Aggregate Planning

Aggregate Planning
• It is the process of planning the quantity and the timing of
output over the intermediate time horizon of 3 months to
18 months for a given (forecast) demand schedule
• The word aggregate means that the planning is conducted
at a gross level to meet the total demand from all products
that share the same limited resources of a dedicated
facility
• Within that time frame, the maximum capacity of a
production facility is relatively fixed.
• The production control department must schedule to meet
fluctuating demands for increasing varieties of products.
• The objective of aggregate planning is the productive
utilization of both human and equipment resources.
 Aggregate Planning

• The production control department must schedule

to meet fluctuating demands for satisfying the
customers.
• In case of a sudden increase of demand for a
product, the production control department has
many alternatives to satisfy the customers such as
:
1. Sub contract
2. Overtime production
3. Increase capacity- speed, feed, depth of cut etc.
4. Increase work force (Additional Manpower)
5. Build-up inventory.
Aggregate Planning
 MANAGEMENT OPTIONS TO MEET
FLUCTUATING DEMAND

• Build inventories in slack periods in anticipation of higher

demands later in planning horizon.

• Carry backorders or tolerate lost sales during peak periods.

• Use over time in peak periods, under time in slack periods to

vary output, while holding work force and facilities constant.

• Vary capacity by changing size of work force through hiring and

firing.

• Subcontracting may be resolved.

Each option involves cost (tangible or intangible). Aim in aggregate

production planning is to choose best option.
 KINDS OF COSTS INVOLVED

• Procurement Costs

• Production Costs

• Inventory holding Costs

• Shortage losses associated with backorders and lost sales

• Costs of increasing / decreasing work force

• Cost of overtime / under time

• Cost of changing production rates

 Typical Objectives

• Minimize costs/maximize profits

• Maximize customer service
• Minimize inventory investments
• Minimize changes in production rates
• Minimize changes in workforce levels
• Maximize utilization of plant and equipment
Aggregate Planning Process
 Meeting Demand Strategies

• Adjusting capacity
– Resources necessary to meet demand are
acquired and maintained over the time
horizon of the plan
– Minor variations in demand are handled
with overtime or under-time
• Managing demand
– Proactive demand management
 Strategies for Adjusting Capacity

• Level production • Overtime and under-time

– Producing at a constant rate – Increasing or decreasing
and using inventory to absorb working hours
fluctuations in demand • Subcontracting
• Chase demand – Let outside companies
– Hiring and firing workers to complete the work
match demand • Part-time workers
• Peak demand – Hiring part time workers to
– Maintaining resources for high- complete the work
demand levels
Aggregate planning strategies
 Level Production

Demand
Uni

Production
ts

Time

Produce at a constant rate

Suited for firms with labours of high skill level
 Chase Demand

Demand
Production
Uni
ts

Time

Vary production to match demand by changes in employment

Hiring , lay-off, subcontracting
 Transportation Method

EXPECTED REGULAR OVERTIME SUBCONTRACT

QUARTER DEMAND CAPACITY CAPACITY CAPACITY
1 900 1000 100 500
2 1500 1200 150 500
3 1600 1300 200 500
4 3000 1300 200 500

Regular production cost per unit $20

Overtime production cost per unit $25
Subcontracting cost per unit $28
Inventory holding cost per unit per period $3
Beginning inventory 300 units
 Transportation Tableau
PERIOD OF USE

Unused
PERIOD OF PRODUCTION 1 2 3 4 Capacity Capacity

Beginning 0 3 6 9
Inventory 300 — — — 300
1 Regular 600 20 300 23 100 26 — 29 1000

Overtime 25 28 31 34 100

Subcontract 28 31 34 37 500

2 Regular 1200 20 — 23 — 26 1200

Overtime 25 28 150 31 150

28 31 34
Subcontract 350 250 500

3 20 23
Regular 1300 — 1300
25 28
Overtime 200 — 200
28 31
Subcontract 500 500

4 20
Regular 1300 1300
25
Overtime 200 200
28
Subcontract 500 500

Demand 900 1500 1600 3000 250

MASTER PRODUCTION SCHEDULE
(MPS)
Steps of Production Planning
 Aggregate planning to MPS
Products into
product groups.
They
Aggregate Production combine Demand into Which alltogether
reflect Top Management
& Capacity Plans monthly totals.
Decisions.
Personnel
Requirements
across departments

Eventually, the time comes when individual “end

item” products and services must be scheduled at
specific work centers.

This is accomplished by master scheduling. The Process of

making MPS is known as Disaggregation Planning
 Production System-Decision Hierarchy
Inputs Process Outputs Length of
Planning
Horizon
 Long Range Economic Forecasts Strategic  Operating Facilities Years
 Financial Choices Planning  Product Line (Families)
 Technologies
 Processing Technologies/Efficiency Aggregate  Production Level Months
 Medium Range Product Production  Workforce Level
 Family Forecasts Planning  Family Inventories
 Machine Schedules
 Production Levels Disaggregation  Master Production Schedule Weeks
 Workforce Levels (MPS) - Final Assembly by item
 Current Inventory Status  Item Inventories
 Changeover Times and Costs
 Item Forecasts
 MPS Production  Job Priorities Days-Shift
 Bill of Materials Scheduling  Order Releases(Material
 Process Plans Requirement Planning)
 Machine Schedules
 Labor Status Shop Floor  Machine Priorities Real Time –
 Machine Status Control  Job Status Minutes
 Job Priorities  Labor Reporting
 Order Releases  Material Handling Tasks
 Machine Schedules  Load/Prices/Unload Authorization
 Aggregate Plan and Master Plan
Aggregate planning is
Aggregate Plan the process of planning
the quantity and timing
Month  J F M A M J J A S of output over the
intermediate time
No. of
40 25 50 30 30 50 30 40 40 horizon. Within that
 Motors time horizon, the
maximum capacity of a
Master Plan production facility is
relatively fixed.
Month J F M A M J J A S  Master Scheduling
A.C. Motors follows aggregate
 5HP planning and express
15 -- 30 -- -- 30 -- -- 10 the overall plan in terms
 25HP
20 25 20 15 15 15 20 20 20 of end items
[Link]
 20HP -- -- -- -- -- -- 10 10 --

 10 HP 5 -- -- 15 15 5 -- 10 10
 Master Production schedule (MPS)

• MPS is an important tool that is used to satisfy the needs

of market by effective utilisation of manufacturing
resources
• Major inputs to master production schedule are Forecast
of demand, customer orders and inventory on hand
• A master schedule is a manufacturing plan in which all
possible demands are considered and put upon the
manufacturing facilities
 Functions connected with MPS

Customer orders Forecast of demand

Aggregate
Production plan

Engineering Inventory
Master
Design transactions
Production Plan
changes

Bill of MRP Inventory

Material Record File
 TYPICAL INFORMATION IN MPS
• (a) What end products are to be produced?
• (b) How many of each product to be
produced?
• (c) When the products are to be ready for
shipment?
MPS
MATERIAL REQUIREMENT
PLANNING (MRP)
What mrp does?
 INDEPENDENT VS DEPENDENT DEMAND
• Independent Demand:
– Demand unrelated to demand of other products
(end products, spare parts).
– Usually forecast.
 INDEPENDENT VS DEPENDENT DEMAND
• Dependent Demand:
– Demand directly related to demand of some other
product (components, raw materials, subassemblies)
– Requirements derived from delivery schedule of end
items.
– MRP is the appropriate tool for planning & control of
manufacture inventories.

a) raw materials
b) WIP
c) Component parts
d) Subassemblies
 Lead times

• In MRP, lead times are used to determine

starting dates for assembling final products and
subassemblies, for producing component parts,
and for ordering raw materials
 COMMON USE ITEMS

• MRP collects the common use items from different

products to effect economics in ordering the raw materials
and manufacturing the components/sub assemblies
 INPUTS TO MRP
• The master production schedule and other
order data.

• The bill of materials file. (The product

structure)

• The inventory record file.

MRP system
 BILL OF MATERIALS/ PRODUCT STRUCTURE
• BOM defines products in very precise and
unambiguous terms so that the component
requirements are planned.
• A BOM is the listing of all the materials,
components and subassemblies needed to
assemble one unit of an item.
• It must be arranged in a format that reflects
the sequence of steps necessary to produce
the end items
 BILL OF MATERIALS/ PRODUCT STRUCTURE

• Sub assembly S1 is the PARENT of components C1, C2 & C3.

• Any engg. Changes affecting product structure must be fed to
BOM file.
explosion
Lead time
 Lot sizing

• Determine the optimal order quantity for

each item individually based on calculation
of net requirement
 Lot sizing

• Lot for Lot (L4L)-

– Just in time philosophy
– The quantity ordered is exactly the quantity
required to satisfy the requirement level

• Fixed order quantity(FOQ)- same quantity

each time an order is issued

• Economic order quantity (EOQ)

EOQ
 MRP OUTPUT REPORTS

• Primary Outputs:
1. Order release notice, to place orders that have been
planned by the MRP system.

2. Reports showing planned orders to be released in

future periods.

3. Rescheduling notices, indicating changes in due dates

for open orders.

4. Cancellation notices, including cancellation of open

orders because of changes in the master schedule

5. Reports on inventory status.

 MRP OUTPUT REPORTS
• Secondary Outputs:

1. Performance reports of various types – costs, item

usage, actual vs. planned lead times and other
measures of performance.

2. Exceptions reports showing – deviations from

schedule, overdue orders, scrap, and so on.

3. Inventory forecasts indicating projected inventory

levels (both aggregate inventory as well as item
inventory) in future periods.
 MRP- BENEFITS
.
 [Link] in inventory (30-50% in WIP)
 [Link] customer service (late orders reduced by 90%)
 3. Quicker response to changes in demand and master
schedule.
 [Link] productivity
 5. Reduced set up and product changeover costs
 6. Better machine utilization
 7. Increased sales and reductions in sales price.
 [Link] in ordering cost
 MRP II
• Extension of MRP beyond inventory control
and material planning to manufacturing,
purchase, engineering, marketing, finance and
accounting
MRP ii
Capacity requirement planning
Distribution requirement planning