Chapter 6

Operations Planning
and Control
 Exhibit
Exhibit6.1
6.1 Process planning
Long
range Strategic capacity planning

Intermediate Forecasting
& demand Sales and operations (aggregate) planning
range management
Sales plan Aggregate operations plan
Manufacturing
Services
Master scheduling

Material requirements planning

Weekly workforce and

Order scheduling customer scheduling
Short
range Daily workforce and customer scheduling
Operations Planning Activities
 Long-range planning
– Greater than one year planning horizon
– Usually performed in annual increments

 Medium-range planning
– Six to eighteen months
– Usually with weekly, monthly or quarterly
increments

 Short-range planning
– One day to less than six months
– Usually with weekly or daily increments
The Aggregate Operations Plan
 Main purpose: Specify the optimal
combination of
– production rate (units completed per
unit of time)
– workforce level (number of workers)
– inventory on hand (inventory carried
from previous period)
 Product group or broad category
(Aggregation)
 This planning is done over an
intermediate-range planning period of 3
to 18 months
 Balancing Aggregate Demand
and Aggregate Production Capacity
10000
Suppose
Supposethe thefigure
figureto
to
10000
8000
the
theright
rightrepresents
represents 8000 7000
6000
forecast
forecastdemand
demandin in 6000 5500
4500
units
units 4000

Now
Nowsuppose
supposethis
this 2000
lower
lowerfigure
figurerepresents
represents 0
the
theaggregate
aggregatecapacity
capacity Jan Feb Mar Apr May Jun
of
ofthe
thecompany
companyto to
9000
meet
meetdemand
demand 10000
8000
8000
What
Whatwewewant
wanttotodo
dois
is 6000
6000
4500 4000
balance
balanceout
outthe
the 4000
4000
production
productionrate,
rate,
workforce
workforcelevels,
levels,and
and
2000

inventory
inventorytotomake
make 0
these
these figuresmatch
figures matchup
up
Jan Feb Mar Apr May Jun
 Required Inputs to the Production
Planning System
Competitors’ Raw material Market
behavior availability demand
External
to firm
External Economic
capacity Planning
for conditions
production

Current Current Inventory Activities Internal

physical workforce levels required to firm
capacity for
production
Key Strategies for Meeting Demand
 Chase Strategy: Matching capacity to demand; the
planned output for a period is set at the expected demand
for that period.

 Level Strategy: Maintaining a steady rate of regular-

time output while meeting variations in demand by a
combination of options such as: inventories, overtime,
part-time workers, subcontracting and back orders.
 Aggregate Planning Examples: Unit
Demand and Cost Data
Suppose
Supposewewehave
havethethefollowing
followingunit
unit
demand
demandand
andcost
costinformation:
information:
Demand/mo Jan Feb Mar Apr May Jun
4500 5500 7000 10000 8000 6000
Materials $5/unit
Holding costs $1/unit per mo.
Marginal cost of stockout $1.25/unit per mo.
Hiring and training cost $200/worker
Layoff costs $250/worker
Labor hours required .15 hrs/unit
Straight time labor cost $8/hour
Beginning inventory 250 units
Productive hours/worker/day 7.25
Paid straight hrs/day 8
 Cut-and-Try Example: Determining
Straight Labor Costs and Output
Given
Giventhe
thedemand
demandand
andcost
costinformation
informationbelow,
below,what
what
are
arethe
theaggregate
aggregatehours/worker/month,
hours/worker/month,units/worker,
units/worker,and
and
dollars/worker?
dollars/worker?
Demand/mo Jan Feb Mar Apr May
Jun
4500 5500 7000 10000 8000 7.25x22
6000
Productive hours/worker/day 7.25
Paid straight hrs/day 8
7.25/0.15=48.33 &
22x8hrsx$8=$1408 48.33x22=1063.33
Jan Feb Mar Apr May Jun
Days/mo 22 19 21 21 22 20
Hrs/worker/mo 159.5 137.75 152.25 152.25 159.5 145
Units/worker 1063.33 918.33 1015 1015 1063.33 966.67
$/worker $1,408 1,216 1,344 1,344 1,408 1,280
 Chase Strategy
(Hiring & Firing to meet demand)
Lets
Letsassume
assumeour
ourcurrent
currentworkforce
workforceis
is77
Jan workers.
workers.
Days/mo 22
Hrs/worker/mo 159.5 First, calculate net requirements for
Units/worker 1,063.33 production, or 4500-250=4250 units
$/worker $1,408

Then, calculate number of workers

Jan needed to produce the net
Demand 4,500 requirements, or
Beg. inv. 250 4250/1063.33=3.997 or 4 workers
Net req. 4,250
Req. workers 3.997 Finally, determine the number of
Hired
workers to hire/fire. In this case we
Fired 3
only need 4 workers, we have 7, so
Workforce 4
Ending inventory 0
3 can be fired.
 Below
Beloware
arethe
thecomplete
completecalculations
calculationsfor
forthe
theremaining
remaining
months
monthsin
inthe
thesix
sixmonth
monthplanning
planninghorizon
horizon
Jan Feb Mar Apr May Jun
Days/mo 22 19 21 21 22 20
Hrs/worker/mo 159.5 137.75 152.25 152.25 159.5 145
Units/worker 1,063 918 1,015 1,015 1,063 967
$/worker $1,408 1,216 1,344 1,344 1,408 1,280

Jan Feb Mar Apr May Jun

Demand 4,500 5,500 7,000 10,000 8,000 6,000
Beg. inv. 250
Net req. 4,250 5,500 7,000 10,000 8,000 6,000
Req. workers 3.997 5.989 6.897 9.852 7.524 6.207
Hired 2 1 3
Fired 3 2 1
Workforce 4 6 7 10 8 7
Ending inventory 0 0 0 0 0 0
 Below are the complete calculations for the remaining months in
the six month planning horizon with the other costs included
Jan Feb Mar Apr May Jun
Demand 4,500 5,500 7,000 10,000 8,000 6,000
Beg. inv. 250
Net req. 4,250 5,500 7,000 10,000 8,000 6,000
Req. workers 3.997 5.989 6.897 9.852 7.524 6.207
Hired 2 1 3
Fired 3 2 1
Workforce 4 6 7 10 8 7
Ending inventory 0 0 0 0 0 0
3.99x$1408=$5627.59 4250x$5=$21250
Jan Feb Mar Apr May Jun Costs
Material $21,250.00 $27,500.00 $35,000.00 $50,000.00 $40,000.00 $30,000.00 203,750.00
Labor 5,627.59 7,282.76 9,268.97 13,241.38 10,593.10 7,944.83 53,958.62
Hiring cost 400.00 200.00 600.00 1,200.00
Firing cost 750.00 500.00 250.00 1,500.00

$260,408.62
 Level Workforce Strategy (Surplus
and Shortage Allowed)
Lets
Letstake
takethe
thesame
sameproblem
problemasas
before
beforebut
butthis
thistime
timeuse
usethe
the
Level
LevelWorkforce
Workforcestrategy
strategy Jan
Demand 4,500
This
Thistime
timewe
wewill
willseek
seektotouse
use
aaworkforce
workforcelevel
levelof
of66workers
workers Beg. inv. 250
Net req. 4,250
Workers 6
Production 6,380
Ending inventory 2,130
Surplus 2,130
Shortage
 Below
Below are
arethe
thecomplete
completecalculations
calculationsfor
forthe
theremaining
remaining
months
monthsininthe
thesix
sixmonth
monthplanning
planninghorizon
horizon

Jan Feb Mar Apr May Jun

Demand 4,500 5,500 7,000 10,000 8,000 6,000
Beg. inv. 250 2,130 2,140 1,230 -2,680 -4,300
Net req. 4,250 3,370 4,860 8,770 10,680 10,300
Workers 6 6 6 6 6 6
Production 6,380 5,510 6,090 6,090 6,380 5,800
Ending inventory 2,130 2,140 1,230 -2,680 -4,300 -4,500
Surplus 2,130 2,140 1,230
Shortage 2,680 4,300 4,500

Note,
Note, ifif we
we recalculate
recalculate this
this sheet
sheet with
with 77 workers
workers
we
we would
would havehave aa surplus
surplus
Below
Below are
are the
the complete
complete calculations
calculations for
for the
the
remaining
remaining months
months inin the
the six
six month
month planning
planning
horizon
horizon with
with the
the other
other costs
costs included
included
Jan Feb Mar Apr May Jun
4,500 5,500 7,000 10,000 8,000 6,000
250 2,130 2,140 1,230 -2,680 -4,300
Note,
Note, total
total
4,250 3,370 4,860 8,770 10,680 7,300 costs
costsunder
under
6 6 6 6 6 6 this
thisstrategy
strategy
6,380 5,510 6,090 6,090 6,380 5,800
2,130 2,140 1,230 -2,680 -4,300 -4,500 are
areless
lessthan
than
2,130 2,140 1,230 Chase
Chaseat at
2,680 4,300 4,500
$260.408.62
$260.408.62
Jan Feb Mar Apr May Jun
$8,448 $7,296 $8,064 $8,064 $8,448 $7,680 $48,000.00 Labor
31,900 27,550 30,450 30,450 31,900 29,000 181,250.00 Material
2,130 2,140 1,230 5,500.00 Storage
3,350 5,375 5,625 14,350.00 Stockout

$249,100.00
 Some important relationships
Number of number of number of new number of laid-off
Workers in = workers at end of + workers at start - workers at start of
A period the previous period of the period the period

Inventory inventory production amount used to

At the end of = at the end of + in the - satisfy demand in
A period previous period current period current period

Cost for output cost hire/layoff inventory back order

= + + +
a period (Reg + OT + subcontract) cost cost cost

Average
= Beginning Inventory + Ending Inventory
inventory 2
 Cost calculation
Type of cost How to calculate

Output

Regular Regular cost per unit × Quantity of regular output

Overtime Overtime cost per unit × Overtime quantity

Subcontract Subcontract cost per unit × subcontract quantity

Hire/layoff

Hire Cost per hire × number hired

Layoff Cost per layoff × number laid off

Inventory Carrying cost per unit × average inventory

Back order Back-order cost per unit × number of back order unit
 Master scheduling
• The result of disaggregating the aggregate plan is a master
schedule showing the quantity and timing of specific end items for
a scheduled horizon, which often covers about six to eight weeks
ahead.
• The master schedule shows the planned output for individual
products rather than an entire product group, along with the
timing of production.
• It should be noted that whereas the aggregate plan covers an
interval of, say, 12 months, the master schedule covers only a
portion of this. In other words, the aggregate plan is disaggregated
in stages, or phases, that may cover a few weeks to two or three
months.
• The master schedule contains important information for marketing
as well as for production. It reveals when orders are scheduled for
production and when completed orders are to be shipped.
Aggregate Plan to Master Schedule
Jan Feb Mar.
Aggregate
Planning Aggregate
plan 200 300 400

Disaggregation Type Jan. Feb. Mar

21 100 100 100
Master
inch
schedule 26 75 150 200
Master inch
Schedule 29 25 50 100
inch
total 200 300 400
 Master Scheduling
• Master schedule
– Determines quantities needed to meet demand
– Interfaces with
• Marketing: it enables marketing to make valid delivery
commitments to warehouse and final customers.
• Capacity planning: it enables production to evaluate
capacity requirements
• Production planning
• Distribution planning
 Master Scheduler
The duties of the master scheduler generally
include:
– Evaluates impact of new orders
– Provides delivery dates for orders
– Deals with problems such as:
• Production delays
• Revising master schedule
• Insufficient capacity
 Master Scheduling Process

Inputs Outputs
Beginning inventory Projected inventory
Master
Forecast Master production schedule
Scheduling

Customer orders Uncommitted inventory

 Master schedule
• Inputs:
– Beginning inventory; which is the actual inventory on
hand from the preceding period of the schedule
– Forecasts for each period demand
– Customer orders; which are quantities already
committed to customers.
• Outputs
– Projected inventory
– Production requirements
– The resulting uncommitted inventory which is referred
to as available-to-promise (ATP) inventory
 Master Scheduling Format
 Projected On-hand Inventory

Projected on-hand Inventory from Current week’s

inventory
=
previous week
- requirements

Example: Master Schedule
A company that makes industrial pumps wants to prepare a
master production schedule for June and July. Marketing has
forecasted demand of 120 pumps for June and 160 pumps for
July. These have been evenly distributed over the four weeks
in each month: 30 per week in June and 40 per week in July.

 Now suppose that there are currently 64 pumps in inventory

(i.e., beginning inventory is 64 pumps), and that there are
customer orders that have been committed for the first five
weeks (booked) and must be filled which are 33, 20, 10, 4,
and 2 respectively. The following figure (see next slide) shows
the three primary inputs to the master scheduling process:
beginning inventory, the forecast, and the customer orders
that have been committed. This information is necessary to
determine three quantities: the projected on-hand inventory,
the master production schedule (MPS) and the uncommitted
(ATP) inventory. Suppose a production lot size of 70 pumps is
used.
Prepare the master Schedule
 Solution: Master schedule
The master schedule before MPS
Beginning
Inventory
JUNE JULY
64 1 2 3 4 5 6 7 8
Forecast 30 30 30 30 40 40 40 40
Customer Orders
(committed) 33 20 10 4 2
Projected on-hand
inventory 31 1 -29 Forecast is larger than
Customer orders in week 3

Customer orders are Forecast is larger than

larger than forecast in Customer orders in week 2
week 1
 Solution: The master schedule
• The first step you have to calculate the on hand inventory
Week Inventory Requirements Net MPS Projected
from previous inventory inventory
week before MPS
1 64 33 31 31
2 31 30 1 1
3 1 30 -29 70 41
4 41 30 11 11
5 11 40 -29 70 41
6 41 40 1 1
7 1 40 -39 70 31
8 31 40 -9 70 61
 Solution: Master Schedule
• The projected on-hand inventory and MPS are added to the
master schedule
Initial inventory June July
1 2 3 4 5 6 7 8
64

Forecast 30 30 30 30 40 40 40 40
Customer orders 33 20 10 4 2
(committed)
Projected on hand 31 1 41 11 41 1 31 61
inventory
MPS 70 70 70 70
Available to 11 56 68 70 70
promise inventory
(uncommitted)
 Available-to-Promise quantity
• Available-to-Promise (ATP) or uncommitted inventory: is that
portion of the on-hand inventory plus scheduled that is not
already committed to customer orders.
• The amount of inventory that is uncommitted, and, hence,
available to promise is calculated as follows:
– For the first (current) period, the ATP = the beginning
inventory plus any MPS amount in that period, minus the
total of booked orders up to the time when the next MPS
amount is available.
– For example: in the first week, this procedure results in
summing customer orders of 33 (week 1) and 20 (week 2) to
obtain 53. In the first week, this amount is subtracted from
the beginning inventory of 64 plus the MPS (zero in this
case) to obtain the amount that is available to promise [(64
+ 0 – (33 + 20)] = 11
 30

Job Sequencing
• Prioritize jobs assigned to a resource
• If no order specified use first-come first-served (FCFS)
• Other Sequencing Rules
1. First-come, first-served (FCFS)

2. Shortest operating time (SOT)

3. Earliest due date first (DDate)

4. Slack time remaining (STR) first

5. Critical ratio (CR)

 31

Example of Job Sequencing: First-Come

First-Served
Jobs (in order Processing Due Date
Suppose
Supposeyouyouhave
havethe
thefour
four of arrival) Time (days) (days hence)
jobs
jobsto
tothe
theright
rightarrive
arrivefor
for A 4 5
processing
processingon onone
onemachine
machine B 7 10
C 3 6
D 1 4
What
Whatis
isthe
theFCFS
FCFSschedule?
schedule? Do
Doall
allthe
thejobs
jobsget
getdone
doneon
ontime?
time?
Answer: FCFS Schedule No,
No,Jobs
JobsB,
B,C,
C,
Jobs (in order Processing Due Date Flow Time and
andDDare
are
of arrival) Time (days) (days hence) (days) going
goingto
tobe
belate
late
A 4 5 4
B 7 10 11
C 3 6 14
D 1 4 15
 32

Example of Job Sequencing: Shortest

Operating Time
Jobs (in order Processing Due Date
Suppose
Supposeyouyouhave
havethe
thefour
four of arrival) Time (days) (days hence)
jobs
jobsto
tothe
theright
rightarrive
arrivefor
for A 4 5
processing
processingon onone
onemachine
machine B 7 10
C 3 6
D 1 4

What
Whatis
isthe
theSOT
SOTschedule? Do
schedule? Doall
allthe
thejobs
jobsget
getdone
doneon
ontime?
time?
Answer: Shortest Operating Time Schedule
Jobs (in order Processing Due Date Flow Time
No,
No,Jobs
JobsAA
of arrival) Time (days) (days hence) (days)
and
andBBare
are
D 1 4 1 going
C 3 6 4 goingtotobe
be
late
late
A 4 5 8
B 7 10 15
 33

Example of Job Sequencing: Earliest Due Date

First
Jobs (in order Processing Due Date
Suppose
Supposeyouyouhave
havethe
thefour
four of arrival) Time (days) (days hence)
jobs
jobsto
tothe
theright
rightarrive
arrivefor
for A 4 5
processing
processingon onone
onemachine
machine B 7 10
C 3 6
D 1 4

What
Whatis isthe
theearliest
earliestdue
duedate
date
first
firstschedule?
schedule? Do
Doall
allthe
thejobs
jobsget
getdone
doneon
ontime?
time?
Answer: Earliest Due Date First
Jobs (in order Processing Due Date Flow Time No,
No,Jobs
JobsCC
of arrival) Time (days) (days hence) (days) and
andBBare
are
D 1 4 1 going
goingtotobe
be
A 4 5 5 late
late
C 3 6 8
B 7 10 15
 34

Example of Job Sequencing: Slack Time

Remaining (STR) First
Jobs (in order Processing Due Date
Suppose
Supposeyouyouhave
havethe
thefour
four of arrival) Time (days) (days hence)
jobs
jobsto
tothe
theright
rightarrive
arrivefor
for A 4 5
processing
processingon onone
onemachine
machine B 7 10
C 3 6
What D 1 4
Whatisisthe
theSlack
Slacktime
timeremaining
remaining
(STR) first schedule?
(STR)first schedule? Do
Doall
allthe
thejobs
jobsget
getdone
doneon
ontime?
time?

No,
No,Jobs
JobsB,
B,CC
and
andDDare
are
going
goingtotobe
be
late
late
 35

Example of Job Sequencing: Critical Ratio Method

Jobs (in order Processing Due Date
Suppose
Supposeyouyouhave
havethe
thefour
four of arrival) Time (days) (days hence)
jobs
jobsto
tothe
theright
rightarrive
arrivefor
for A 4 5
processing
processingon onone
onemachine
machine B 7 10
C 3 6
D 1 4
What
Whatis
isthe
theCR
CRschedule? Do
schedule? Doall
allthe
thejobs
jobsget
getdone
doneon
ontime?
time?

In order to do this schedule the CR’s have be calculated No,

No,but
butsince
since
for each job. If we let today be Day 1 and allow a total of there
thereisisthree-
three-
15 days to do the work. The resulting CR’s and order way
waytie,
tie,only
only
schedule are: the
thefirst
firstjob
jobor
or
CR(A)=(5-4)/15=0.06 (Do this job last) two
twowill
willbe
beon
on
CR(B)=(10-7)/15=0.20 (Do this job first, tied with C and D) time
time
CR(C)=(6-3)/15=0.20 (Do this job first, tied with B and D)
CR(D)=(4-1)/15=0.20 (Do this job first, tied with B and C)
 36

End of Chapter 6

McGraw-Hill/Irwin ©The McGraw-Hill Companies, Inc., 2006