35A00210

Operations Management
Lecture 14
Aggregate planning
Different types of coordination
Aggregate plannings idea and problems
Production planning strategies
Workforce scheduling
Lecture 14
Aggregate planning
Different types of
coordination
OM-manager and daily
coordination
Competitive advantage does not come from
machines but from the systems that are used to
manage, control and coordinate process
- cannot be done only with computers, requires human touch
Pretty similar to conductors work
- for good results you need everybody to work together at the right time
- main difference is that OM-manager much more invisible!
Coordination has three layers
- production floor, intra-company, inter-company
Information prerequi site for coordi nation
- strategy impacts on what is important, what is not
- in practice managing information quite hard (ability and desire)
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Information flows
Systems
Operating policies
Transformation process
Product flows
Financial flows
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Production and inventory
management
Resource planning
factories and locations
machines, processes,
investment
Production
and inventory
planning
Less time, more constraints
Scheduling
Timing and order of
employees and jobs
Production planning
product specific
demand forecasts and
production volumes
Aggregate planning
production volumes
workforce requirements
role of inventories
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Resource planning
forecasting demand
expanding the space
getting new equipment
Production
and inventory
planning
Scheduling
timetable for pre-
paration (constraints)
work shifts and tasks
Production planning
making menus
ordering raw materials
Aggregate planning
balancing demand and
supply
checking suppliers and
signing contract
Many simultaneous planning tasks
- case school cafeteria -
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Variability planning
not all students eat at cafeteria
students enter sporadically
employees get sick and change jobs
raw material supplier might go on strike
machines get old and can break down
Forecasting
and data gathering
e.g. menus impact on
demand, motivation
of employees
Eliminating
variability
e.g. forced eating,
new machines,
better salary level
Preparing
for variability
e.g. extra resources
over production,
back-up system
Surviving with
variability
e.g. learning to fix machines
quickly, having prepared
product inventories
Preparing for uncertainty
- case school cafeteria -
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Operations should be improved
- case school cafeteria -
Improving
the process
Tastes
change
Need for
continuous
improvement
Production
technology develops
Making
process faster
Reducing variability
and uncertainty
Improving
work environment
Updating
production plans
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Peak-time process analysis in
Rafla cafeteria a BSc thesis
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Monday Tuesday Wednesday
26/11/2012 27/11/2012 28/11/2012
Start time 11:40 11:40 11:40
Queuing for cash
desk 00:08 00:10 00:06
Queuing for seat 00:10 00:10 00:05
Eating 00:14 00:14 00:14
Bathroom 00:05 00:05 00:05
Walking 00:05 00:05 00:05
Arrives afternoon
lecture 12:22 12:24 12:16
7 minutes
late
9 minutes
late
1 minute
late
Possible solutions:
Increase seating capacity by
8 seats
Start and finish late-morning
lectures 15 minutes earlier
Student arriving to Rafla
queue at 11:40 will be l ate for
next lecture
Bermingham, 2012
Inter-company coordination
Sub-optimi zati on in supply chain is useless
- coordination requirements increased with outsourcing trend
Information sharing is believed to have strong
positive impact on competi tiveness
- in the past only information that was moving was orders and delivery
days, now product development, expected trends in demand, future
orders, campaigns, real demand data etc.
Partnership-thinki ng and development of IT
helped information sharing capabilities
In practice coordination problemati c
- processes, trust, desire, knowledge level, culture, language etc.
differences
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Lecture 14
Aggregate planning
Aggregate planning
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Planning has different levels
Aggregate planning
Master
production scheduling
Material requi rements
planning
Scheduling
t
i
m
e
d
e
c
r
e
a
s
e
s
Capacity
requirement
planning
Rough-cut
capacity
planning
Lecture 14
Lecture 16
Lecture 15
Strategic decisi ons
Lectures 1-9
15
Aggregate planning in simple
terms
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Production
volume
(own + subcontracting)
Employees
(amount + hours)
Inventory
levels
Optimal
combination
(time frame 2-18 months)
M
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n
i
m
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z
e
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o
s
t
s
S
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p
p
l
y
=
D
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n
d
Decision making about production, workforce and inventory levels which help manage
variations in demand
What kind of questions planners
think?
Should workforce adapt to market demand?
Should we use temps or emphasi ze more
overtime and temporary slacking?
Should variation in demand be balanced with
inventories?
What i s subcontractings role when demand and
supply are not in balance?
Can we use pri cing to solve aggregate
planning's problems?
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Why talk about aggregation of
production?
It is easier to forecast the on aggregate level
- refrigerator vs. yellow 250 liter american style(accuracy)
- also smaller number of forecasts is needed (less work)
Aggregation usually on product type level
- later in shorter term plans product family and product (MPS) focus
Products can be grouped in many ways
depending on need
- product type; similar demand, cost structure etc.
- product family; use similar machines, require similar knowledge,
same processing time, amount of personnel, quality level etc.
- individual product
Besides products al so workforce and time can
for aggregated
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The Idea of aggregation
A1 A3 A2 B1 B2 B3
A
products
B
products
Letter
products
Product
type
Product
family
Product
Good enough level for
aggregate production planning
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Internal
Current
workforce
Production
variables
Inventory
levels
Financial
position
Many things have to be considered
Competitors
behavior
External
capacity
Raw material
availability
Market
demand
Overall
economy
External
Aggregate
planning
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Plan impacts everybodys activities
Aggregate
planning
Human resources
quantity needs
training need
Logistics
inventory, transportation
information needs
supply chain mgmt.
Marketing
product assortment
delivery times
campaigns
Accounting
budgets
cash flow/finance
payments
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Decision making in practice problematic
- multiple criteria decision making problem -
Minimize
inventory
costs
Maximize
profits
Maximize
employee
satisfaction
Maximize
customer
service
Minimize
personnel
changes
Minimize
costs
Minimize
production
costs
Maximize
machine
utilization
Aggregate
planning
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Lecture 14
Aggregate planning
Production planning
strategies
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Production planning strategies
Time
Demand
u
n
i
t
How to meet the demand?
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Production planning strategies
Problem to be solved: supply demand
Two basic strategi es (or approaches)
- level strategy: changes in demand are managed with inventories and
demand smoothening methods (up and down)
- chase strategy: capacity (mainly workforce) follows the changes in
demand
Companies usually use mixed strategies
- mix of two basic strategies with altering weights
- in practice the level strategy more emphasized
Chosen strategy depends on company policy,
strategy and costs
- basic question still is; how flexible is the workforce
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V
o
l
u
m
e
Time
Demand
Production
Chase strategy
Time
Demand
Production
-I
+I
Level strategy
V
o
l
u
m
e
Basic strategies for production
planning
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Time
Demand
Production
V
o
l
u
m
e
Basic strategies for production
planning - level strategy -
Sales form
inventory
Decreasing
demand
Overtime
Building
inventory
Increasing
demand
Undertime
Sorry
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Demand management
marketing push
- advertising, promotions etc.
creative pricing politics
- e.g. yield management
pre- and backorders
seasonal complements
selective product development
corporate collaboration
using a reservation system
utilizing backlogs
customers own involvement
Level production is cheaper
Level workforce is cheaper
Inventories cost money
Proactive balancing
- influenci ng mainly demand -
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Demand
Production
Basic strategies for production
planning - chase strategy -
Firing
employees
Lay-offs
Vacations
Hiring
employees
Overtime
Subcontracting
Time
V
o
l
u
m
e
30
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Supply management
number of employees
- hiring new employees, using
part-timers, firings
workforce utilization
- over-/under time, slacking,
number of shifts, timing of
vacations, lay-offs, closing plant
draw / build up inventory
subcontract work to outsiders
build up back-orders or sell
sorry
Extra employee costs
Motivational impact on
employee productivity
Hiring / firing costs
Inventory costs
Subcontracting costs
Reactive balancing
- infl uenci ng mai nly supply -
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Production planning strategies
Problem to be solved: supply demand
Two basic strategi es (or approaches)
- level strategy: changes in demand are managed with inventories and
demand smoothening methods (up and down)
- chase strategy: capacity (mainly workforce) follows the changes in
demand
Companies usually use mixed strategies
- mix of two basic strategies with altering weights
- in practice the level strategy more emphasized
Chosen strategy depends on company policy,
strategy and costs
- basic question still is; how flexible is the workforce
33
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Demand
Supply
-I
+I
Mixed strategy most popular
approach
Time
V
o
l
u
m
e
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Process type and options for
changing output
35
Other variables impact planning
too
Process limi ts what can be done
- make to order vs. make to stock (is there a buffer)
- e.g. restaurants use a flexible approach and breweries level
Operati ng mode and legi slati on as constrai nts
- e.g. Southwest Airlines hasnt laid off anyone in 30 years
- e.g. in Europe there is strict rules work regulations
Corporate strategy influences priorities
- competing with price - minimize costs
- competing with quality - minimize fluctuations with workforce
- competing with speed - secure supply (e.g. by inventory)
- competing with flexibility - secure extra capacity/employees
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Other variables impact planning
too
Process l imits on what can be done
- make to order vs. make to stock (is there a buffer)
- e.g. restaurants use a flexible approach and breweries level
Operati ng mode and legi slati on as constrai nts
- e.g. Southwest Airlines hasnt laid off anyone in 30 years
- e.g. in Europe there is strict rules work regulations
Corporate strategy influences priorities
- competing with price - minimize costs
- competing with quality - minimize fluctuations with workforce
- competing with speed - secure supply (e.g. by inventory)
- competing with flexibility - secure extra capacity/employees
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Making aggregate plans
First all the variables have to be quantified
- forecast from the future demand
- resources in use and their costs
- capacity, production volumes, subcontracting resources, employees, employee
flexibility, salaries, inventory levels, inventory costs etc.
- capacity flexibility and its cost
- e.g. cost of hiring and training new employees
Used planning methods
- mathematical techniques
- e.g. linear programming, simulation
- experience based knowledge (I think...)
- in practice the most often used method
Result of the analysis is a plan (from production, work
force and inventory levels ) and plans total cost
- business strategy, companys financial situation etc. naturally considered
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You need to know basic figures for
analysis
Production
- capacity and its flexibility
- cost of subcontracting
Workforce
- wages and overtime cost
- cost of hiring and training
- cost of using temps
- cost of layoffs / firing
Inventory
- products inventoried
- inventory costs
- cost of backorders, stock-outs,
lost sales and extra
promotions
Importance of subjective
variables
Constraints
- e.g. customers, production,
workforce, inventory...
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Implementing plans
- rol li ng producti on pl an -
J anuaryFebruary March April May J une
J uly February March April May J une
J uly August March April May J une
Re-evaluate and update
based on new information
Carry out
first month
Re-evaluate and update
based on new information
Future is planned to avoid sub-optimization!
Carry out
first month
Carry out
first month
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Lecture 14
Aggregate planning
Work force scheduling
OM 09-16-44
Forecasted
demand
Employee
specific
work schedule
Daily employee
requirement
Employee
requirement
Individual
employees
limitations
Scheduling
limitations
Service
level
Simplified work force scheduling Work force scheduling
Employees the everlasting OM-problem
- scheduling easy in level production
- e.g. in paper industry (work lists done years in advance)
- problematic when there is variation in demand
- e.g. service industries (employees crucial in producingthe service)
Importance of effici ent scheduling easily
understood by looki ng at the share of wages
- goal to schedule enough employees to meet the demand with
minimum total cost (classical customer satisfaction situation)
- part-timers often used because of their flexibility
Humane issues should not be forgotten
- scheduling consecutive days off
- daily and hourly times
- coffee breaks, part-times, rush hour employees etc.
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OM 09-16-46
Scheduling work force example
- having days off in consecutive days-
Distribution center requires part-
time loading dock personnel. The
center operates seven days a
week, and the daily part-time
requirements are in the top of the
table. Find the minimum number
of workers when employees will
have two consecutive days off
per week. Give preferences to
the S-Su pair in case of a tie.
problem 15-3 in book