Chapter 5

Aggregate Planning

Supply Chain Planning Matrix

procurement
longterm

production

distribution

sales

Strategic Network Planning Master Planning Production Planning Scheduling Distribution Planning Transport Planning Demand Planning Demand Fulfilment & ATP
44

midterm shortterm

Material Requirements Planning

Production Management

Supply Chain Planning Matrix

procurement
materials program supplier selection cooperations

production
plant location production system

distribution
physical distribution structure

sales
product program strategic sales planning

longterm

personnel planning material requ. planning contracts

master production scheduling capacity planning

midterm

distribution planning

mid-term sales planning

shortterm

personnel planning ordering materials

lot-sizing machine scheduling shop floor control

warehouse replenishement transport planning

short-term sales planning information flows

flow of goods Production Management

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Aggregate Planning
Example: one product (plastic case) two injection molding machines, 550 parts/hour one worker, 55 parts/hour steady sales 80.000 cases/month 4 weeks/month, 5 days/week, 8h/day how many workers? in real life constant demand is rare change demand produce a constant rate anyway vary production
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Aggregate Planning
Influencing demand do not satisfy demand shift demand from peak periods to nonpeak periods produce several products with peak demand in different period Planning Production Production plan: how much and when to make each product rolling planning horizon long range plan intermediate-range plan
units of measurements are aggregates product family plant department changes in workforce, additional machines, subcontracting, overtime,...

Short-term plan

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Aggregate Planning
Aspects of Aggregate Planning Capacity: how much a production system can make Aggregate Units: products, workers,... Costs
production costs (economic costs!) inventory costs(holding and shortage) capacity change costs

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Aggregate Planning
Spreadsheet Methods Zero Inventory Plan Precision Transfer, Inc. Produces more than 300 different precision gears ( the aggregation unit is a gear!). Last year (=260 working days) Precision made 41.383 gears of various kinds with an average of 40 workers. 41.383 gears per year 40 x 260 worker-days/year = 3,98 -> 4 gears/ worker-day Aggregate demand forecast for precision gear:
Month Demand January 2760 February March 3320 3970 April 3540 May 3180 June 2900 Total 19.670

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Aggregate Planning
holding costs: $5 per gear per month backlog costs: $15 per gear per month hiring costs: $450 per worker lay-off costs: $600 per worker wages: $15 per hour ( all workers are paid for 8 hours per day) there are currently 35 workers at Precision currently no inventory Production plan?

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Aggregate Planning
Zero Inventory Plan produce exactly amount needed per period adapt workforce

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Aggregate Planning
10 9 8 Number of Workers (hired / laid off) 6 4 2 0 -1 -2 -4 -6 -8 January February March April May June Month -6 -2 -4 2 Change in Workforce

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Aggregate Planning
Level Work Force Plan backorders allowed constant numbers of workers demand over the planning horizon gears a worker can produce over the horizon 19670/(4x129)=38,12 -> 39 workers are always needed

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Aggregate Planning
Inventory: January: 3276 - 2760 = 516 February: 516 + 3120 3320 March: 316 + 3588 3670 = -66! -Backorders: 66 x $15 = $990
600 number of units (inventory / back-orders) 500 400 358 300 200 100 0 -100 -200 -300 -400
M ar ch pr il nu ar y M ay y br ua r Ju A ne

516

316

net inventory 0 -66 -78

-330

Ja

Fe

Month

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Aggregate Planning
no backorders are allowed workers= cumulative demand/(cumulative days x units/workers/day) January: 2760/(21 x 4) = 32,86 -> 33 workers February: (2760+3320)/[(21+20) x 4] = 37,07 -> 38 workers. March: 10.050/(64 x 4) =>40 workers April: 13.590/(85 x 4) => 40 workers May: 16.770/(107 x 4) => 40 workers June: 19670/(129 x 4) => 39 workers

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Aggregate Planning
Example Mixed Plan The number of workers used is an educated guess based on the zero inventory and level work force plans!

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Spreadsheet Methods Summary

Zero-Inv. Hiring cost Lay-off cost Labor cost Holding cost BO cost Total cost Workers 4950 7800 59856 0 0 611310 33 Level/BO Level/No BO 1800 0 603720 4160 7110 616790 39 2250 0 619200 6350 0 627800 40 Mixed 3150 4200 593520 3890 990 605180 35

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Aggregate Planning
Linear Programming Approaches to Aggregate Planning

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Aggregate Planning

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Aggregate Planning
Decision Variables: Pt K number of units produced in period t Wt K number of workers available in period t H t K number of workers hired in period t Lt K number of workers laid off in period t I t K number of units held in inventory in period t Bt K number of units backordered in period t

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Aggregate Planning

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Aggregate Planning
Example: Precision Transfer Planning horizon: 6 months T= 6 Costs do not vary over time CtP = 0 dt : days in month t CtW = $120dt CtH = $450 CtL = $600 CtI = $5 We assume that no backorders are allowed! no production costs and no backorder costs are included! Demand
January 2760 February March 3320 3970 April 3540 May 3180 June 2900 Total 19.670
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Production Management

Linear Program Model for Precision Transfer

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Aggregate Planning
LP solution (total cost = $600 191,60)

January February March April May June

Production Inventory Hired Laid off Workers 2940,00 180,00 0,00 0,00 35,00 3232,86 92,86 5,41 0,00 40,41 3877,14 0,00 1,73 0,00 42,14 3540,00 0,00 0,00 0,00 42,14 3180,00 0,00 0,00 6,01 36,14 2900,00 0,00 0,00 3,18 32,95

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Aggregate Planning
Rounding LP solution
January Days Units/Worker Demand Workers Capacity Capacity - Demand Cumulative Difference Produced Net inventory Hired Laid Off Costs 21 84 2760 35 2940 180 180 2930 170 0 0 89050 February March April May June Total 20 23 21 22 22 129 80 92 84 88 88 516 3320 3970 3540 3180 2900 19670 229 41 42 42 36 33 3280 3864 3528 3168 2904 19684 -40 -106 -12 -12 4 14 140 34 22 10 14 400 3280 3864 3528 3168 2900 19670 130 24 12 0 0 336 6 1 0 0 0 7 0 0 0 6 3 9 101750 116490 105900 98640 88920 600750

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Aggregate Planning
Practical Issues 100.000 variables and 40.000 constraints LP/MIP Solvers: CPLEX, XPRESS-MP, ... Extensions Bounds

I t I tU I L I t I tU t L t 0.05Wt Training Wt = Wt 1 + H t 1 Lt
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Aggregate Planning
Transportation Models supply points: periods, initial inventory demand points: periods, excess demand, final inventory
ntWt = capacity during period t Dt = forecasted number of units demanded in period t CP = the cost to produce one unit in period t t CIt = the cost to hold one unit in inventory in period t

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Aggregate Planning

initial inventory: 50 final inventory: 75

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Aggregate Planning

1 Beginning inventory Period 1 Period 2 Period 3 Demand 200 0 50 10 150 -

2 2 12

3 4 14 50 11 13 12 350 400

Ending inventory 6 16 75 15 14 75

Excess capacity 0 0 75 0 0 75

Available capacity 50 350 300 350 1050

300 300 -

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Aggregate Planning
Extension:
capacity n tW t demand production costs holding costs t 1 2 3 350 350 300 400 300 400 10 11 12 2 2 2

overtime: overtime capacity is 90, 90 and 75 in period 1, 2 and 3; overtime costs are $16, $18 and $ 20 for the three periods respectively; backorders:units can be backordered at a cost of $5 per unit-month; production in period 2 can be used to satisfy demand in period 1

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Aggregate Planning
1 Beginning inventory Regular time Overtime Regular time Overtime Regular time Overtime Demand 400 0 25 10 350 16 50 16 275 23 22 30 300 18 17 300 25 75 400 20 75 22 130 0 20 12 11 13 75 22 90 14 0 0 15 18 20 22 40 0 0 12 2 2 25 14 16 0 3 4 Ending inventory 6 Excess capacity 0 Available capacity 50 350 90 350 90 300 75 1305
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Period 1

Period 2

Period 3

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Aggregate Planning
Disaggregating Plans aggregate units are not actually produced, so the plan should consider individual products disaggregation master production schedule Questions: In which order should individual products be produced?
e.g.: shortest run-out time Ri = I i / Di

How much of each product should be produced?

e.g.: balance run-out time

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Aggregate Planning
Advanced Production Planning Models Multiple Products same notation as before add subscript i for product i Objective function
N W H L P I min Ct Wt + Ct H t + Ct Lt + Cit Pit + Cit I it t =1 i =1 T

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Aggregate Planning
subject to 1 n i=1 it
N

Pit Wt

t = 1, 2,..., T

Wt = Wt 1 + H t Lt Iit = I it 1 + Pit Dit Pit,Wt , H t , Lt , I it 0

t=1,2,...,T t=1,2,...,T; i=1,2,...,N t=1,2,...,T; i=1,2,...,N

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Aggregate Planning
Computational Effort: 10 products, 12 periods: 276 variables, 144 constraints 100 products, 12 periods: 2436 variables, 1224 constaints

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Aggregate Planning
Example: Carolina Hardwood Product Mix
Carolina Hardwood produces 3 types of dining tables; There are currently 50 workers employed who can be hired and laid off at any time; Initial inventory is 100 units for table1, 120 units for table 2 and 80 units for table 3;

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Aggregate Planning
The number of units that can be made by one worker per period:

Forecasted demand, unit cost and holding cost per unit are:

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Aggregate Planning

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Aggregate Planning
Multiple Products and Processes

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Aggregate Planning

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Aggregate Planning
Example: Cactus Cycles process plan CC produces 2 types of bicycles, street and road; Estimated demand and current inventory:

available capacity(hours) and holding costs per bike:

t 1 2 3 Capacity(hours) Holding Machine Worker Street Road 8600 17000 5 6 8500 16600 6 7 8800 17200 5 7
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Aggregate Planning
process costs ( process1, process2) and resource requirement per unit:

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Aggregate Planning

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Aggregate Planning
solution: Objective Function value = $368,756.25

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Aggregate Planning - Extensions

Hopp/Spearman, S. 522-540 Notation:

X it ... amount of product i produced in period t

ri K net profit from one unit of product i Sit K amount of product i sold in period t a ij K time required on workstation j to produce one unit of product i c jt K capacity of workstation j in period t in units (consistent with a ij )

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Aggregate Planning - Extensions

Backorders
+ max ri Sit hi I it i I t t =1 i =1 t m

subject to d it Sit d it for all i,t for all j,t for all i,t for all i,t for all i,t
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a
i =1

ij

X it c jt

I it = I it 1 + X it Sit
+ I it = I it I it + X it , Sit , I it , I it 0

Production Management

Aggregate Planning - Extensions

Overtime

l j = cost of one hour of overtime at workstation j O jt = overtime at workstation j in period t in hours

n m + max (ri Sit hi I it i I it ) l O jt t =1 i =1 j =1 subject to t

a
i =1

ij

X it c jt + O jt

for all i,t for all i,t

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+ X it , Sit , I it , I it , O jt 0

Production Management

Aggregate Planning - Extensions

Yield loss

, , K fraction of output that is lost

yij K cumulative yield from station j onward (including station j) for product i d we must release units of i into station j y ij
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Aggregate Planning - Extensions

Basic model + Yield loss extension (no backorders)

max (ri S it hi I it )
t =1 i =1

subject to d it Sit d it for all i,t for all j,t for all i,t for all i,t
89

i =1

a ij X it yij

c jt

I it = I it 1 + X it Sit X it , Sit , I it 0

Production Management

Aggregate Planning - WorkforcePlanning

Single product, workforce resizing, overtime allocation Notation

b = number of man - hours required to produce one unit of product l = cost of regular time in dollars/man - hour l = cost of overtime in dollars/man - hour e = cost to increase workforce by one man - hour per period e = cost to decrease workforce by one man - hour per period Wt = workforce in period t in man - hours of regular time H t = increase in workforce from period t - 1 to t in man - hours Ft = decrease in workforce from period t - 1 to t in man - hours O t = overtime in period t in hours
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Aggregate Planning - WorkforcePlanning

LP formulation: maximize net profit, including labor, overtime, holding, and hiring/firing costs subject to constraints on sales, capacity,...

max rS t h I t lWt l Ot eH t eFt

t =1

subject to d t St d t a j X t c jt I t = I t 1 + X t S t Wt = Wt 1 + H t Ft bX t Wt + Ot for all t for all j, t for all t for all t for all t

X t , St , I t , Ot ,Wt , Ft , H t , 0 for all t

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AP-WP Example
Revenue: 1000$ worker capacity: 168h/month initially 15 workers no initial inventory holding costs: 10$/unit/month regular labor costs: 35$/hour overtime: 150% of regular hiring costs: 2500$ (2500/168 ~ 15$ per man-hour) lay-off costs: 1500$ (1500/168 ~ 9$ per man-hour) no backordering demands over 12 months: 200, 220, 230, 300, 400, 450, 320, 180, 170,170, 160, 180 demands must be met! (S=D)
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AP-WP Example(cont.)
Determine over a 12 month horizon: Number of workers: W Output: X Overtime use: O Inventory: I (H, F are additional choice variables in the model)

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Aggregate Planning - WorkforcePlanning

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Aggregate Planning - WorkforcePlanning

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Aggregate Planning - WorkforcePlanning

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Aggregate Planning-Summary
The following scenarios have been discussed: single product, single resource, single process find: workforce, output, inventory (w. or w/o backorders) multiple products, single resource, single process find: workforce, all outputs, all inventories (w. or w/o backorders) multiple products, multiple resources, multiple processes (workforce given) find: all outputs, all inventories, use of processes

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Aggregate Planning-Summary
The following scenarios have been discussed: multiple products, multiple workstations (workstation capcities given) find: all sales, all outputs, all inventories (w. or w/o backorders) multiple products, multiple workstations find: all sales, all outputs, all inventories (w. or w/o backorders), OT single product, multiple workstations, one resource
find: workforce, all sales, all outputs, all inventories (w. or w/o backorders), OT

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Aggregate Planning
Work to do: Examples: 5.7, 5.8abcdef, 5.9abcd, 5.10abcd, 5.16abcd, 5.21, 5.22, 5.29, 5.30
Replace capacity columns of table in problem 5.29 with Month Machine Worker 1 1350 19000 2 1270 19000 3 1350 19500

Minicase BF SWING II

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