Aggregate Production
Planning
By: Deepak
Aggregate Production
Planning
(Aggregate) Planning is
Concerned With Determining
The Quantity And Timing Of
Production For The
Intermediate Future, Often
From Three To 18 Months
Ahead.
The Goal is To Minimize Costs
Over The Planning Period.
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Aggregate Production
Planning
Other Objectives May Be To Minimize
Fluctuations In The Work Force Or
Inventory Levels.
Based on the planning horizon, We can
divide plans into 3 general categories:
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Aggregate Production
Planning
By: Deepak
Aggregate Production
Planning
The Heart Of The Medium Range Planning Is
The Aggregate Production Plan.
In Aggregate Planning, Given The Demand
Forecast, Production Capacity, Inventory
Levels, Size Of Work Force, And Other Inputs,
The Planner Has To Select The Rate Of
Output For The Next 3 To 18 Months.
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An Example Aggregate
Plan
A Company Produces Four Models Of
Microcomputers: 1) Laptops, 2) Hard
Disk Machines, 3) Advanced Technology
Machines With High Speed Chips, 4)
Home/Game Pcs.
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An Example Aggregate
Plan
By: Deepak
An Example Aggregate
Plan
Here, Operations Manager Makes
Decisions About Intermediate Range
Capacity Without Getting Into Details Of
Specific Products, Parts, Or People.
Later, He/She Deals With Financial
Data, Personnel, Capacity, And
Availability Of Raw Material As Well.
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An Example Aggregate
Plan
As an intermediate type planning, The
aggregate plan interacts with both long
range strategies, AND short-term
planning activities.
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Relationships Of
Aggregate Plan
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Strategies In Aggregate
Planning
There are several ways for improving the
effectiveness in the aggregate planning
process:
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Strategies In Aggregate
Planning
1. Changing Inventory Levels
This is to Increase Inventory During
Periods Of Low Demand To Meet High
Demand in Future Periods.
However, By doing this, Costs Of
Storage and Handling Increases.
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Strategies In Aggregate
Planning
2. Varying Work Force Size By Hiring Or
Layoffs
This is to Hire Or Lay Off Workers To
Meet Production Rates.
In this option, Often New Employees
Need To Be Trained.
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Strategies In Aggregate
Planning
3. Varying Production Rates Through
Overtime Or Idle Time.
There is always a Limit For
Overtime. Costs also Increase.
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Strategies In Aggregate
Planning
4. Subcontracting
Costly, Opens Doors To Competitors,
Hard To Find Perfect Subcontractor.
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Strategies In Aggregate
Planning
5. Using Part Time Workers
e.g., Fast Food Restaurants
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Strategies In Aggregate
Planning
6. Influencing Demand Through
Advertising, Promotion, And Price Cuts.
For example, Weekend Discounts At
Hotels and Airlines.
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Strategies In Aggregate
Planning
7. Back Ordering at High Demand
Periods.
Back ordering means That A Firm
Promises To Deliver a Product In A
Later Date. Many Auto Dealers
Purposely Back Order.
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Strategies In Aggregate
Planning
8. Counterseasonal Product Mixing
This is To Develop A Product Mix Of
Counterseasonal Items.
For example, Companies That Make
Both Furnaces And Air Conditioners.
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Strategies In Aggregate
Planning
Although Each Of These Strategies
Might Produce A Cost Effective
Aggregate Plan,
A Combination Of Them Often Works
Best.
But The Optimal Plan Is Not Always
Possible.
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Methods For Aggregate
Planning
1. Graphical And Charting Methods
2. Mathematical Approaches
A) Linear Programming
B) Linear Decision Rules
C) Management Coefficient Model
D) Simulation
E) Search Decision Rules
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Graphical And Charting
Methods
- This is a Trial And Error Approach.
- It Does Not Guarantee Optimal
Production Plan.
- It is Easy To Apply And Understand. It
includes following steps:
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Graphical And Charting
Methods
1- Determine Demand In Each Period
2- Determine Capacities Of Regular Time,
Overtime, And Subcontractor Each Period
3- Find Labor Costs, Hiring/Layoff Costs, And
Inventory Costs
4- Consider Company Policies That May Apply
To The Workers Or To Stock Levels.
5- Develop Alternative Plans And Find Their
Total Costs.
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Example
Demand Per Day For A Manufacturer Of
Roofing Supplies Are Computed By
Dividing The Expected Demand For
Each Month By The Number Of
Working Days In Each Month. (for
example, 900 / 22 = 41)
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Example
By: Deepak
Example
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Example
This histogram shows how the forecast
differs from the average demand.
Assume that, There are 3 alternative
plans For The Manufacturer Described
in this Example:
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Example
- Plan 1 Is To Maintain A Constant Workforce
Throughout The 6-Month Period.
- Plan 2 Is To Maintain A Constant Workforce
At A Level Necessary For The Lowest Demand
Month (March) And To Meet All Demand
Above This Level By Subcontracting. (i.e.,
produce 38 units per day and subcontract the
rest.)
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Example
- Plan 3 Is To Hire And Lay Off
Workers As Needed To Produce Exact
Monthly Requirements.
In Charting Method, Each Proposed
Plan Can Be Compared To Select The
Least Cost Plan.
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Example
This Comparison Includes Every
Possible Cost Item: (Inventory Carrying,
Regular Labor, Hiring, Layoffs,
Subcontracting, Etc.)
However, A Systematic Approach That
Considers All Costs And Produces An
Effective Solution Is Needed. Linear
Programming Is One Such Approach.
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Example
Aggregate planning problem can be
formulated in a Linear Programming format.
Linear programming is Not a trial-and-error
approach like charting, But it produces an
Optimal plan for minimizing cost.
In linear programming, Aggregate planning
problem is formulated as following:
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Example
Minimize Total Cost
(which is a total of labor cost,
subcontracting cost, inventory costs,
etc.)
Subject to: <Several Capacity Limits>
AND <Demand=Supply>
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Example
This model is a particular type of linear
programming that is called
“Transportation Problem.”
In this method, all cost items Can be
viewed from period to period.
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DisAggregation
The Output of Aggregate Planning is a
Production Schedule for family
groupings of products.
For example, It tells us how many cars
to make, But it does not indicate how
many of them Should be two-doors,
and how many will be four doors.
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DisAggregation
A manufacturer firm needs more
information to operate.
We must know what quantities will be
produced for each type of product AND
what time.
The process of Breaking the Aggregate
Plan down into Greater Detail is called
DisAggregation.
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DisAggregation
Later, Disaggregation results in Master Production
Schedule (MPS). This schedule specifies:
1) The sizing and timing of specific item production
quantities,
2) The sizing and timing of manufactured or purchased
components,
3) The sequence of individual orders or jobs, and
4) The short-term allocation of resources to individual
operations.
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Material Requirements
Planning
Demand for one item may be related to the
demand for another item.
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Material Requirements
Planning
For example, a car manufacturer’s
demand for Auto Tires and Radiators
depends on the production of cars.
(Four tires and One radiator is used for
each car.)
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Material Requirements
Planning
Once, management can make a forecast of
the demand for the final product (e.g., car),
Quantities required for all components (tire,
radiator) can be computed exactly.
When such Dependent Computing
Techniques are used in a Production
Environment, They are called Material
Requirements Planning (MRP).
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Material Requirements
Planning
Effective use of Dependent Inventory Models requires
the Knowledge of the following items:
1) Master Production Schedule (What is to be made and
when),
2) Bills-of-Material (A list of Materials that are used in
making the product),
3) Inventory in Stock (What do have already in the
stock),
4) Purchase Orders (What is actually ordered, when
they should be delivered), and
5) Lead times (How long it takes to get the specific
components of the product).
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Master Production
Schedule
MPS specifies what is to be made AND
when.
Many organizations First establish a
Master Production Schedule, AND Then
“Fix” the Near-term Portion of the plan.
(This portion is called “Frozen”)
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Master Production
Schedule
After freezing the plan, Only changes
beyond the Fixed Schedule are
permitted.
MPS is a STATEMENT OF PRODUCTION,
It is Not a Forecast.
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Master Production
Schedule
Depending on the type of operation, Master
Schedule can be expressed in terms of:
Either
1) An end item in a make-to-stock company, or
2) A customer order in a make-to-order (job-
shop) company, or
3) Modules in an assemble-to-order company.
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Master Production
Schedule
For example, A Master Production
Schedule for two Products (A and S)
might be as follows:
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Master Production
Schedule
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Specification of Bills-of-
Material
A bill-of-material (BOM) is a List of
Quantities of Components and Materials
required to Make a Product.
For each component, There is a
Drawing that specifies its Sub-
Components.
By: Deepak
Example
Assume that, this week’s Demand for product
A is 50 units.
Each unit of A requires two units of B and
three units of C.
Each unit of B requires two units of D and
three units of E.
Each unit of C requires one unit of E and two
units of F.
Each F requires one unit G and two units of
D.
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Example
By: Deepak
Example
Therefore, Demand for B,C,D,E,F,G is
completely dependent on the demand
for A.
Once we develop product structure, We
can get the Number of units Required
to Satisfy demand for product A.
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Example
For example: For part B: 2 x 50 = 100
units of B is required.
Similarly, For part C: 3x50 = 150 units
of C is required.
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Example
For part E: 3(B) + 1(C) = 3(100) + 150 =
450 units of E is required.
For part F: 2(C) = 2(150) = 300 units of F is
required.
For part D: 2(B) + 2(F) = 2(100) + 2(300) =
200 + 600 = 800 units of D is required.
For part G: 1(F) = 300 units of G is required.
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Example
Management should also determine when the
products are going to be needed.
In order to be able to Provide each
Component at the Required Timing;
Processing times, waiting times, setup times,
moving times of a production must also be
known.
The total of all these times is called the LEAD
TIME for that Product.
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Example
By: Deepak
Example
Based on these info, Time-phased
product structure for product A can be
drawn as follows:
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Example
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Example
For example, In order to be able to
have product A at the current time, part
G should be ordered 7 weeks ago.
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Material Requirements
Planning Structure
Although most MRP systems are
computerized, The Analysis is
straightforward.
Ingredients of an MRP system are MPS,
BOM, Inventory and Purchase Records,
and Lead Times for each item.
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Material Requirements
Planning Structure
Next step is to construct a Gross
Material Requirements Plan by
combining MPS with time phased
schedule.
This plan shows when An item must be
ordered from suppliers .
Or, it shows when the production of an
item must be Started.
By: Deepak
