PRODUCTIONS AND OPERATIONS MANAGEMENT DIARY

AGGREGATE PLANNING
1. POM class proceedings:
Date: 24-11-2014

Group number: 16

Group members: Gayathri Satish (14055), Krishnendu Sain (14069), Shreyas K G (14147)
2. List of Topics Covered with Examples
In real life demand is unstable entity, to overcome this companies either
Prepare production schedule to take care of demand
Either produce according to demand or leave demand unfulfilled
Producing according to Demand
Short term option available like temporary workers or subcontracting
Can also keep or preserve excess stock and push it to sales when demand is high
Leaving demand unfulfilled
The company can backlog the demand to future periods if demand is not met in this period,
subject to customer agreeing to it
Or it can accept the shortage and incur loss of business through lost sales
It is up to the company to decide as to what should be its policy, i.e. to satisfy demand or let go
Ultimate Objective is to minimise cost of plan or minimise cost of aggregate planning
Every production unit needs certain iterative approaches for aggregate planning. It should go for the
mix of policy that result in lowest possible total cost of plan.
This can be done using tools such as Linear Programming or Linear Decision Tools. They help in
finding whether or not to go for better plans or not. But since it involves high level computing and is
beyond the scope of this course, we rely on MS Excel to solve the problem.
Though companies say they are interested in long term relations with their vendors, most of them
dont go beyond a 12 months of deal. Aggregate planning becomes very necessary here.
Problem
Points to be noted while doing problems:
Develop plan
Analyse it
Improve it
If demand > production, then there is shortage
If demand < production, then there is excess production leading to ending inventory
Some cases might require ending inventory to be brought to zero
Some cases may allow ending inventory, but storage space should also be taken into
consideration in this case
Types of aggregate planning
Broadly classified into two:
1. Level Plan Maintaining the same inventory levels
2. Chase Plan Looking at the demand and adjust production. The advantage here is that the inventory
is not carried forward or will there be shortages
Here too, there is no ideal plan, it all depends on the company to find which is most suitable for it
3. Examples cited:
The instructor also gave an example of a Harvard Case Study, about how backlogs can also happen in
airlines. For e.g. if 340 seats are available on a plane, the airline company takes booking for 350
people, considering the fact that some people dont turn up. But, here situations do arise where all the
350 passengers turn up. They will have to immediately find alternate measures for the extra 10
people.

4. Questions Raised by students:

a) For solving the capacity planning of Walt Disney can aggregate planning approach be used?
Sir said yes, there are two approaches they can follow. One is reactive approach where number of
employees (capacity) is increased with respect to increase in demand. Second approach is not
responding to the change in demand.
b) Is cost calculated on cumulative value or on ending value of inventory?
Sir said that cost is calculated on cumulative value.
c) When inventory size is defined how the aggregate planning is done?
Sir said in that case the company can either adjust production to inventory or might consider to
produce same number. Depends on company strategy but plant shut down is not feasible
5. Questions raised by the instructor: No question was raised by the instructor
6. Further studies recommended: Suggested us to learn on lean management. In present situation
lean analysis is done on big data.
7. Learning from the class: how aggregate planning can be applied in case of varying demand
across industries.
8. Feedback: All the problems are explained well in depth.
9. Value addition by group:
Some more Aggregate planning Model, we want to add. These are:
Transportation Method.
It is possible to formulate aggregate planning problem in such a way that if the solution exist
somewhere, it can be shown to be optimal. Thus, in contrast with the preceding trial-error methods we
now have the assurance that the best production plan is prepared. One technique used for this
purpose is the transportation method in linear programming. This approach allows for the use of
regular production, overtime, inventory, back-ordering, and subcontracting.
Vogels Approximation Method (VAM)
The procedure is simple and fast by comparison. Its advocates claim that it will give an optimal
allocation for a majority of problems and that the approximation is very good for the remainder. In
some applications, the final result of this approximation method may be accepted as is. In others it
might be desirable to apply the optimality test and then iterate toward an optimal solution if needed.
Normally, this scheme is used to find an initial solution so that the total number of iterations can be
reduced which is required by the conventional method.
Real company example:
Bangladesh Cable Shilpa limited, Khulna has applied the aggregate planning according to the above
process.