Project and Operations

Management (MAN 304)

Unit IV
 Syllabus
• Aggregate Planning: Definition, nature, strategies of aggregate planning,
methods of aggregate planning (level plan, chase plan and mixed plan,
keeping in mind demand, workforce and average inventory)

• Statistical Quality Control: Variations in Process (Common and

assignable causes), Control charts: Variable measures (mean and range
chart), Attribute measures (proportion of defects and no. of defects)
using control tables.

• Total Quality Management: Nature of Quality, Quality assurance, Quality

management systems, Customer Satisfaction, Continuous process
improvement, Performance measures, Benchmarking.
Aggregate Planning
 Aggregate Planning
Aggregate planning is the process of developing, analyzing, and
maintaining a preliminary, approximate schedule of the overall operations
of an organization.

Aggregate plan explains how resources can be best employed to meet

market demand for a given product at minimum cost.
 Aggregate Planning
 Aggregate planning does not distinguish among sizes, colors, features
of the product.

 It is considered to be intermediate-term planning in nature spanning

over a period of 3 to 18 months.

 Aggregate plans serve as a foundation for future short-range planning,

such as production scheduling, sequencing, and loading.

 The master production schedule (MPS) is used in material

requirements planning (MRP) and capacity requirement planning
(CRP)
 Aggregate Planning
Goals of Aggregate Planning
 Should contain information on the required level of output to be produced,
inventory levels to be maintained and backlogs based on the business plan
 Should utilise facility’s capacity in an efficient manner in consistence with
organisation’s strategy
 Should be in line with the company’s human resource policies like
employment stability especially in the fields where critical job skills are
scarce
 Aggregate Planning
Factors to be considered while developing an Aggregate Plan

Operations
Current Machine and Distribution & Marketing
Workforce capacity and Customer needs, Demand
plans for future Forecast, Competition

Materials
Aggregate Accounting & Finance
Supplier capabilities,
Plan Cost data, Financial
Storage capacity,
condition of the firm
Material availability

Engineering
Human Resource
New products, Product
Labour-market conditions,
Design, Technology
Training capacity
changes
 Aggregate Planning
Aggregate Planning Strategies
There are two pure planning strategies available to the aggregate planner
 Level Strategy
 Chase Strategy

Firms may choose to utilize one of the pure strategies in isolation, or they
may opt for a strategy that combines the two

Pure Planning Strategy –

Only one of these strategies is adopted
Combined or Mixed or Hybrid Planning Strategy –
A combination of these strategies is adopted to better suit the requirement.
 Aggregate Planning
Level Strategy
 A steady production rate and a steady employment level is maintained.
 Changes in demand is satisfied by raising or lowering inventory levels
 This allows the firm to establish higher inventory levels than are
currently needed.

Advantage – Maintains better

employee relationship
Disadvantage – Increased
inventory cost, subcontracting or
overtime costs, and backorder
costs
 Aggregate Planning
Chase Strategy
 Matches capacity with demand by hiring or laying off of employees
 Varying utilization of plant and equipment

Advantage – Inventory is
held at the lowest level possible

Disadvantage – Unhappy
employees, problems with
labor unions, risk of
unavailability of skilled
employee when needed
 Aggregate Planning
Aggregate Planning Methods or Techniques
 Graphical and Charting Method – Two dimensional model relating
cumulative demand to cumulative output capacity. Easy and Simple to
understand
 Optimal Models
a) Linear Programming – Mathematical model used to formulate
aggregate plan
b) Linear Decision Rules – A set of linear equations are solved to
calculate optimal workforce, output rate and inventory level
 Heuristic Models – Based on past data on aggregate planning.
Management coefficient model uses regression method
 Computer Simulation in Capacity Evaluation - Provides what if analysis
of various situations and optimum performance level
 Aggregate Planning
Problem 1
In a textile firm a worker is capable of tailoring 3 garments per day. Assume the
time taken to tailor each garment is same.
Given:
Hiring Cost = Rs 3000; Layoff Cost = Rs 4000; Current employee strength = 40
Aggregate demand for the next 4 months is given in the following table.
Based on the given information generate a production plan by following the
varying workforce strategy

June July August September

Demand 3170 3000 2900 2660

Working 24 25 23 24
Days
 Aggregate Planning
Solution
For the month of June
Number of units produced /worker 3 x 24 = 72 units
Total output of 40 workers = 40 x 72 = 2880 units
Deficit = Demand – Production = 3170 – 2880 = 290
No of additional workers = 290 / 72 = 4
Cost of hiring = 4 x 3000 = Rs 12000

Similarly deficit / Surplus and number of workers hired or laid off are calculated
for the other months
 Aggregate Planning
Months Jun July August September
Working days 24 25 23 24
Units / worker 72 75 69 72
Workers available 40 44 40 42
Total Output 2880 3300 2760 3024
Demand 3170 3000 2900 2660
Deficit / Surplus 290 (-) 300 140 (-) 364
# of workers 4 (-) 4 2 (-) 5
hired / laid off
Hiring / Lay off 12000 16000 6000 20000
cost (H) (L) (H) (L)
Total # of workers 44 40 42 37
Total Cost 12000 16000 6000 20000
 Aggregate Planning
Problem 2
Aggregate demand for product X for the next four months in given in the following
table. Given:
Opening stock of inventory = 500 units;
Inventory holding Cost = Rs 40/unit; Shortage cost = Rs. 30/unit
Worker productivity = 20 units / day ; Worker strength = 10
Based on the above information generate a production plan with varying inventory
levels.

June July August September

Demand 5000 4600 5200 4800

Working 23 24 22 23
Days
Aggregate Planning and Master Production Schedule
Solution

Closing inventory = Beginning inventory + Actual production - Demand forecast

Shortage cost = Units short x Per unit shortage cost

Inventory carrying cost = Excess inventory x Per unit inventory holding costs

Excess inventory in one month is taken as the beginning inventory for the next

month
Aggregate Planning and Master Production Schedule
For the month of June Total production = 23 x 10 x 20 = 4600
Closing inventory = 500 + 4600 – 5000 = 100
Inventory carrying cost = 40 x 100
Months Jun July August September
Opening stock of 500 100 300 0
inventory
Working Days 23 24 22 23
Actual Production 4600 4800 4400 4600
Demand Forecast 5000 4600 5200 4800
Closing Inventory 100 300 -500 -200
Shortage Cost 0 0 15000 6000
Excess Inventory 100 300 0 0
Inventory 4000 12000 0 0
carrying cost
 Aggregate Planning
Back orders
 Current order commitments are fulfilled in future assuming that the customers
are ready to wait for delivery
 Smoothens production but sometimes results in stock out cost

Subcontracting
 Allows level production and sources additional output required from the
subcontractors

Plant capacity
 Plant capacity is adjusted by varying the equipment capacity
 Aggregate Planning
Master Production Schedule
 Master Production schedule (MPS) defines the type and volume of each

product that is to be produced within the planning horizon

 Two major sources of input for MPS are forecasts (for Make-to-stock items)

and customer orders (for Make-to-order items)

 It identifies material requirements to prepare material requirement plan

(MRP)

 It generate capacity requirement to prepare capacity requirement plan (CRP)

Aggregate Planning and Master Production Schedule
Forecast and Orders

Aggregate Plan

Tentative Master
Schedule

MRP System CRP System

No Are Material Are Capacity No

Adequate? Adequate?

Yes Yes
Final Master Schedule

To MRP and CRP System

 Aggregate Planning
Problem 3
The forecasted demand for telephone handset for next six weeks is 30, 35, 38, 32,
32, 30 and the number of orders booked at the start of MPS planning period is 23,
40, 24, 22, 38, 22. Prepare an MPS for the telephone set manufacturer..
Given: Inventory on hand = 40,
Lead time = 1 week,
Production Lot size = 80 units
Aggregate Planning and Master Production Schedule
Solution
Forecast for the 1st week is 30 units. This requirement can be satisfied by using the
inventory on hand. Projected inventory on hand at the end of the first week is
= On hand inventory + MPS quantity – Projected requirements for the week
= 40 + 0 – 30 = 10

MPS for six weeks

1 2 3 4 5 6
Forecast 30 35 38 32 32 30
Orders 23 40 24 22 38 22
Projected on-hand
inventory 10 50 12 60 22 72

MPS quantity 0 80 0 80 0 80
MPS start 80 80 80
Aggregate Planning and Master Production Schedule
Solution
Forecast for the 2nd week is 35 units. But the order received is for 40 units.
Inventory on hand at the end of first week is 10 which is not sufficient to satisfy
the second week’s requirements. So to make up for the deficient the organisation
schedules for MPS quantities.
As the lead time is one week the production should commence in the first week
itself to satisfy the requirements of the second week.

At the end of the 2nd week projected inventory on hand

On hand inventory + MPS quantity – booked order for the week
10+80 – 40 = 50 units

There is no requirements of MPS quantities in the 1st , 3rd and 5th week
Aggregate Planning and Master Production Schedule
Material Requirement Planning
Material requirement planning (MRP) is the scientific technique for planning,
ordering and usage of materials at various levels of production and for monitoring
the stocks (inventories) during these transactions.

MRP Input
Master Production Schedule – When and how much quantity of finished
products are required
Bill of Material – List of materials and their quantity required to produce one
unit of product
Inventory Record File – Complete record of each material held in inventory
Aggregate Planning and Master Production Schedule
MRP System Information Processing
Explosion – Disassembling the end products into components and moving
backward to determine the production and purchasing activity for each component.
Netting – Developing a material requirement plan for each item in the BOM for
each time bucket
Offsetting – Uses the information from Explosion and Netting to determine the
planned order releases either internally through production or from a supplier

MRP System Output

Primary Reports – Planned orders, Order releases, Changes in the due date,
Cancellation or suspension are generated for inventory and production control.
Secondary Reports – Planning reports, Performance reports and Exception reports
are generated for operations managers
Aggregate Planning and Master Production Schedule
Material Requirement Planning System

MPS

MRP Inventory
Bill of Processing Record
Material Explosion File
Netting
Offsetting

Primary Secondary
Reports Reports