Aggregate Production Planning

Aggregate Production Planning

(Aggregate) Planning is Concerned With Determining The Quantity And Timing Of Production For The Intermediate Future, Often From Three To 18 Months Ahead. The Goal is To Minimize Costs Over The Planning Period.

Aggregate Production Planning

Other Objectives May Be To Minimize Fluctuations In The Work Force Or Inventory Levels. Based on the planning horizon, We can divide plans into 3 general categories:

Aggregate Production Planning

Aggregate Production Planning

The Heart Of The Medium Range Planning Is The Aggregate Production Plan. In Aggregate Planning, Given The Demand Forecast, Production Capacity, Inventory Levels, Size Of Work Force, And Other Inputs, The Planner Has To Select The Rate Of Output For The Next 3 To 18 Months.

An Example Aggregate Plan

A Company Produces Four Models Of Microcomputers: 1) Laptops, 2) Hard Disk Machines, 3) Advanced Technology Machines With High Speed Chips, 4) Home/Game Pcs.

An Example Aggregate Plan

An Example Aggregate Plan

Here, Operations Manager Makes Decisions About Intermediate Range Capacity Without Getting Into Details Of Specific Products, Parts, Or People. Later, He/She Deals With Financial Data, Personnel, Capacity, And Availability Of Raw Material As Well.

An Example Aggregate Plan

As an intermediate type planning, The aggregate plan interacts with both long range strategies, AND short-term planning activities.

Relationships Of Aggregate Plan

Strategies In Aggregate Planning

There are several ways for improving the effectiveness in the aggregate planning process:

Strategies In Aggregate Planning

1. Changing Inventory Levels This is to Increase Inventory During Periods Of Low Demand To Meet High Demand in Future Periods. However, By doing this, Costs Of Storage and Handling Increases.

Strategies In Aggregate Planning

2. Varying Work Force Size By Hiring Or Layoffs This is to Hire Or Lay Off Workers To Meet Production Rates. In this option, Often New Employees Need To Be Trained.

Strategies In Aggregate Planning

3. Varying Production Rates Through Overtime Or Idle Time. There is always a Limit For Overtime. Costs also Increase.

Strategies In Aggregate Planning

4. Subcontracting Costly, Opens Doors To Competitors, Hard To Find Perfect Subcontractor.

Strategies In Aggregate Planning

5. Using Part Time Workers e.g., Fast Food Restaurants

Strategies In Aggregate Planning

6. Influencing Demand Through Advertising, Promotion, And Price Cuts.

For example, Weekend Discounts At Hotels and Airlines.

Strategies In Aggregate Planning

7. Back Ordering at High Demand Periods. Back ordering means That A Firm Promises To Deliver a Product In A Later Date. Many Auto Dealers Purposely Back Order.

Strategies In Aggregate Planning

8. Counterseasonal Product Mixing This is To Develop A Product Mix Of Counterseasonal Items. For example, Companies That Make Both Furnaces And Air Conditioners.

Strategies In Aggregate Planning

Although Each Of These Strategies Might Produce A Cost Effective Aggregate Plan, A Combination Of Them Often Works Best. But The Optimal Plan Is Not Always Possible.

Methods For Aggregate Planning

1. Graphical And Charting Methods 2. Mathematical Approaches A) Linear Programming B) Linear Decision Rules C) Management Coefficient Model D) Simulation E) Search Decision Rules

Graphical And Charting Methods

- This is a Trial And Error Approach. - It Does Not Guarantee Optimal Production Plan. - It is Easy To Apply And Understand. It includes following steps:

Graphical And Charting Methods

1- Determine Demand In Each Period 2- Determine Capacities Of Regular Time, Overtime, And Subcontractor Each Period 3- Find Labor Costs, Hiring/Layoff Costs, And Inventory Costs 4- Consider Company Policies That May Apply To The Workers Or To Stock Levels. 5- Develop Alternative Plans And Find Their Total Costs.

Example

Demand Per Day For A Manufacturer Of Roofing Supplies Are Computed By Dividing The Expected Demand For Each Month By The Number Of Working Days In Each Month. (for example, 900 / 22 = 41)

Example

Example

Example

This histogram shows how the forecast differs from the average demand. Assume that, There are 3 alternative plans For The Manufacturer Described in this Example:

Example

- Plan 1 Is To Maintain A Constant Workforce Throughout The 6-Month Period. - Plan 2 Is To Maintain A Constant Workforce At A Level Necessary For The Lowest Demand Month (March) And To Meet All Demand Above This Level By Subcontracting. (i.e., produce 38 units per day and subcontract the rest.)

Example

- Plan 3 Is To Hire And Lay Off Workers As Needed To Produce Exact Monthly Requirements. In Charting Method, Each Proposed Plan Can Be Compared To Select The Least Cost Plan.

Example

This Comparison Includes Every Possible Cost Item: (Inventory Carrying, Regular Labor, Hiring, Layoffs, Subcontracting, Etc.) However, A Systematic Approach That Considers All Costs And Produces An Effective Solution Is Needed. Linear Programming Is One Such Approach.

Example

Aggregate planning problem can be formulated in a Linear Programming format. Linear programming is Not a trial-and-error approach like charting, But it produces an Optimal plan for minimizing cost. In linear programming, Aggregate planning problem is formulated as following:

Example

Minimize Total Cost (which is a total of labor cost, subcontracting cost, inventory costs, etc.) Subject to: <Several Capacity Limits> AND <Demand=Supply>

Example

This model is a particular type of linear programming that is called Transportation Problem. In this method, all cost items Can be viewed from period to period.

DisAggregation

The Output of Aggregate Planning is a Production Schedule for family groupings of products. For example, It tells us how many cars to make, But it does not indicate how many of them Should be two-doors, and how many will be four doors.

DisAggregation

A manufacturer firm needs more information to operate. We must know what quantities will be produced for each type of product AND what time. The process of Breaking the Aggregate Plan down into Greater Detail is called DisAggregation.

DisAggregation

Later, Disaggregation results in Master Production Schedule (MPS). This schedule specifies:

1) The sizing and timing of specific item production quantities, 2) The sizing and timing of manufactured or purchased components, 3) The sequence of individual orders or jobs, and 4) The short-term allocation of resources to individual operations.

Material Requirements Planning

Demand for one item may be related to the demand for another item.

Material Requirements Planning

For example, a car manufacturers demand for Auto Tires and Radiators depends on the production of cars. (Four tires and One radiator is used for each car.)

Material Requirements Planning

Once, management can make a forecast of the demand for the final product (e.g., car), Quantities required for all components (tire, radiator) can be computed exactly. When such Dependent Computing Techniques are used in a Production Environment, They are called Material Requirements Planning (MRP).

Material Requirements Planning

Effective use of Dependent Inventory Models requires the Knowledge of the following items: 1) Master Production Schedule (What is to be made and when), 2) Bills-of-Material (A list of Materials that are used in making the product), 3) Inventory in Stock (What do have already in the stock), 4) Purchase Orders (What is actually ordered, when they should be delivered), and 5) Lead times (How long it takes to get the specific components of the product).

Master Production Schedule

MPS specifies what is to be made AND when. Many organizations First establish a Master Production Schedule, AND Then Fix the Near-term Portion of the plan. (This portion is called Frozen)

Master Production Schedule

After freezing the plan, Only changes beyond the Fixed Schedule are permitted. MPS is a STATEMENT OF PRODUCTION, It is Not a Forecast.

Master Production Schedule

Depending on the type of operation, Master Schedule can be expressed in terms of: Either

1) An end item in a make-to-stock company, or 2) A customer order in a make-to-order (jobshop) company, or 3) Modules in an assemble-to-order company.

Master Production Schedule

For example, A Master Production Schedule for two Products (A and S) might be as follows:

Master Production Schedule

Specification of Bills-ofMaterial

A bill-of-material (BOM) is a List of Quantities of Components and Materials required to Make a Product. For each component, There is a Drawing that specifies its SubComponents.

Example

Assume that, this weeks Demand for product A is 50 units. Each unit of A requires two units of B and three units of C. Each unit of B requires two units of D and three units of E. Each unit of C requires one unit of E and two units of F. Each F requires one unit G and two units of D.

Example

Example

Therefore, Demand for B,C,D,E,F,G is completely dependent on the demand for A. Once we develop product structure, We can get the Number of units Required to Satisfy demand for product A.

Example

For example: For part B: 2 x 50 = 100 units of B is required. Similarly, For part C: 3x50 = 150 units of C is required.

Example

For part E: 3(B) + 1(C) = 3(100) + 150 = 450 units of E is required. For part F: 2(C) = 2(150) = 300 units of F is required. For part D: 2(B) + 2(F) = 2(100) + 2(300) = 200 + 600 = 800 units of D is required. For part G: 1(F) = 300 units of G is required.

Example

Management should also determine when the products are going to be needed. In order to be able to Provide each Component at the Required Timing; Processing times, waiting times, setup times, moving times of a production must also be known. The total of all these times is called the LEAD TIME for that Product.

Example

Example

Based on these info, Time-phased product structure for product A can be drawn as follows:

Example

Example

For example, In order to be able to have product A at the current time, part G should be ordered 7 weeks ago.

Material Requirements Planning Structure

Although most MRP systems are computerized, The Analysis is straightforward. Ingredients of an MRP system are MPS, BOM, Inventory and Purchase Records, and Lead Times for each item.

Material Requirements Planning Structure

Next step is to construct a Gross Material Requirements Plan by combining MPS with time phased schedule. This plan shows when An item must be ordered from suppliers . Or, it shows when the production of an item must be Started.