Portfolio for Aggregate Planning and Scheduling (PERT/CPM)

Introduction
With fast-tracked technology and the competitive need to get the right product to the
market as fast as possible, businesses have a real challenge in managing their product
development efforts. Success of the business is based on sound decision making in how
to allocate research funds, initiation of new programs or projects, killing or accelerating
projects, and launching the products with the highest probability of success.
This process is one of managing the portfolio of new products or, as used in this report,
simply Aggregate Planning and Scheduling. Nahmias, Steven, Schroeder, R.G, and
Stevenson, William J. in their book, Production and Operation Analysis, Operations
management, provides the following definition of Aggregate Planning and Scheduling:
Aggregate plans help match supply and demand while minimizing costs by applying
upper level forecasts to lower level, production-floor scheduling. Plans generally either
"chase" demand, adjusting its work force accordingly or are "level' plans, meaning that
labor is relatively constant with fluctuations in demand being met by inventories and
backorders.
The portfolio decision process encompasses or overlaps a number of decision-making
processes within the business, including periodic reviews of the total portfolio of all
projects (looking at the entire set of projects, and comparing all projects against each
other); overviewing this is generally most effective when applied to periods two to 18
months in advance. It is a useful tool in creation and evaluation of alternatives such as
the adjustment of the labor force through hire/fire/layoff/overtime, the use of
subcontractors, anticipatory inventory, and, even the development of complementary
products and pricing strategies.
Why aggregate planning?
Details are hard to gather for longer horizons
o Demand for Christmas turkeys at Tom Thumbs vs Thanksgiving turkeys

Details carry a lot of uncertainty: aggregation reduces variability

o Demand for meat during Christmas has less variability than the total
variability in the demand for chicken, turkey, beef, etc.

If there is variability why bother making detailed plans, inputs will change
anyway
o Instead make plans that carry a lot of flexibility
o Flexibility and aggregation go hand in hand

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Aggregate Planning Strategies

Using Aggregate Planning
Aggregate planning is generally most effective when applied to periods two to 18 months
in advance. It is a useful tool in creation and evaluation of alternatives such as the
adjustment of the labor force through hire/fire/layoff/overtime, the use of subcontractors,
anticipatory inventory, and, even the development of complementary products and
pricing strategies.
Chase Planning
Chase planning can also be referred to as "just-in-time" management. Basically, chase
planning adjusts production to meet demand. As a result, minimal levels of inventory are
maintained. While this feature is positive for many industries that require reflexive
adaption, such as a bakery, employment of this strategy decreases the ability to the
company to meet unexpected demand increases and increases the risk of backorders.
Level Planning
Level planning is also called "just-in-case" management in that it essentially smooths
over fluctuations, holding inventory or placing backorders as needed. This plan supports
regular scheduling and minimal overtime. However, level planning has more holding cost
than other aggregate plans.
Hybrid Aggregate Planning
Hybrid aggregate planning offers the best of both worlds. By combining chase planning
with level planning, there is less cost of inventory than in level planning and less risk of
backorders than chase planning. It also produces an environment where employee
demand, though not as "level" as level planning, is generally consistent, with overtime in
busy seasons and a few hours cut in slower times. While most companies use some type
of a hybrid aggregate plan for operations scheduling for these reasons, it is worthwhile to
evaluate the needs of the business from a variety of planning techniques, compare the
costs, tangible and intangible, and then make the choice that suits the company best.
Developing Aggregate Plans
There are many ways of developing aggregate plans. An Internet search will turn up a
variety of methods from trial-and-error to quadratic calculus. Basically, chase planning
requires continual monitoring of demand and adjustment to meet that demand. (i.e.
overtime, temporary labor, subcontracting, etc.), whereas level planning involves taking
the average annual demand and dividing that by the hours needed to meet that demand
and scheduling thus.

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Hybrid Strategies in Aggregate Strategy

Hybrid planning uses a combination of the chase strategy and the level planning
techniques. Hybrid planning looks at the cost of backorders compared to the cost of
holding inventory and develops the optimal levels of each. While this can be
accomplished through trial-and-error, it is also possible to use the "solver" feature in
spreadsheet software to simplify the process.
Disadvantages of Aggregate Planning and Scheduling
Smoothing
Smoothing refers to costs that result from changing production and workforce levels from
one period to the next.
Bottleneck Problems
It is the inability of the system to respond to sudden changes in demand as a result of
capacity restrictions.
Planning Horizon
The number of periods for which the demand is to be forecasted, and hence the number
of periods for which workforce and inventory levels are to be determined, must be
specified in advance.
Treatment of Demand Aggregate planning methodology requires the assumption that
demand is known with certainty. This is simultaneously a weakness and strength of the
approach.
Planning Activities & Decisions

Identify the project customer

Establish the end product or service
Set project objectives
Estimate total resources and time required
Decide on the form of project organization
Make key personnel appointments
Define major tasks required
Establish a budget

Scheduling Activities & Decisions

Develop a detailed work-breakdown structure
Estimated time required for each task

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Sequence tasks in proper order

Develop a start/stop time for each task
Develop detailed budget for each task
Assign people to tasks

Execution & Control

Monitor actual time, cost, and performance
Compare planned to actual figures
Determine whether corrective action is needed
Evaluate alternative corrective actions
Take appropriate corrective actions
What are corrective actions?
When one or more activities threaten the time, cost, or performance of the project, a
corrective action is necessary:

Redefine the activity (e.g. split the activity).

Add resources to the activity.
Shift resources from one activity to another

Resources = people, equipment, money

Scheduling Methods
Gantt Charts
Shown as a bar charts
Do not show precedence relations
Visual & easy to understand
Network Methods
Shown as a graphs or networks
Show precedence relations
More complex, difficult to understand and costly than Gantt charts
PERT: Program Evaluation Review Technique
Used under conditions of uncertainty in activity times
Requires three time estimates for each activity
o Optimistic
o Most likely
o Pessimistic

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Times distributed according to beta distribution

PERT Activity Times

Estimate three times for each activity
Compute mean completion time for each activity:
Te

To 4Tm T p
6

PERT Activity Times

If T = total completion time of the project, then

ET Te
critical
path

and

varT vari
critical
path

CPM
Network analysis technique used in complex project plans with a large number of
activities. CPM diagrams (1) all activities, (2) time required for their completion, (3) and
how each activity is related to the previous and next activity. A sequence of activities is
called a 'path,' and the longest-path in the diagram is the critical path. It is 'critical'
because all activities on it must be completed in the designated time, otherwise the whole
project will be delayed. Also called critical path analysis or critical path methodology.

Critical Path Method

Used under conditions of certainty in activity times
Requires one time estimate for each activity
Looks at time/cost trade-offs
o Normal activity time
o Normal cost
o Crash time
o Crash cost

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Use of Project Management Concepts

Scheduling is only part of a complete approach to project management
Trade-off between sophistication and cost of methods
Choice between constant time, PERT, CPM or more advanced techniques
Choice of project management software packages

Terms and Definitions

Aggregate Plan
A statement of a company's production rates, workforce levels, and inventory
holdings based on estimates of customer requirements and capacity limitations.
Production plan
A manufacturing firm's aggregated plan, which generally focuses on production
rates and inventory holdings.
Staffing Plan
A service firms aggregate plan, which centers on staffing and other labor-related
factors.
Schedule
A timetable that allocates and assigns resources such as equipment and people to
accomplish specific tasks.
Planning Horizon
The length of time covered by an aggregate plan.
Capacity Alternatives
Actions that can be taken to cope with demand requirements.
Overtime
The time that employees work that is longer than the regular workday or
workweek, for which they receive premium pay for the extra hours.
Undertime
The situation that occurs when employees do not work productively for the
regular time workday or workweek.
Backlog
An accumulation of customer orders that have been promised for delivery at some
future date.
Backorder
An order that the customer expected to be filled immediately but reluctantly asks
that it be delivered as soon as possible.
Stockout
An order that is lost and causes the customer to go elsewhere.
Demand alternatives

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Actions that attempt to modify or shift customer demand and, consequently,

resource requirements.
Complementary products
Products or services having similar resource requirements but different demand
cycles.
Revenue management
The adjustment of price to maximize the revenue obtained for available capacity
that is lost if not used.
Chase strategy
A strategy that matches demand during the planning horizon by varying either the
workforce level or the output rate.
Level Strategy
A strategy that maintains a constant workforce level or constant output rate during
the planning horizon.
Mixed strategy
A strategy that considers and implements a fuller range of capacity alternatives
and goes beyond a "pure" chase or level strategy.
Workforce Scheduling
Developing a timetable that determines when employees work.
Operations scheduling
Developing a timetable that assigned jobs to machines or workers to jobs.
Rotating Schedule
A schedule that rotates employees through a series of workdays or hours.
Fixed schedule
A schedule that calls for each employee to work that same days and hours each
week.

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