Slide 1Slide 2Slide 3Slide 4Slide 5Slide 6Slide 7Slide 8Slide 9Slide 10Slide 11Slide 12Slide 13Slide 14Slide 15Slide 16Slide 17Slide 18Slide 19Slide 20Aggregate PlanningAggregate PlanningProduction and Operations PlanningProduction Process DesignLong Term Capacity PlanningAggregate PlanningMaster Production ScheduleMaterial Requirements PlanningIndividual Order SchedulingDemandForecastThe main idea behind aggregate planningAggregate planningTranslates business plans into rough labor schedules and production plansIssues to Consider for Aggregate PlanningProduction rate: “aggregate units” per worker per unit timeWorkforce level: available workforce in terms of hoursActual Production: Production rate x Workforce levelInventory: Units carried over from previous periodsCosts: production, changing workforce, inventoryWhat does aggregate planning do?Given an aggregate demand forecast , determine production levels, inventory levels, and workforce levels, in order to minimize total relevant costs over the planning horizonGiven the number of variables, there is not a single optimal solution!Aggregate Planning Strategies1. Chase strategy: match production rate to production requirements by varying the workforce (no inventory buildup or shortage allowed)2. Level strategy: keep a constant workforce who work at maximum capacity (inventory will vary from period to period); workforce level chosen such that the total requirement over the planning horizon can be exactly met3. Stable workforce: keep a constant workforce who work at maximum capacity; outsource in order to match production and requirements (no inventory buildup or shortage allowed); workforce level chosen such that they can exactly satisfy the requirements in the period with the minimum requirement levelExample: CA&J Company…JAN FEB MAR APR MAY JUN TotalDemand Forecast1,800 1,500 1,100 900 1,100 1,600 8,000Working Days22 19 21 21 22 20 125Inventory holding $1.50/unit/monthBackorders $5.00/unit/monthHiring and training $200.00/workerLayoff $250.00/workerLabor time required 0.20 units/hourStraight time cost (8 hours) $4.00/hourOutsourcing $20.00/unitCosts Beginning Inventory 400 unitsInventoryLabor Beginning Labor 40 workersFirst step: Analyze the requirements…JAN FEB MAR APR MAY JUNBeginning Inventory400Demand Forecast1,800 1,500 1,100 900 1,100 1,600Production requirementEnding InventoryProduction requirement = Forecast – Beginning InventoryEnding Inventory = Beginning Inventory + Production Requirement – ForecastJAN FEB MAR APR MAY JUNBeginning Inventory400 0 0 0 0 0Demand Forecast1,800 1,500 1,100 900 1,100 1,600Production requirement1,400 1,500 1,100 900 1,100 1,600Ending Inventory0 0 0 0 0 0First step: Analyze the requirements…JAN FEB MAR APR MAY JUNProduction requirement1,400 1,500 1,100 900 1,100 1,600Production hours requiredDays per month22 19 21 21 22 20Worker hours per monthWorkers requiredWorkers hiredHiring costWorkers laid offLayoff costLabor costPlan 1: Chase strategy (variable workforce)JAN FEB MAR APR MAY JUNProduction requirement1,400 1,500 1,100 900 1,100 1,600Production hours required7,000 7,500 5,500 4,500 5,500 8,000Days per month22 19 21 21 22 20Worker hours per month176 152 168 168 176 160Workers required40 49 33 27 31 50Workers hired0 9 0 0 4 19Hiring cost0 1800 0 0 800 3,800Workers laid off0 0 16 6 0 0Layoff cost0 0 4,000 1,500 0 0Labor cost28,000 30,000 22,000 18,000 22,000 32,000Plan 1: Chase strategyHiring cost 6,400Layoff cost 5,500Labor cost 152,000Total Cost 163,900Plan 1: Chase strategyPlan 2: Level strategyJAN FEB MAR APR MAY JUNBeginning inventory400Working days per month22 19 21 21 22 20Production hours availableMonthly production levelDemand Forecast1,800 1,500 1,100 900 1,100 1,600Ending InventoryShortage CostInventory costLabor costPlan 2: Level strategyJAN FEB MAR APR MAY JUNBeginning inventory400 -62 -407 -230 147 385Working days per month22 19 21 21 22 20Production hours available6688 5776 6384 6,384 6,688 6,080Monthly production level1,338 1,155 1,277 1,277 1,338 1,216Demand Forecast1,800 1,500 1,100 900 1,100 1,600Ending Inventory-62 -407 -230 147 385 1Shortage Cost310 2035 1150 0 0 0Inventory cost0 0 0 220.5 577.5 1.5Labor cost26752 23104 25536 25536 26752 24320 Number of workers required = Total hours required over planning horizon/(8*total days)= 38,000/(8*125) = 38. This is the no. of workers for each monthLayoff cost 500Shortage cost 3,495Inventory cost 798Labor cost 152,000Total Cost 156,793Plan 2: Level strategyPlan 3: Stable strategy with outsourcingJAN FEB MAR APR MAY JUNProduction requirement1,400 1,500 1,100 900 1,100 1,600Working days per month22 19 21 21 22 20Monthly production hoursMonthly production levelMonthly outsourcing levelMonthly outsourcing costMonthly labor costPlan 3: Stable strategy with outsourcingJAN FEB MAR APR MAY JUNProduction requirement1,400 1,500 1,100 900 1,100 1,600Working days per month22 19 21 21 22 20Monthly production hours4,752 4,104 4,536 4,536 4,752 4,320Monthly production level950 821 907 907 950 864Monthly outsourcing level450 679 193 - 150 736Monthly outsourcing cost9,000 13,580 3,860 0 3,000 14,720Monthly labor cost19,008 16 416 18,144 18,144 19,008 17,280Number of workers = enough workers to cover requirements in April = 900*5/(21*8) = 27 workers (this is the no. of workers for each month)Layoff Cost 3,250Outsourcing Cost 44,160Labor Cost 108,000Total Cost 155,410Plan 3: Stable strategy with outsourcingComparisonHiring cost 6,400Layoff cost 5,500Labor cost 152,000Total Cost 163,900Chase Level StableLayoff cost 500Shortage cost 3,495Inventory cost 798Labor cost 152,000Total Cost 156,793Layoff Cost 3,250Outsourcing Cost 44,160Labor cost 108,000Total Cost 155,410“Sensitivity Analysis”WHAT IF…… outsourcing costs increase or decrease?… the holding costs are higher?… the hiring costs are lower?… the firing costs are higher?We can always plug the data in and re-calculate the