Chapter-4 Aggregate Planning
Chapter-4 Aggregate Planning
Chapter 4
Planning Horizon
Aggregate planning: Intermediate-range
capacity planning, usually covering 2 to 12 months.
The goal of aggregate planning is to achieve a
production plan that will effectively utilize the
organization’s resources to satisfy expected
demand.
Long range
Intermediate
range
Short
range
Planning Sequence
Figure 12.1
Economic,
Corporate competitive, Aggregate
strategies and political demand
and policies conditions forecasts
Establishes operations
Business Plan
and capacity strategies
Establishes
Aggregate plan
operations capacity
Resources Costs
Workforce/production rate Inventory carrying
Facilities and equipment Back orders
Policies Overtime
Inventory changes
Subcontracting
Overtime subcontracting
Inventory levels
Back orders
12-7 Aggregate Planning
Employment
Subcontracting
Backordering
12-8 Aggregate Planning
Proactive
Involve demand options: Attempt to alter
demand to match capacity
Reactive
Involve capacity options: attempt to alter
capacity to match demand
Mixed
Some of each
12-9 Aggregate Planning
Demand Options
Pricing
Promotion
Back orders
New demand
12-10 Aggregate Planning
Pricing
Pricing differential are commonly used to shift demand
from peak periods to off-peak periods, for example:
Some hotels offer lower rates for weekend stays
Some airlines offer lower fares for night travel
Movie theaters offer reduced rates for matinees
Some restaurant offer early special menus to shift some of
the heavier dinner demand to an earlier time that
traditionally has less traffic.
To the extent that pricing is effective, demand will be
shifted so that it correspond more closely to capacity.
An important factor to consider is the degree of price
elasticity of demand; the more the elasticity, the more
effective pricing will be in influencing demand patterns.
12-11 Aggregate Planning
Promotion
Advertising and any other forms of promotion,
such as displays and direct marketing, can
sometimes be very effective in shifting demand
so that it conforms more closely to capacity.
Timing of promotion and knowledge of
response rates and response patterns will be
needed to achieve the desired result.
There is a risk that promotion can worsen the
condition it was intended to improve, by
bringing in demand at the wrong time.
12-12 Aggregate Planning
Back order
An organization can shift demand to other periods
by allowing back orders. That is , orders are taken
in one period and deliveries promised for a later
period.
The success of this approach depends on how
willing the customers are to wait for delivery.
The cost associated with back orders can be
difficult to pin down since it would include lost
sales, annoyed or disappointed customers, and
perhaps additional paperwork.
12-13 Aggregate Planning
New demand
Manufacturing firms that experience
seasonal demand are sometimes able
to develop a demand for a
complementary product that makes
use of the same production process.
For example, the firms that produce
water ski in the summer, produce
snow ski in the winter.
12-14 Aggregate Planning
Capacity Options
Part-time workers
Inventories
Basic Strategies
Chase Approach
Advantages
Investment in inventory is low
Labor utilization is high
Disadvantages
The cost of adjusting output rates and/or
workforce levels
12-18 Aggregate Planning
Level Approach
Advantages
Stable output rates and workforce levels
Disadvantages
Greater inventory costs
Increased overtime and idle time
Resource utilizations vary over time
12-19 Aggregate Planning
Master scheduling
The result of disaggregating the aggregate plan is a master schedule
showing the quantity and timing of specific end items for a
scheduled horizon, which often covers about six to eight weeks
ahead.
The master schedule shows the planned output for individual
products rather than an entire product group, along with the timing
of production.
It should be noted that whereas the aggregate plan covers an interval
of, say, 12 months, the master schedule covers only a portion of this.
In other words, the aggregate plan is disaggregated in stages , or
phases, that may cover a few weeks to two or three months.
The master schedule contains important information for marketing
as well as for production. It reveals when orders are scheduled for
production and when completed orders are to be shipped.
12-21 Aggregate Planning
Inputs Outputs
Beginning inventory Projected inventory
Master
Forecast Master production schedule
Scheduling