PART I

Aggregate Planning and scheduling 1

 Chapter outlines
Aggregate Planning and Master Scheduling:
Basic Strategies for Meeting Uneven
Demand;Techniques for Aggregate Planning;
Aggregate Planning in Services; Disaggregating
the Aggregate Plan; Master Scheduling; The
Master Scheduling Process.

Aggregate Planning 2
 Aggregate planning
• Aggregate planning is intermediate-range capacity
planning that typically covers a time horizon of 2 to
12 months
• Particularly useful for organizations that experience
seasonal or other fluctuations in demand or capacity
• Goal of aggregate planning is to achieve a production
plan that will effectively utilize resources.
• Planners must make decisions on output rates,
employment levels and changes, inventory levels and
changes, back orders, and subcontracting in or out.
Aggregate Planning 3
 Aggregate planning strategies
• Aggregate planning strategies can be described as
1. Reactive strategies involve capacity options:
They attempt to alter capacity so that it matches
demand
2. Proactive strategies involve demand options:
They attempt to alter demand so that it matches
capacity
3. Mixed strategies involve an element of each of
these approaches
Aggregate Planning strategies 4
 Possible Strategies
• A. Supply Management (reactive)
• B. Demand Management (proactive)

Aggregate Planning 5
 Aggregate planning strategies

Reactive Proactive Mixed

Supply Management Demand Management

I. Level Production(maintain a fix level)

II. Chase Production(change production
according to demand)
III. Mixed Strategy
pricing, promotions, using back orders
(delaying order filling), and creating new
demand Aggregate Planning 6
 A. Supply Management (reactive)

Supply chain management strategy includes

I. Level Production(maintain a fix level)
II. Chase Production(change production
according to demand)
III. Mixed Strategy

Aggregate Planning /Strategies/ Reactive/ S 7

upply management
 I. Level Production/ Level capacity
strategy
1. Maintain a level workforce.
2. Maintain a steady output rate
Under this strategy workforce and production remain
unchanged and variation in demand are handled by
other ways
 Variations in demand are met by using some
combination of inventories, overtime, part-time
workers, subcontracting, and Allow inventory to
absorb variations in demand Use back orders while
maintaining a steady rate of output
Aggregate Planning /Strategies/ Reactive/
Supply management/ Level production or
8
capacity
 Level approach

• Capacities (workforce levels, output rates, etc.) are kept

constant over the planning horizon.
• A level strategy works best when inventory carrying
costs and backlog costs are relatively low.
• Advantage:
• Stable output rates and workforce levels.
• Disadvantages:
• Greater inventory costs.
• Increased overtime and idle time.
• Resource utilizations that vary over time.
Aggregate Planning /Strategies/ Reactive/ 9
Supply management/ Level production or c
 II. Chase Production

• Vary output by varying the number of workers

by hiring or layoffs to track demand
• Vary output throughout the use of overtime or
idle time
• Vary output using part-time workers
• Use subcontracting to supplement output

Aggregate Planning /Strategies/ Reactive/

10
Supply management/ C hase production
 Chase approach

• Capacities (workforce levels, output rates, etc.) are adjusted

to match demand requirements over the planning horizon.
• A chase strategy works best when inventory carrying costs
are high and costs of changing capacity are low.
• Advantages:
• Investment in inventory is low.
• Labor utilization is kept high.
• Disadvantage:
• The cost of adjusting output rates and/or workforce levels.

Aggregate Planning 11
Comparison of reactive
strategies

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 III. Mixed Strategy

• Use a combination of level and chase

approaches

Aggregate Planning 13
 B. Demand Management (proactive)

• Influence demand through promotion, pricing,

etc. Produce goods or services that have
complementary demand patterns
• Demand options include pricing, promotions,
using back orders (delaying order filling), and
creating new demand

Aggregate Planning 14
  BASIC STRATEGIES FOR MEETING
UNEVEN DEMAND
• Prominent strategies of Aggregate planning
1. Maintain a level workforce. Level capacity strategy
2. Maintain a steady output rate
Chase demand strategy
3. Match demand period by period
4. Use a combination of decision variables
• The first three strategies are “pure” strategies
because each has a single focal point the last
strategy is “mixed” because it lacks the single
focus
Aggregate Planning 15
 1.Maintain a Level workforce
• Level workforce mean having a constant level of workforce
• Many organizations regard a level workforce as very appealing
therefore organizations often prefer to handle uneven demand in
other ways.
a) workforce changes through hiring and laying off can have a
major impact on the lives and morale of employees. There may
involve union pressures
b) can be disruptive for managers
c) changes in workforce size can be very costly
d) risk of not be finding a sufficient pool of workers with the
appropriate skills when needed
e) can involve a significant amount of paperwork
Aggregate Planning 16
 2.Level Production
• Maintain a constant level of output and still
satisfy varying demand, an organization must
resort to some combination of
I. Subcontracting,
II. Backlogging, and
III. Use of inventories to absorb fluctuations.

Aggregate Planning 17
 Advantages
• such as minimum costs of recruitment and
training,
• minimum overtime and idle-time costs,
• fewer morale problems,
• and stable use of equipment and facilities.

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 Disadvantages
• Subcontracting requires an investment in evaluating
sources of supply, increased costs, less control over
output, and perhaps quality considerations.
• Backlogs can lead to lost sales, increased record
keeping, and lower levels of customer service
• Allowing inventories to absorb fluctuations can entail
substantial costs
• Maintain relatively large storage facilities
• Inventories are not usually an alternative for service-
oriented organizations
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 3.Chase demand strategy
• The planned output for any period would be
equal to expected demand for that period

Aggregate Planning 20
 Chase demand strategy
Advantage and disadvantages
• A chase demand strategy presupposes a great deal of
ability and willingness on the part of managers to be
flexible in adjusting to demand. A major advantage of this
approach is that
• inventories can be kept relatively low, which can yield
substantial savings for an organization.
• A major disadvantage is the lack of stability in operations
—the atmosphere is one of dancing to demand’s tune.
Also, when forecast and reality differ, morale can suffer,
since it quickly becomes obvious to workers and managers
that efforts have been wasted
Aggregate Planning 21
  TECHNIQUES FOR AGGREGATE
PLANNING
• Numerous techniques are available. Generally,
they fall into one of two categories:
I. Informal trial-and-error techniques
II. and mathematical techniques.
• In practice, informal techniques are more
frequently use

Aggregate Planning 22
General Procedure for Aggregate Planning
• General procedure for aggregate planning consist following step
1. Determine demand for each period.
2. Determine capacities (regular time, overtime)
3. Identify company or departmental policies that are pertinent
maintain a (safety stock)
4. Determine unit costs for regular time, overtime,
subcontracting, holding inventories, back orders, layoffs, and
other relevant costs.
5. Develop alternative plans and compute the cost for each
6. If satisfactory plans emerge, select the one that best satisfies
objectives.

Aggregate Planning 23
 1.Trial-and-Error Techniques Using
Graphs and Spreadsheets
• Trial-and-error approaches consist of
developing simple tables or graphs that enable
planners to visually compare projected
demand requirements with existing capacity.
• Alternatives are usually evaluated in terms of
their overall costs. The chief disadvantage of
such techniques is that they do not necessarily
result in the optimal aggregate plan.

Aggregate Planning 24
 2.Mathematical Techniques
• A number of mathematical techniques have been
developed to handle aggregate planning
1. Linear Programming. Linear programming (LP)
models are methods for obtaining optimal
solutions to problems involving the allocation of
scarce resources in terms of cost minimization or
profit maximization
2. Simulation models Computerized models that can
be tested under different scenarios to identify
acceptable solutions to problems.
Aggregate Planning 25
Summary of planning techniques

Aggregate Planning 26
Summary of aggregate planning

Aggregate Planning 27
Aggregate Planning 28
Aggregate Planning 29
DISAGGREGATING THE AGGREGATE PLAN

• For the production plan to be translated into

meaningful terms for production, it is
necessary to disaggregate the aggregate plan.
This means breaking down the aggregate plan
into specific product requirements in order to
determine labor requirements (skills, size of
workforce), materials, and inventory
requirements.

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Aggregate Planning 31
Master production schedule (MPS)
• The result of disaggregating the aggregate plan is a master
production schedule (MPS), or simply master schedule,
showing the quantity and timing of specific end items for a
scheduled horizon, which often covers about six to eight
weeks ahead.
• A master schedule shows the planned output for
individual products rather than an entire product group,
along with the timing of production. 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 Planning 32
  MASTER SCHEDULING
• The master schedule is the heart of
production planning and control. It
determines the quantities needed to meet
demand from all sources, and that governs key
decisions and activities throughout the
organization.

Aggregate Planning 33
• The master schedule interfaces with marketing,
capacity planning, production planning, and
distribution planning:
• It enables marketing to make valid delivery
commitments to warehouses and final customers; it
enables production to evaluate capacity requirements;
• It provides the necessary information for production
and marketing to negotiate when customer requests
cannot be met by normal capacity;

Aggregate Planning 34
• The capacities used for master scheduling are
based on decisions made during aggregate
planning. Note that there is a time lapse between
the time the aggregate plan is made and the
development of a master schedule. Consequently,
the outputs shown in a master schedule will not
necessarily be identical to those of the aggregate
plan for the simple reason that more up-to-date
demand information might be available, which the
master schedule would take into account.
Aggregate Planning 35
 MASTER SCHEDULING PROCESS
• Once a tentative master schedule has been
developed, it must be validated. Validation is
referred to as rough-cut capacity planning (RCCP).
• It involves testing the feasibility of a proposed
master schedule relative to available capacities, to
assure that no obvious capacity constraints exist.
This means checking capacities of production and
warehouse facilities, labor, and vendors to ensure
that no gross deficiencies exist that will render the
master schedule unworkable
Aggregate Planning 36
Aggregate Planning 37
 Time Fences

• Time fences: Points in time that separate phases of a master

schedule planning horizon. Period
• Changes to a master schedule can be disruptive, particularly
changes to the early, or near, portions of the schedule. Typically,
the further out in the future a change is, the less the tendency to
cause problems.
• High-performance organizations have an effective master
scheduling process. A key component of effective scheduling is the
use of time fences to facilitate order promising and the entry of
orders into the system. Time fences divide a scheduling time
horizon into three sections or phases, sometimes referred to as
frozen, slushy, and liquid, in reference to the firmness of the
schedule
Aggregate Planning 38
 Time Fences
• Frozen is the near-term phase that is so soon that delivery of a new
order would be impossible, or only possible using very costly or
extraordinary options such as delaying another order. There is a high
degree of confidence in order-promise dates.
• Slushy is the next phase, and its time fence is usually a few periods
beyond the frozen phase. Order entry in this phase necessitates trade-
offs, but is less costly or disruptive than in the frozen phase. Authority
for order entry usually lies with the master scheduler. There is relative
confidence in order-promise dates, and capacity planning becomes very
specific
• Liquid is the farthest out on the time horizon. New orders or
cancellations can be entered with ease. Order promise dates are
tentative, and will be firmed up with the passage of time when orders
are in the firm phase of the schedule horizon
Aggregate Planning 39
 Inputs

• The master schedule has three inputs: the beginning

inventory, which is the actual quantity on hand from
the preceding period; forecasts for each period of the
schedule; and customer orders, which are quantities
already committed to customers. Other factors that
might need to be taken into consideration include any
hiring or firing restrictions imposed by HR, skill levels,
limits on inventory such as available space, whether
items are perishable, and whether there are some
market lifetime (e.g., seasonal or obsolescence)
considerations.
Aggregate Planning 40
 Outputs

• The master scheduling process uses this

information on a period-by-period basis to
determine the projected inventory, production
requirements, and the resulting uncommitted
inventory which is referred to as available-to-
promise (ATP) inventory. Knowledge of the
uncommitted inventory can enable marketing
to make realistic promises to customers about
deliveries of new orders
Aggregate Planning 41