Aggregate PlanningPRODUCTION PLANNING DECISIONS HierarchyCourse Objectives: …upon successful completion of this course, the student should be able to:PRODUCTION PLANNING DECISIONS HierarchyAggregate Planning translates demand forecasts into a blueprint for planning staffing and production levelsWhat is aggregated in aggregate planning? An aggregate unit could be a fictitious average unitBack up to the general problem…Aggregate Planning ExampleStep 1: Determine “net” demand.A period-by-period production plan lacks shortage and inventory information.A period-by-period production plan lacks shortage and inventory information.Step 2. Graph Cumulative Net Demand to Find Plans GraphicallyChase (Zero Inventory ) Strategy is when production plans match the demand patternLevel (constant work force) strategy sets production at a fixed rate to meet average demandWith production = 243 units/month, examine the first 3 periods. What costs are prevalent at each stage?How can you implement a constant workforce plan with no stockouts?Cumulative net demand curve crosses at period 3, so that monthly production is 960/3 = 320.Is this a good plan?We want a level workforce and we assume a constant monthly production will allow it. What else does this assume?To overcome this shortcoming:Given the number of working days per month, you can calculate the number of required workers for a Constant Work ForceConstant Work Force Production PlanLevel workforce (46 worker) plan costs?Cost Evaluation of Constant Work Force PlanZero Inventory Plan (Chase Strategy) costs?Calculate the number of workers needed in each period and the total number hired and fired to evaluate costsSlide Number 31How could you modify the level workforce strategy to reduce inventory without so much labor change?Reduce workforce in April (4) and again in June (6)Comparing the costs of the strategiesISE 4204, Cherbaka 2014Aggregate PlanningChapter 3, Sections 3.0-3.4IntroductionIssuesStrategiesTranslating the forecast into useful information for productionAggregate planning is medium-range planning to determine production levels that meet demand.ISE 4204, Cherbaka 2014PRODUCTION PLANNING DECISIONSHierarchyForecastForecast of aggregate demand for t period planning horizonAggregate Production PlanDetermination of aggregate production andworkforce levels for t period planning horizonMaster Production ScheduleProduction levels by item by time period Materials Requirements PlanningDetailed Timetable for production and assembly of components and subassembliesadapted from:Nahmias, 6thEdition, 2009Figure 3-1, p. 128.3-18 months(1-6 Quarters)WeeklyProduct FamilyProductAssumed Deterministic in this chapterComponentsISE 4204, Cherbaka 2014Course Objectives:…upon successful completion of this course, the student should be able to:1. identify different strategies employed in manufacturing and service industries to plan production and control inventory;2. identify the major components of a production management system and describe the relationships between the components;3. …Planning Strategies-Chase vs. LevelLink-Forecast to Aggregate Plan4ISE 4204, Cherbaka 2014PRODUCTION PLANNING DECISIONSHierarchyForecastForecast of aggregate demand for t period planning horizonAggregate Production PlanDetermination of aggregate production andworkforce levels for t period planning horizonMaster Production ScheduleProduction levels by item by time period Materials Requirements PlanningDetailed Timetable for production and assembly of components and subassembliesadapted from:Nahmias, 6thEdition, 2009Figure 3-1, p. 128.Aggregate planning is medium-range planning to determine production levels that meet demand.ISE 4204, Cherbaka 2014Aggregate Planning translates demand forecasts into a blueprint for planning staffing and production levelsWhat makes this process a challenge? What happens if labor is adjusted to meet demand?What happens if labor is maintained and production is smoothed?1001502002503003504004505001 2 3 4 5 6 7 8Demand by periodISE 4204, Cherbaka 2014What is aggregated in aggregate planning? How might you define the aggregate unit?Ford?Deloitte?Yamaha?7ISE 4204, Cherbaka 2014An aggregate unit could be a fictitious average unitBook example 3.1 - A plant produces 6 models of washing machines:Define an average aggregate unit in this problem:You know forecasts for the individual items, now what is demand for aggregate unit?Modelmfghrs/unit $/unit% salesA 5532 4.2 285 32K 4242 4.9 345 21L 9898 5.1 395 17L 3800 5.2 425 14M 2624 5.4 525 10M 3880 5.8 725 68ISE 4204, Cherbaka 2014Back up to the general problem…Suppose that D1, D2, . . . , DTare the forecasts of demand for aggregate units over the planning horizon (T periods.) The problem is to determine both work force levels (Wt) and production levels (Pt) to minimize total costs over the T period planning horizon. What are the costs?ISE 4204, Cherbaka 2014Aggregate Planning ExampleThe washing machine plant is interested in determining work force and production levels for the next 8 months. Forecasted demands for Jan-Aug. are: 420, 280, 460, 190, 310, 145, 110, 125. Starting inventory at the end of December is 200 and the firm would like to have 100 units on hand at the end of August. Find monthly production levels.ISE 4204, Cherbaka 2014Step 1: Determine “net” demand.MonthNet Predicted DemandCummulative Net Demand1(Jan) 220 2202(Feb) 280 5003(Mar) 460 9604(Apr) 190 11505(May) 310 14606(June) 145 16057(July) 110 17158(Aug) 225 1940Forecasted demands for Jan-Aug. are: 420, 280, 460, 190, 310, 145, 110, 125. Starting inventory at the end of December is 200 and the firm would like to have 100 units on hand at the end of August.ISE 4204, Cherbaka 2014A period-by-period production plan lacks shortage and inventory information.ISE 4204, Cherbaka 2014A period-by-period production plan lacks shortage and inventory information.ISE 4204, Cherbaka 2014Step 2. Graph Cumulative Net Demand to Find Plans GraphicallyConsider what production strategies could meet this demand curve?ISE 4204, Cherbaka 2014Chase (Zero Inventory ) Strategy is when production plans match the demand patternWhat costs are associated with this strategy?ISE 4204, Cherbaka 2014Level (constant work force) strategy sets production at a fixed rate to meet average demandWhat costs are associated with this strategy?18ISE 4204, Cherbaka 2014With production = 243 units/month, examine the first 3 periods. What costs are prevalent at