Aggregate Planning (14)

Aggregation

referes to the idea of focusing on overall capacity, rather than individual products or services. Aggregation is done according to Products: Product families share similar production requirements

Iterative Nature of S&OP

(made possible by concurrent planning) 1. Develop production plan. 2. Check implications for inventory/backlog plan. 3. If necessary, adjust production plan. 4. Check against resource plan and availability. 5. If necessary, adjust production plan. 6. Recheck against inventory/backlog and resources. 7. Continue (go to 5) until you meet all constraints.

Managerial Issues in Aggregate Production Planning (APP)

1. APP should be tailored to the particular company and situation. 2. APP may be constrained by union contracts or company policies 3. Mathematical results typically have to be balanced with managerial judgement and experience. Think beyond the numbers.

Leveling Strategies

1. Backlogs possible? (appointments, service levels) 2. Might have to weigh lost sales vs. labor costs

Mixed Strategy

1. Both inventory and work force levels are allowed to change over the planning horizon

Aggregate Production Planning Strategies

1. Chase Strategy 2. Level Strategy 3. Mixed Strategy

Level Strategy

1. Constant production rate or workforce level is maintained over planning horizon 2. Inventory / demand backlogs are built and dissipated.

Capacity Decisions Hierarchy

1. Decision Linkages 2. Decision Time Frame

Decision Linkages

1. Facilities Planning 2. Aggregate Planning 3. Scheduling

Decision Time Frame

1. Facilities Planning <- Years 2. Aggregate Planning <- Months 3. Scheduling <- Days

Reacting to Demand

1. Hire / Layoff workers 2. Bring in temp workers 3. User overtime / slack time 4. Subcontract

Methods of Influencing Supply

1. Hiring or firing workers 2. Overtime or slack time 3. Part time / temporary labor 4. Subcontracting 5. Inventories

Variable Costs in Aggregate Production Planning

1. Hiring/firing (lay-off) costs 2. Overtime/slack time costs 3. Part time / temporary labor costs 4. Subcontracting costs 5. Inventory carrying costs 6. Backorder or stock out costs

Smoothing Supply

1. Hold inventory 2. Manage order backlogs

Aggregate Production Planning

1. Medium-term capacity planning over a two to eighteen month planning horizon 2. Goal: Find a set of adjustments to effective capacity that --1. allow the operation to meet production (demand) requirements and... <- Constraints --2. do so at lowest cost... or highest profit... or minimum workforce disruption, etc. ... <- objective(s)

Methods of Influencing Demand

1. Price Incentives 2. Reservations 3. Backlogs: Wait for orders 4. Complementary Products or Services 5. Advertising/promotion

Aggregate Planning in Service Operations

1. Primary Difference 2. Pure chase 3. Leveling Strategies

Smoothing Demand

1. Provide incentives to stimulate off-peak demand 2. Sell complementary products 3. Other marketing mix variables

Approaches to Aggregate Production Planning

1. Smoothing Demand 2. Reacting to Demand 3. Smoothing Supply

Sales & Operations Planning

1. The underlying purpose of Sales and Operations Planning (S&OP) is to balance demand and supply. 2. Uses cross-functional teams 3. Monthly 'time buckets' over a rolling 12 month horizon. 4. Based on families of products 5. Input into detailed planning and scheduling and ERP

Pure Chase

1. Use overtime / slack time or hiring / layoffs 2. Hiring could come from parti-time labor

Aggregate production planning involves managing:

1. Work force levels - the # of workers required for production. 2. Production rates - the number of units produced per time period. 3. Inventory levels - the balance of unused units carried forward form the previous period. 4. Backorder levels - the balance of unsatisfied orders carried forward form the previous period.

Why is production planning necessary?

Because Demand is Rarely Constant and/or Easily Predictable

Type of budgeting and forecasting required

Chase - Short-run Level Capacity - Long-run

Labor turnover

Chase demand - high Level capacity - low

Amount of supervision required

Chase demand - high Level demand - low

Compensation rate

Chase demand - low Level capacity - high

Level of labor skill required

Chase demand - low Level capacity - high

Primary Difference

Holding inventory or order backlogs may not be possible

Inputs to S&OP

Input Responsibility Demand Forecast Marketing Market intelligence Marketing Actual sales Sales Capacity information Manufacturing Management targets Management Financial requirements Finance New product information R&D New process information Process engineering Workforce availability Human resources Just know everyone is involved

S&OP Outputs

Output Responsibility Sales plan Marketing and sales Production plan Manufacturing Inventory plan (MTS) Management Backlog plan (MTO) Management Purchasing plan Purchasing Financial plan Finance Engineering plan Engineering Workforce plan Human resources Again everyone is involved

Chase Strategy

Production rates (work force levels) are adjusted to match demand requirements over planning horizon.