRATEGY
This strategy employs a combination of the
available
alternatives for APP -
 Mixed Strategy 1 :
d. hire workers at the beginning of the
planning
e. maintain a constant production rate
f. utilize inventory based alternatives
 Mixed Strategy 2 :
h. do not hire/layoff workers
i. adjust the production rates
j. use23,inventory
September 2009 and subcontracting
SECTION-A PGDM 4TH to match
5
supply /demand TRIMESTER
 Mixed Strategy 3 :
b. do not hire/layoff workers
c. use subcontracting during
period of high demand and
build inventory during low
demand.

SECTION-A PGDM
September 23, 2009 4TH TRIMESTER 6
 QUESTIONS

SECTION-A PGDM 4TH

September 23, 2009 7
TRIMESTER
Question 1
• A manufacturer of ceiling fans offer three
different versions of the product to its
customers: basic(three blades), improved
(four blades) and deluxe(enhanced
performance features).The table below has
information on the machines hours required
for each of these variations and the number
of fans to be manufactured in the next
quarter. Assume 25 working days per
month.
• Choose an appropriate aggregate unit for
planning the production
• For the chosen aggregate unit, estimate the
capacity required
• If the
September manufacturer
23, 2009
SECTION-A PGDM
operates
TRIMESTER
4TH
two shifts8
Solution:

Fan April May June M/c

type hours
Basic 140 160 160 per unit
9.50
Improve 110 150 150 12.00
d

Deluxe 120 120 140 18.50

SECTION-A PGDM 4TH

September 23, 2009 9
TRIMESTER
 Case1:
April May June

Basic 140*9.50= 160*9.50= 160*9.50=

1330 1520 1520

Improved 110*12.00= 150*12.00= 150*12.00=

1320 1800 1800

Delux 120*18.50= 120*18.50= 140*18.50=

2220 2220 2590

Total 4870 5540 5910

SECTION-A PGDM 4TH

September 23, 2009 10
TRIMESTER
 Case 2 :
• Estimate the capacity required?
Aggregate Capacity= working
hours*number of
working days
= 8*25 = 200
• 4870/200=25
25 machines are required in April.
5540/200=28
28 machines are required in May
5910/200=30
30 machines
September 23, 2009
are required
SECTION-A PGDM in
4TH June 11
TRIMESTER
 Case 3 :
• Manufacturer operates 2 shifts each
of 8 hours i.e. 200+200=400
• 4870/400=13
13 machines are required in April to
fulfill the requirement of next
quarter.
• 5540/400=14
14 machines are required in May
• 5910/400=15
15 machines are required
SECTION-A PGDM 4TH
in month of
September 23, 2009 12
June. TRIMESTER
Question 2
A manufacturing organisation employs 220
people in the
factory. The Manufacturing is largely manual,
therefore, man
hours are a good measure of the capacity of
the system. The
factory currently works on a single shift of 8
hours. The no. of
working days for the next 6 months is as
follows :
24, 22, 25, 19, 21 and 23.
The company uses this information to plan its
capacities.
The demand
September 23, 2009 for its product during the next 613
SECTION-A PGDM 4TH
TRIMESTER
Under these circumstances, analyse the
situation and answer
the following questions:
c)What is the total capacity available in the
factory as of now?
d)The company is considering 3 options to
meet the impending demand for capacity
v. Introduce 2 hours of overtime for the
next 6 months
vi. Introduce 1 hour of overtime for the next
6 months
vii. Introduce 2hours of overtime for the
first
6 months and 2 hours of idle time
thereafter. SECTION-A PGDM
September 23, 2009
4TH
14
TRIMESTER
Solution (a) :
No. of workers 220
Working hours 8
MONT WORKI CAPACIT CURREN PROJECTED
HS NG Y T DEMAND FOR
DAYS (HOURS DEMAND NEXT 6
1 24 )
42240 33792 MONTHS
45619
2 22 38720 30976 41818
3 25 44000 35200 47520
4 19 33440 26752 36115
5 21 36960 29568 39917
6 23 40480 32384 43718
TOTAL CAPACITY 235840

SECTION-A PGDM 4TH

September 23, 2009 15
TRIMESTER
Solution (b) :
Case (i) 2 hours overtime for the next 6 months :
MONT WORKI EXISTI CAPACIT TOTAL DEMAND CAPACI
HS NG NG Y CAPACI (PROJECT TYDEM
DAYS CAPACI (OVERTI TY ED) AND
TY ME) “A” “B” C = A-B
7 24 42240 10560 52800 45619 7181

8 22 38720 9680 48400 41818 6582

9 25 44000 11000 55000 47520 7480

10 19 33440 8360 41800 36115 5685

11 21 36960 9240 46200 39917 6283

12 23 40480 10120 50600 43718 6882

TOTAL CAPACITY DEMAND 40093

SECTION-A PGDM 4TH

September 23, 2009 16
TRIMESTER
Solution (b) :
Case (ii) 1 hour overtime for the next 6 months :
MONT WORKI EXISTI CAPACIT TOTAL DEMAND CAPACI
HS NG NG Y CAPACI (PROJECT TYDEM
DAYS CAPACI (OVERTI TY ED) AND
TY ME) “A” “B” C= A-B
7 24 42240 5280 47520 45619 1901

8 22 38720 4840 43560 41818 1742

9 25 44000 5500 49500 47520 1980

10 19 33440 4180 37620 36115 1505

11 21 36960 4620 41580 39917 1663

12 23 40480 5060 45540 43718 1822

TOTAL CAPACITY DEMAND 10613

SECTION-A PGDM 4TH

September 23, 2009 17
TRIMESTER
Solution (b) :
Case (iii) 2 hours of overtime for the first 3 months & 2 hours of
idle time thereafter :
MONT WORKI EXISTI CAPACIT TOTAL DEMAND CAPACI
HS NG NG Y CAPACI (PROJECT TYDEM
DAYS CAPACI CHANGE TY ED) AND
TY (OT/UT) “A” “B” C= A-B
7 24 42240 10560 52800 45619 7181

8 22 38720 9680 48400 41818 6582

9 25 44000 11000 55000 47520 7480

10 19 33440 (8360) 25080 36115 (11035

)
11 21 36960 (9240) 27720 39917 (12197
)
12 23 40480 (10120) 30360 43718 (13358
)
TOTAL CAPACITY DEMAND (1534
7)
SECTION-A PGDM 4TH
September 23, 2009 18
TRIMESTER
Question 3
Suppose in the above problem, the
following are
the costs pertaining to overtime,
inventory and
shortage and idle time:-
(d)Overtime premium:Rs.4.00 per
hour.
(e)Idle time costs :Rs.2.00 per hour.
(c) Cost of holding inventory :Rs.10.00
per hour.
September 23, 2009
SECTION-A PGDM
TRIMESTER
4TH
19
Case 1 : Two hour Overtime for next
six months
Month Openin Closin Inventor OT/U OT/UT Total
s g g y T Cost Cost
Invent Invent /Shorta hours
ory ory ge Cost
7 0 7180 35904 10560 42240 78144

8 7180 13763 104720 9680 38720 143440

9 13763 21243 175032 11000 44000 219032

10 21243 26928 240856 8360 33400 274296

11 26928 33211 300696 9240 36960 337656

12 33211 40092 366520 10120 40480 407000

SECTION-A PGDM 4TH

September 23, 2009 20
TRIMESTER
 Case2 : One hour Overtime for next
six months
Month Openin Closing Invent OT/UT OT/UT Total
s g Invent ory hours Cost Cost
Invent ory /Shorta
ory ge
7 0 1900 9504 5280 21120 30624
Cost
8 1900 3643 27720 4840 19360 47080

9 3643 5623 46332 5500 22000 68332

10 5623 7128 63756 4180 16720 80476

11 7128 8791 79596 4620 18480 98076

12 8791 10612 97020 5060 20240 117260

SECTION-A PGDM 4TH

September 23, 2009 21
TRIMESTER
 Case 3 : Two hours OT for next three
months, two hours under time thereafter

Month Openin Closin Invent OT/UT OT/UT Total

s g g ory hours Cost Cost
Invent Invent /Short
7 ory
0 ory
7180 age
35904 10560 42240 78144
Cost
8 7180 13763 104720 9680 38720 143440

9 13763 21243 175032 11000 44000 219032

10 21243 10208 157256 (8360) 16720 173976

11 10208 -1988 90800 (9240) 18480 109280

12 0 -15347 306940 (10120) 20240 327180

SECTION-A PGDM 4TH

September 23, 2009 22
TRIMESTER
Question 4
Hot spot is a fast food restaurant located
in a prominent
locality in the city of Bangalore. Hot spot
offers three
different menus of breakfast : standard,
extended, custom
made. The standard offering takes nearly
20 minutes of
one worker and the extended requires 30
minutes. On the
other hand, custom made requires three
workers to spend
25 minutes each.
September 23, 2009
SECTION-A PGDM 4TH
23
TRIMESTER
 Type of Demand during next 4
service weeks
offered 1 2 3 4

STANDA 2000 2200 2500

RD 2800

1700 1600 1000

EXTEND 1300
ED

500 600 400

200
CUSTOM
-MADE
SECTION-A PGDM 4TH
September 23, 2009 24
TRIMESTER
Solution:
DEMAND DURING WEEKS In units

Type of Number std time

service 1 2 3 4 of (mins)
offered workers per
worker
STANDA 1 20
RD 2000 220 2800 2500
0
EXTEND 1 1300 1 30
ED 1700 600 1000

CUSTOM 500 600 200 400 3 25

-MADE

SECTION-A PGDM 4TH

September 23, 2009 25
TRIMESTER
 No. of hours taken by worker:
 For standard : 20/60*1 =
0.33
 For extended : 30/60*1 = 0.5
 For custom–made : 25/60*3 =
1.25

SECTION-A PGDM 4TH

September 23, 2009 26
TRIMESTER
 In hours
CUSTOM- CAPACITY/
WEEKS MADE DEMAND(h
STANDARD EXTENDED rs)
(TOTAL)
1 660 850 625 2135

2 726 800 750 2276

3 924 650 250 1824

4 825 500 500 1825

Question 5
Assume that hot spot currently
employs 29 workers in its restaurant. If
hot spot works for 6 days a week, 10
hrs a day compute the following:
(c)What is capacity available at hot spot
in its current level of working?
(d)Is the capacity adequate to meet the
demand? If not, how much additional
capacity do they need?
(e)What alternatives would you
recommend to hot spot to solve their
capacity problem?
Given: No. of employees – 29
Work schedule – 10 hrs a day
Work week – 6 days

Available/current capacity= no. of working

days * working hrs* no. of worker
= 6* 29 * 10
= 1740
Demand(hrs) Available capacity Addl. capacity
(hrs)
2135 1740 395

2276 1740 536

1824 1740 84

1825 1740 85
(a) Current capacity is 1740 hrs per
week.
(b) No, the current capacity is
inadequate. Additional capacity needed
is shown above.
(c) Alternatives available:
4.To maintain flexible workforce through
hire/fire.
5. To recruit average no. of workers and
manage additional requirement through
hiring temporary workers.
6. To recruit peak load requirement and
investigate method for increasing
(d) No. of employee to be hire =
shortage/working hr.* no. of working days
Hire For 1st week = 395/6*10 = 6.58 or 7
Hire For 2nd week = 536/6*10 = 8.93 or 9
Hire For 3rd week = 84/6*10 = 1.40 or 2
Hire For 4th week = 85/6*10 = 1.42 or 2
Additional capacity Man hrs No. of employees to
be hire
Week 1 395 7

Week 2 536 9

Week 3 84 2

Week 4 85 2
Example 11.4
A manufacturer of industrial motors
produces
four varieties of motors. Type 4 motor
requires a
greater amount of customization than
the other
three. The production planning
department has
estimated the no of hours required for
manufacturing one unit of motor of
each
variety.
September typeSECTION-A
23, 2009 1 requiresPGDM 125
4TH hrs ; 32
TRIMESTER
 Forecast Motor In units
of Demand
Months Type1 Type2 Type3 Type4
April 100 40 60 10
May 90 30 30 5
June 80 50 50 10
July 130 40 70 20
August 70 30 30 15
Septembe 90 50 50 5
r
October 100 40 50 10
Novembe 110 30 40 15
r
December 60 60 80 5
January 110 20 30 10
February 120 40 40 5
March 140 50 70 10
SECTION-A PGDM 4TH
September 23, 2009 33
TRIMESTER
 Contd……..
Overtime premium is estimated to be
Rs 20/hr while under time costs are
50% of OT premium. the cost carrying
inventory is Rs 15/hr/mnth and the
backordering/shortage costs are
200% of the inventory carrying costs.
The company can sub-contract
capacity from a reputed vendor and
the additional costs related to sub-
contracting is Rs 25/hr of the
capacity.
Evaluate the following alternatives
for APP:
September 23, 2009
SECTION-A PGDM 4TH
34
TRIMESTER
 Contd……..
(b) Use constant production rate for the
first six months, change the production
rate to another level and have a
constant production rate for the next six
months. use inventory/backlogging to
absorb demand-supply mismatch.

(c) Maintain a production level of 31,000

hrs/month and use OT/UT alternatives to
chase the demand.

(d) Maintain a production level of

31,000hrs/month. Build inventory during
periods of low demand and use sub-
contractingSECTION-A
September 23, 2009
when the
PGDMdemand
4TH exceeds 35
available capacity.TRIMESTER
 Aggregate of Product Demand:
hr/uni 125 175 200 350
t
Forecast of Motor Demand Forecast of Motor Demand
(units) (hrs)
Mont Type Type Type Type4 Type Type Type Type Total
h
April 1
100 2
40 3
60 10 1
1250 2
7,000 3
12,00 4
3,500 35,00
May 90 30 30 5 0
1125 0
5,250 6,000 0
1,750 24,25
June 80 50 50 10 0
10,00 0
8,750 10,00 3,500 32,25
July 130 40 70 20 0
16,25 0
7,000 14,00 0
7,000 44,25
Aug 70 30 30 15 0
8,750 0
5,250 6,000 0
5,250 25,25
Sep 90 50 50 5 0
11,25 8,750 10,00 1,750 31,75
Oct 100 40 50 10 0
12,50 0
7,000 10,00 0
3,500 33,00
Nov 110 30 40 15 0
13,75 0
5,250 8,000 0
5,250 32,25
Dec 60 60 80 5 0
7,500 0
10,50 16,00 1,750 35,75
Jan 110 20 30 10 0
13,75 3,500 0
6,000 0
3,500 26,75
Feb 120 40 40 5 0
15,00 0
7,000 8,000 1,750 31,75
Marc 140 50 70 10 0
17,50 0
8,750 14,00 3,500 43,75
h SECTION-A PGDM 0 4TH 0 0
September 23, 2009 36
TRIMESTER
 Plan A-Level Strategy
Months Demand Prd Prodct Opng Closng C.o.I/B.O
(hr rate(hr) dmd invt invt
April 35,000 33,000 (2000) 0 (2000) 60,000
May 24,250 33,000 8,750 (2000) 6,750 50,625
June 32,250 33,000 750 6,750 7,500 1,06,875
July 44,250 33,000 (11,250) 7,500 (3,750) 1,68,750
Aug 25,250 33,000 7,750 (3,750) 4,000 30,000
Sep 31,750 33,000 1,250 4,000 5,250 69,375
Oct 33,000 33,000 0 5,250 5,250 78,750
Nov 32,250 33,000 750 5,250 6,000 84,375
Dec 35,750 33,000 (2,750) 6,000 3,250 69,375
Jan 26,750 33,000 6,250 3,250 9,500 95,625
Feb 31,750 33,000 1,250 9,500 10,750 151,875
March 43,750 33,000 (10,750) 10,750 0 80,625
Avg. 33,000 Total cost of Plan 10,46,25
(12) 0

SECTION-A PGDM 4TH

September 23, 2009 37
TRIMESTER
 Calculations:
 Cost of inventory = Rs 15/hr/month
 Cost of shortage/backlogging=200% * 15=Rs 30
Months Cost of inventory/cost of shortage
April 2000*30= Rs60,000
May 6750/2*15= Rs 50,625
June (6750+7500)/2*15 = Rs 1,06,875
July (7500/2)*15 +3750*30 = Rs 1,68,750
August (4000/2)*15 =Rs 30,000
Sep (4000+5250)/2*15 =Rs 69,375
Oct (5250+5250)/2*15 = Rs 78,750
Nov (5250+6000)/2*15 = Rs 84,375
Dec (6000+3250)/2*15 = Rs 69,375
Jan (3250+9500)/2*15 = Rs 95,625
Feb (9500+10750)/2*15 = Rs 151,875
March (10750/2)*15 = Rs 80,625
SECTION-A PGDM 4TH
September 23, 2009 38
TRIMESTER
Plan B-two level of Constant Production
Months Demand Prd Rate
Prd Opng Clsng C.O.I/C.
(h rate(hr) dmd invt invt B.O
April 35,000 32,125 (2,875) 0 (2,875) 86,250
May 24,250 32,125 7,875 2,875 5,000 37,500
June 32,250 32,125 (125) 5,000 4,875 74,063
July 44,250 32,125 (12,125 4,875 (7,250) 2,54,063
)
August 25,250 32,125 6,875 (7,250) (375) 11,250
Sep 31,750 32,125 375 (375) 0 ----
Oct 33,000 33,875 875 0 875 6,563
Nov 32,250 33,875 1,625 875 2,500 25,313
Dec 35,750 33,875 (1,875) 2,500 625 23,438
Jan 26,750 33,875 7,125 625 7,750 62,813
Feb 31,750 33,875 2,125 7,750 9,875 1,32,188
March 43,750 33,875 (9,875) 9,875 0 74,063
Avg(fst 32,125 Total cost Of the plan 7,87500
6)
Avg(sec 33,875
SECTION-A PGDM 4TH
6)
September 23, 2009
TRIMESTER
39
 Plan C: Chase Strategy with OT/UT
Mont Dema Prod Prod. Op. Clg. Cost
h nd Rate Demand Invent Invent of
April (hrs)
35,000 (hrs)
31,000 (hrs)
(4,000) (hrs)
0 (hrs)
0 OT/UT
80,000
May 24,250 31,000 6,750 0 0 67,500
June 32,250 31,000 (1,250) 0 0 25,000
July 44,250 31,000 (13,250) 0 0 2,65,0
August 25,250 31,000 5,750 0 0 00
57,500
Sept. 31,750 31,000 (750) 0 0 15,000
Octob 33,000 31,000 (2,000) 0 0 40,000
er
Nov. 32,250 31,000 (1,250) 0 0 25,000
Dec. 35,750 31,000 (4,750) 0 0 95,000
Jan. 26.750 31,000 4,250 0 0 42,500
Feb. 31,750 31,000 (750) 0 0 15,000
March 43,750 31,000 (12,750) 0 0 2,55,0
Total cost of the Plan 00
9,82,5
00
SECTION-A PGDM 4TH
September 23, 2009 40
TRIMESTER
 Plan D: Mixed Strategy
Month Dema Prod Prod Op. Clg. Cost of
nd Rate Demand Inven Inven the
(hrs) (hrs) (hrs) t t plan
April 35,000 31,000 (4000) (hrs)
0 (hrs)
(4,000
May 24,250 31,000 6,750 (4,000 )
2,750
June 32,250 31,000 (1,250) )
2,750 1,500
July 44,250 31,000 (13,250) 1,500 (11,75
August 25,250 31,000 5,750 (11,75 0)
(6,000
Sept. 31,750 31,000 (750) 0)
(6,000 )
(6,750
October 33,000 31,000 (2,000) )
(6,750 )
(8,750
Nov. 32,250 31,000 (1,250) )
(8,750 )
(10,00
Dec. 35,750 31,000 (4,750) )
(10,00 0)
(14,75
Jan. 26,750 31,000 4,250 0)
(14,75 0)
(10,50
Feb. 31,750 31,000 (750) 0)
(10,50 0)
(11,25
March 43,750 31,000 (12,750) 0)
(11,25 0)
0
Total cost of plan 0)
SECTION-A PGDM 4TH
September 23, 2009 41
TRIMESTER
 SECTION-A PGDM 4TH
September 23, 2009 42
TRIMESTER