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OPERATION MANAGEMENT|UNIT 2|JAVIER RAMOS NICOLÁS
Unit 2: Aggregate planning
From long term planning to master production schedule
Considerations of aggregate planning
Units: Family of products
Time horizon: 6-18 months
Time cubs: The time horizon is divided in months or trimesters.
What is aggregate planning? It is the medium-term production planning which is possible from the capacity point of view.
It allows the Strategic Planning to be achieved effectively taking into account the tactical objectives of the production subsystem.
Example: A company manufactures just one family of products. One standard hour is required to produced 1 unit of this family. Each operator works an average of 100 hours per month. The company has a staff of 100 workers. We assume that each month has the same number of working days. There are NOT pending orders. The initial inventory of the company equals 500 units. This is exactly the security stock that the company has determined to face possible deviations with respect to the sales forecasts. No capacity problems have been reported concerning the machinery & equipment.
OPERATION MANAGEMENT|UNIT 2|JAVIER RAMOS NICOLÁS Alternative 1: 120.000 units should be produced regularly along the present year to satisfy the market demands. Hence: 𝑴𝒐𝒏𝒕𝒉𝒍𝒚 𝒑𝒓𝒐𝒅𝒖𝒄𝒕𝒊𝒐𝒏 = 10.000 𝑢𝑛𝑖𝑡𝑠 𝑝𝑒𝑟 𝑚𝑜𝑛𝑡ℎ 𝑴𝒐𝒏𝒕𝒉𝒍𝒚 𝒄𝒂𝒑𝒂𝒄𝒊𝒕𝒚 𝒑𝒓𝒐𝒅𝒖𝒄𝒕𝒊𝒐𝒏 = 100 𝑤𝑜𝑟𝑘𝑒𝑟𝑠 ∗ 100ℎ 𝑝𝑒𝑟 𝑚𝑜𝑛𝑡ℎ = 10.000ℎ 𝑝𝑒𝑟 𝑚𝑜𝑛𝑡ℎ 10.000ℎ 𝑝𝑒𝑟 𝑚𝑜𝑛𝑡ℎ ∗ 1 𝑢𝑛𝑖𝑡 𝑝𝑒𝑟 ℎ𝑜𝑢𝑟 = 10.000 𝑢𝑛𝑖𝑡𝑠 𝑝𝑒𝑟 𝑚𝑜𝑛𝑡ℎ Consequently: 𝑴𝒐𝒏𝒕𝒉𝒍𝒚 𝒏𝒆𝒆𝒅𝒔 = 𝐴𝑣𝑎𝑖𝑙𝑎𝑏𝑙𝑒 𝑚𝑜𝑛𝑡ℎ𝑙𝑦 𝑐𝑎𝑝𝑎𝑐𝑖𝑡𝑦 - Sales are delivered on time - Inventories are constant and equal the security stock - There’s no o delay costs due to shipment delays o over-storage costs o hiring and/or dismissal costs Alternative 2: Seasonal behaviour. Imagine a production of 120.000 units per year and a constant monthly production equal to 10.000 units (as alternative 1). However, the monthly needs are variable: Months Needs Jan of 15 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 15 10 5 5 5 10 5 5 10 15 20 production *Quantities in thousands of units If the monthly capacity is just 10.000 units, there will be imbalance between market demand and the company supply in some months.
OPERATION MANAGEMENT|UNIT 2|JAVIER RAMOS NICOLÁS January-May May-December Demand needs>Production Production>Demand needs Delays in deliveries Possession cost Low service level to customers Possibilities - To influence the market demand o To increase the market demand when it is lower than the capacity and the other way round o Marketing actions (promotions, discounts, price decrease, introduction of complementary products in demand terms, delayed service, etc.) o - Active or aggressive actions To adapt the production capacity o Capacity increase/decrease to adapt to market demands: overtime hours, subcontracting o Storage of production when we manufacture over the market demands (Excess of capacity) o Reactive or passive actions Temporary steps to adjust the capacity OPERATION MANAGEMENT|UNIT 2|JAVIER RAMOS NICOLÁS Techniques to calculate the aggregate planning - Pure techniques influence just one variable - Mixed techniques influence a combination of variables o Chase demand plan: Adjusts capacity to reflect the fluctuations in demand.
workforce variations, overtime hours, subcontracting, etc.
o Level capacity plan: Constant size of workforce: part-time staff, delivery delays, overtime hours, etc.
Constant production subcontracting or delivery delays, etc.
Factors to be considered - Environmental limitations - Company policies - Costs - Customer satisfaction - Basic cost of production is the same in all plans - Comparison of incremental cost of each plan per period: Inventories, OPERATION MANAGEMENT|UNIT 2|JAVIER RAMOS NICOLÁS Aggregate planning process Aggregate planning. Techniques - Intuitive or trial/error - Analytical: - o Mathematical programming: Optimal solutions o Heuristic methods: Satisfactory solutions Simulation: Usually computer simulation. Multiple solutions are considered which are refined by certain research rules Aggregate planning for services company Customers take part on the production process, they’re served and exit the process. In general, services are intangible and cannot be stored. Most services cannot postpone the demand. In general, services cannot be transported.
Services subcontracting is critical. Normally labour has a more important role than machinery and fixed assets. Market demand cannot be predicted accurately.
M.P.S (Master Production Schedule) It is the detailed plan that determines the number of units of final products that will be manufactured and the exact periods of time of production.
Basic functions - Refining the aggregate planning in quantities and timing.
OPERATION MANAGEMENT|UNIT 2|JAVIER RAMOS NICOLÁS - Calculation of the Approximate capacity plan to verify the viability of the Master Plan and the Aggregate plan.
MPS Timing horizon - - Timing horizon: From 1 week to 1 year. In MRP environments, a year is the usual period of time considered. Otherwise, 3 to 6 months. The timing horizon is influenced by production process and the environment. At least = higher accumulated Ts of the final products.
Timing cubs: Usually, it’s a week. Shorter periods imply excessive calculations and longer periods can produce excessive deviations.