Chapter 13 – Aggregate Planning

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Chapter 13 – Aggregate Planning
Operations Management by R. Dan Reid & Nada R. Sanders 4th Edition © Wiley 2010

© Wiley 2010

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Learning Objectives
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Explain business planning Explain sales and operations planning Identify different aggregate planning strategies & options for changing demand and/or capacity in aggregate plans Develop aggregate plans, calculate associated costs, and evaluate the plan in terms of operations, marketing, finance, and human resources Describe differences between aggregate plans for service and manufacturing companies © Wiley 2010 2





The Role of Aggregate Planning


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Integral to part of the business planning process Supports the strategic plan Also known as the production plan Identifies resources required for operations for the next 6-18 months Details the aggregate production rate and size of work force required © Wiley 2010 3

The Role of the Aggregate Plan

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Types of Aggregate Plans


Level Aggregate Plans
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Maintains a constant workforce Sets capacity to accommodate average demand Often used for make-to-stock products like appliances Disadvantage- builds inventory and/or uses back orders Produces exactly what is needed each period Sets labor/equipment capacity to satisfy period demands Disadvantage- constantly changing short term capacity © Wiley 2010 5



Chase Aggregate Plans
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Level Plan Example
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Level production rate= 28,000 units/7 periods= 4000 units Level workforce= (4000 units x .64 std.)/160 = 16 people

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Chase Plan Example
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Chase hires and fires staff to exactly meet each periods demand Period 1 = (500 units x .64 std.)/160 = 2 people, need to fire 16 people

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Types of Aggregate Plans con’t


Hybrid Aggregate Plans
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Uses a combination of options Options should be limited to facilitate execution May use a level workforce with overtime & temps May allow inventory buildup and some backordering May use short term sourcing

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Aggregate Planning Options


Demand-based options




Reactive: uses finished goods inventories and backorders for fluctuations Proactive: shifts the demand patterns to minimize fluctuations e.g. early bird dinner prices at a restaurant Changes output capacity to meet demand Uses overtime, under time, subcontracting, hiring, firing, and part-timers – cost and operational implications © Wiley 2010 9



Capacity-based options
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Evaluating the Current Situation
Important to evaluate current situation in terms of:


Point of Departure
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Current % of normal capacity Options are different depending on present situation



Magnitude of change


Larger changes need more dramatic measures



Duration of change
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Is the length of time a brief seasonal change? Is a permanent change in capacity needed? © Wiley 2010 10

Developing the Aggregate Plan
Step Step Step Step 1234Choose strategy: level, chase, or Hybrid Determine the aggregate production rate Calculate the size of the workforce Test the plan as follows: Calculate Inventory, expected hiring/firing, overtime needs Calculate total cost of plan

Step 5- Evaluate performance: cost, service, human resources, and operations © Wiley 2010 11

Aggregate Plans for Companies with Tangible Products
Plan A: Level aggregate plan using

inventories and back orders Plan B: Level plan using inventories but no back orders Plan C: Chase aggregate plan using hiring and firing Plan D: Hybrid plan using initial workforce and overtime as needed © Wiley 2010 12

Problem Data for Plans A & B
Data for Sophisticated Skates

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Plan A - Level Using Inventory & Backorders
First calculate the level production rate (14400/8= 1800)

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Plan A Evaluation
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Fill rate is 83.9% Fill rate is likely to low Inventory levels seem to be...
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