You are on page 1of 38

Aggregate Planning

 Arvind Gupta 8123


 Yogesh More 8142
 Nilesh Shingote 8154
 Saurabh Malusare 8138
 Dipali Chavan 8110
 Jagdish Babar 8104
Aggregate Planning
Determine the quantity and timing of production for the
intermediate future – 3to 18 months
Requires:
Measure of sales and output
Forecast of demand for the period
Method of determining costs
Model that combines forecasts and costs
 Needs for Aggregate planning
 Minimizing overloading and underloading facilities.
 Keep production rates high and production cost low.
 Labor levels
 To utilize inventory levels
 Overtime work
Aggregate Planning

Marketplace Product Research


and decisions
and
demand technology

Process
planning and
capacity
Demand decisions
forecasts,
orders
Workforce Raw
materials
Aggregate available
plan for
production Inventory
on
hand
External
capacity
Master (subcontractors)
production
schedule and
MRP
systems

Detailed
work
schedules
Aggregate Planning Inputs
• Resources:- Workforce,Facilities
• Demand forecast
• Policies:- Subcontracting, Overtime, Inventory levels, Back
orders
• Costs:-Inventory carrying(Holding cost), Back orders,
Hiring/firing, Overtime, Inventory changes, Subcontracting
Aggregate Planning Outputs
• Total cost of a plan
• Projected levels of inventory
Inventory, Output, Employment, Subcontracting.
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.
Aggregate Planning Example
Keepdry, a small manufacturing company (200 employees),
produces umbrellas. The company, founded in 1991 produces the
following three product lines: 1) the Executive Line, 2) the Durable
Line and 3) the Compact line shown in the following figure.

Compact
Line
Executive Durable
Line Line 8
Examples: Unit Demand and
Cost Data
Suppose we have the following unit demand and cost information:
Demand/mo Jan Feb Mar Apr May Jun
4500 5500 7000 10000 8000 6000

Materials $5/unit
Holding costs $1/unit per mo.
Marginal cost of stock-out $1.25/unit per mo.
Hiring and training cost $200/worker
Layoff costs $250/worker
Labor hours required .15 hrs/unit
Straight time labor cost $8/hour
Beginning inventory 250 units
Productive hours/worker/day 7.25
Paid straight hrs/day 8
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 Feb Mar Apr May Jun 7.25x22


4500 5500 7000 10000 8000 6000
Productive hours/worker/day 7.25
Paid straight hrs/day 8 7.25/0.15=48.33 &
22x8hrsx$8=$1408 48.33x22=1063.33
Jan Feb Mar Apr May Jun
Days/mo 22 19 21 21 22 20
Hrs/worker/mo 159.5 137.75 152.25 152.25 159.5 145
Units/worker 1063.33 918.33 1015 1015 1063.33 966.67
$/worker $1,408 1,216 1,344 1,344 1,408 1,280
Tradeoffs between Production and
Bricks and Tiles Corporation is making plans for the production of bricks for the coming year. The
Inventory
total requirements are 3000 bricks, and the corporation has enough facilities and labor to make
250 bricks a month
The corporation currently following the level strategy and makes bricks at a steady rate of 250
per month

Bricks and Tiles Corporation


Level Production, No Overtime

Hours per Brick 2


Labor Cost per Hour $25
Maximum Straight Labor per Month 500
Unit Inventory Cost per Month $10 Yesterday End Inventory
1 2 3 4 5 6 (Unit
7 Make+Start
8 9 inventory)-
10 11 12 Total
Demand 50 100 150 200 400 600 250 250 100 300 350 250 3000
Make 250 250 250 250 250 250 Demand
250 250 250 250 250 250 3000
Labor required 500 500 500 500 500 500 500 500 500 500 500 500 6000
Cost of labor $12,500 $12,500 $12,500 $12,500 $12,500 $12,500 $12,500 $12,500 $12,500 $12,500 $12,500 $12,500 $150,000
Start inventory 0 200 350 450 500 350 0 0 0 150 100 0
End inventory 200 350 450 500 350 0 0 0 150 100 0 0
Inventory cost $1,000 $2,750 $4,000 $4,750 $4,250 $1,750 $0 $0 $750 $1,250 $500 $0 $21,000
Total cost $171,000

(Start inventory+End inventory) /2 *


inventory cost
The Planning Process
Long-range plans
(over one year)
Research & Development
New product plans
Capital investment
Facility location/expansion

Top
executives Intermediate-range plans
(3 to 18 months)
Sales planning
Production planning and budgeting
Operations Setting employment, inventory,
managers subcontracting levels
Analyzing cooperating plans

Short-range plans
(up to 3 months)
Job assignments
Operations Ordering
managers, Job scheduling
supervisors, Dispatching
foremen Overtime
Part-time help

Responsibility Planning tasks and horizon


STEPS IN AGGREGATE CAPACITY
PLANNING

1. The size of the workforce


2. The use of overtime or idle time
3. The use of inventories or back
orders
4. The use of sub-contractors
5. Leaving demand unfilled
Cost Associated with Aggregate Planning

1. Pay roll costs


2. Costs of overtime, second shifts and
sub-contracting
3. Cost of hiring and laying off workers
4. Costs of excess inventory and backlog
5. Costs of production rate changes
Developing the Aggregate
Plan
 Step 1- Choose strategy: level, chase, or Hybrid
 Step 2- Determine the aggregate production rate
 Step 3- Calculate the size of the workforce
 Step 4- Test the plan as follows:
 Calculate Inventory, expected hiring/firing, overtime needs
 Calculate total cost of plan

 Step 5- Evaluate performance: cost, service,


 human resources, and operations
Characteristics of aggregate
planning:
 Considers a "planning horizon" from about 3 to
18 months, with periodic updating
 Looks at aggregate product demand, stated in
common terms
 Looks at aggregate resource quantities, stated in
common terms
 Possible to influence both supply and demand by
adjusting production rates, workforce levels,
inventory levels, etc., but facilities cannot be
expanded.
Information Needed for
an Aggregate Plan
 Demand forecast in each period
 Production costs
 labor costs, regular time ($/hr) and overtime ($/hr)
 subcontracting costs ($/hr or $/unit)
 cost of changing capacity: hiring or layoff ($/worker) and cost of
adding or reducing machine capacity ($/machine)
 Labor/machine hours required per unit
 Inventory holding cost ($/unit/period)
 Stock out or backlog cost ($/unit/period)
 Constraints: limits on overtime, layoffs, capital available,
stock outs and backlogs
APPROACHES TO AGGREGATIVE
PLANNING

Aggregate plan takes in to


consideration the overall
level of output and
capacity that is required to
produce it.
Types of Approaches

Top down approach


development of the entire plan by working only at
the highest level of consideration of products.

Bottom-up approach
development of pans for major products at some
lower level, within the product line.
CAPACITY

 Capacity is maximum production rate of


a firm .

 Why determining capacity is essential?


TYPES OF CAPACITY
 Fixed Capacity
 Adjustable Capacity
 Design Capacity
 System Capacity
 Potential Capacity
 Immediate Capacity
 Efficient Capacity
 Normal Capacity
 Actual Capacity
SYSTEM EFFICIENCY :

System efficiency = Actual output


System capacity

MEASUREMENT OF CAPACITY :

 Input rate capacities


 Output rate capacities
INTERRELATIONSHIP BETWEEN
CAPACITY AND OTHER ISSUES
 Location

 Plant Layout

 Process Design

 Equipment Selection
CAPACITY PLANNING

 When is the need for capacity planning ?

 Capacity planning decisions


CLASSIFICATION OF CAPACITY
Based on time horizon
 Long Term
 Short Term

Based on the amount of resources employed


 Finite
 Infinite
FACTORS AFFECTING CAPACITY
PLANNING

 Controllable Factors

 Less Controllable Factors


WAYS OF CHANGING CAPACITY

 Expansion

 Reduction
Aggregate Plans

1.LEVEL CAPACITY PLAN

2. MATCHING CAPACITY
WITH AGGREGATE
DEMAND PLAN
Level Capacity Plan
 The level method allows for a constant rate of
production and uses inventory levels to absorb
fluctuations in demand.

 Cost of strategy – holding items in inventory


 When demand is lower than production,
inventory increases
 When demand exceeds production, inventory
decreases
Level Capacity Plan
 Advantages
 Stable output rates and workforce levels
 Worker levels and production output are stable
 Tends to be the preferred strategy of many organizations,
including labor unions.

 Disadvantages
 Greater inventory costs
 Increased labor costs in term of overtime and idle time
 Resource utilizations change over time
matching capacity with
aggregate demand plan

 Maintaining a steady rate of regular-time


output while meeting variations in demand by
a combination of options.
 This method helps firms match production
and demand by hiring and firing workers as
necessary to control output
 Cost of strategy – hiring and firing workers
matching capacity with
aggregate demand plan
 Advantages
 Investment in inventory is low
 Labor utilization is high

 Disadvantages
 The cost of adjusting output rates and/or workforce levels
 Cost of fluctuating workforce levels.
 Potential damage to employee morale
 This strategy would not be feasible for industries which require highly
skilled labor or where competition for labor is fierce.
 This strategy would be cost effective during periods of high
unemployment or when low-skilled labor is acceptable.
Mathematical Techniques

Linear programming: Methods for obtaining


optimal solutions to problems involving
allocation of scarce resources in terms of cost
minimization.
Simulation models: Computerized models that
can be tested under different scenarios to
problems.
Comparison of Aggregate Planning Methods

Method Advantages Limitations


Simple, easy to use and Many solutions; solution need
Graphical
 

understand not be optimal

 Provides optimal solution


Popular in many industries
 Mathematical functions must be
Linear

linear, and deterministic -- not
 Sensitivity & dual analysis
Programming provide useful information
necessarily a realistic
assumption
 Constraints readily added
Comparison of Aggregate Planning Methods

Method Advantages Limitations


 Places no restrictions on
mathematical structure or cost  No optimal solution guaranteed
Simulation functions  Often a long, costly, process
 Can test many relationships
Active Strategies

THE OBJECTIVE IS TO SMOOTH


OUT THE PEACKS AND VALLEYS
OF DEMAND DURING THE
PLANNING HORIZON TO OBTAIN
A SMOOTHER LOAD ON
PRODUCTION FACILITIES.
Passive Strategies

The Objective is not to change demand but to


absorb somehow the fluctuations
indemand.The alternatives include varying
any one of work force size, production rate,
Inventory,sub-contracting and capacity
utilization. It includes

A) Pure Strategies
B) Mixed Strategy
A)Pure Strategies :
Varying any one of the
Factors such as work force, production
rate, inventory, sub-contracting and
capacity utilization is known as pure
strategy.

B) Mixed Strategy:
This involves the use
of two or more pure stategies.
Various Pure Strategies in aggregate
capacity Planning

 Strategy 1 :- To vary the size of work force in


accordance with the fluctuations in demand

 Strategy 2 :- To vary output rate while keeping


the work force size same and using overtime or
idle time or short work week with reduced pay to
workers.
• Strategy 3 :- Maintaining level production rate
during all time period, producing inventory
during periods of low demand and using the
accumulated inventory to meet high demand in
other time periods.

• Strategy 4 :- Sub-contracting work during high


demand periods.

• Strategy 5 :- By changing the utilization of


capacity.

You might also like