Lean Systems, Process & Operations class need within next 12 hrs
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Chapters13_143.pptxChapters 13 & 14
Aggregate & Disaggregate planning
Planning covers long (>1 year by senior executives), intermediate (3-18 months by operations managers) and short terms (< 3 months by supervisors).
Good intermediate planning requires coordinating demand forecasts with operations to determine feasibility and strategic fit (called sales and operations planning S&OP)
The outcome of the 3-18 month S&OP is an aggregate plan updated weekly/monthly balancing production quantities, timing and resources needed to meet demand at minimum cost.
Aggregate plan capacity options seek to absorb demand fluctuations by answering?
Should inventories be increased during times of low demand to meet future high demand?
To meet fluctuations in demand should part-time/full time workers be hired, laid off or put on overtime?
Is it possible to acquire temporary capacity through subcontracting?
Aggregate plan demand options seek to influence demand by answering?
Can advertising, price discounts or counter season product mixes be used cover excess capacity during slow periods?
During peak demand are customers willing to accept longer lead times?
Based on capacity & demand options at their disposal aggregate plans might seek to:
Achieve output rates to match demand for each period (chase strategy)
As demand changes a constant production level uses inventory as a buffer (level scheduling).
Use a combination of options to adjust capacity & demand (mixed strategy)
Let’s look at a level scheduling strategy…
To cover the 6,200 unit expected demand over the 124 production days Jan-June, 50 units are made each day.
How many workers does our level production strategy need?
50 units are made per day
It takes 1.6 hrs. to make a unit
A person works 8 hrs./day
Our 10 workers each work 124 days/yr. Assuming they are paid $10 / hr. our labor cost is:
/yr.
What are our inventory costs with the level production strategy?
At the 50 units/day production level we accumulate 252 units of inventory by March and consume all but 5 of them by June
In our example,
The total inventory carried over from one month to the next is 1853 units
With inventory carrying cost @ $5/unit per month, total carrying cost is $9,264 (e.g. 1853*5)
So our level production strategy cost is $101,465
$92,200 in labor & $9,264 in inventory carrying costs.
Besides a level labor strategy, we might consider using part-time labor & subcontracting.
Since we set the workforce size to meet demand in the lowest demand month, no inventory carrying cost
When producing 38 units/day over 124 production days, a total of 4712 units are made (e.g. .
To meet the 6200 units demanded 1488 outsourced units are needed (6200-4712).
At $20/unit subcontracting cost, subcontracting costs $29,760 (
Making 38 units per day requires 7 full time workers and 1 part time worker.
/day
With each worker earning $10/hr. the labor cost is
/yr.
Total cost with this 0 inventory strategy using subcontracting is $105,152/yr. (which is higher than our $101,465 cost carrying inventory and producing at a constant level).
Another production strategy is to make in each month only what is demanded. As demand changes labor is either hired or laid off.
In our example, cost of hiring/training is $300/worker hired and cost of layoffs are $600/worker dismissed.
How many workers does our monthly production strategy need (decimals are part time workers)?
It takes 1.6 hrs. to make a unit
A person works 8 hrs./day
/day
How much do these workers cost/month?
How much does it cost to hire and lay off each month? ($1,850+$1,942)
# of hired workers/month is multiplied by $300
# of workers laid off each month is multiplied by $600
In this example, $102,947 is the cost of trying to flex the workforce size to match monthly demand with no inventory. This is more expensive than our $101,465 lowest cost option of carrying inventory and producing at a constant level
From the aggregate S&OP plan we know in broad terms what needs to be made.
The Master Production Schedule (MPS) breaks down (i.e. disaggregates) the plan into specific products to be made by when.
In the MPS we may be:
Making products to customer orders
Making products to forecasted orders
Making quantities of components required to assemble products (i.e. bill of materials or BOM)
Making subassemblies for integration into products (modular bills)
In this BOM we have 4 levels
Level 0
Level 1
Level 2
Level 3
The 4 parent items (at least 1 level below) are A, B, C & F
The 6 component items (at least 1 level above) are B, C, D, E, F & G
2 items of B & 3 items of C are needed to make 1 item of A
2 items of D & 2 items of E are needed to make 1 item of B
To make 50 items of A, quantities of parts B-G needed are….
Now that we know what is needed, we determine when to launch BOM production based on lead times (time phased product structure).
We need 100 “B” items to make 50 “A” items.
If we want the “A” items by week 8, we need to order the “A” items 1 week earlier in week 7.
To order the “A” items in week 7 we must have 100 “B” items and 150 “C” items on hand by week 7
To have them on hand in week 7, “B” items must be ordered in week 5 and “C” items in week 6
Gross Requirement Plan
Time Phased Product Structure (based on lead times)
In a net requirements plan we go 1 step further. We consider gross required quantities as well as inventories on hand.
In this example, we have 35 items on hand prior to week 1. So our net requirement in week 1 is adjusted from 35 to 0.
In the example, the net requirements plan follow the gross requirements. Our order quantities are matching demand (i.e. no inventory).
The planned order releases match the gross requirements
Another net requirements strategy is to follow an EOQ.
We can express EOQ as:
D=Annual demand (in pieces)
S=Set up cost per batch
H=Annual holding costs per unit
In our example,
=73
D=Annual demand (1,404)
S=Set up cost per batch ($100)
H=Annual holding costs per unit ($1/week* 52 weeks = $52)
In week 1 we release an order for 73 which arrive in week 2.
Weeks 2,3 & 5 we need 80 units. Our EOQ is 73. So in week 5 we need 7 (80-73).
Since our lead time is 1 week we launch the 73 piece production in week 4.
In weeks 5,6 & 7 we need to make 7+40+30 (77 pieces). Our EOQ is 73. So our net requirement in week 7 will be 4 (77-73).
Since we have a 1 week lead time we launch the 73 piece order in week 6
In weeks 9 & 10 we need to make 4+30+55 (89 pieces). Our EOQ is 73. So our net requirement in week 10 will be 16 (89-73).
Since we have a 1 week lead time we launch the 73 piece order in week 9
What are the set up costs?
4
What are the holding costs?
H= Holding costs per unit per year (in our example 10 weeks not 52)
Q=Quantity made per batch
What are the total inventory costs?
Set up costs plus holding costs
($400)+ ($365)=$765
In our example it is less expensive to produce lots to order ($700) size than run EOQ with inventory ($765)
Matching demand is best when set up costs are low and holding costs high
EOQ is effective when demand is fairly constant
The MPS, BOM, lead times & Gross Requirement Plan are inputs into the Material Resource Plan (MRP).
MRP isn’t doing detailed scheduling (job X on machine Y at time Z). It is only telling by week or day when to launch orders. MRP doesn’t consider capacity.
MRP II seeks to tie resources needed to the MRP production plan.
One of those resources is capacity.
Load reports compare work center capacity to work assigned
In this load report we can see of the 12 hrs/day capacity, in days 1 & 4 we have excess capacity while in days 2,3 and 5 we are under capacity
Options include:
Moving orders (e.g. 2 orders in Day 2 to Day 1) to periods where we have capacity (order splitting)
Just as MRP II ties production resources needed to the MRP production plan, Enterprise Resource Planning (ERP) takes integration 1 step further.
ERP coordinates a firm’s entire business using a centralized database to flow information among all business functions.
Expected
demand
Production
days available
Expected
demand per
production day
Jan9002241
Feb7001839
Mar8002138
April12002157
May15002268
June11002055
Total620012450
Sheet1
| Expected demand | Production days available | Expected demand per production day | ||
| Jan | 900 | 22 | 41 | |
| Feb | 700 | 18 | 39 | |
| Mar | 800 | 21 | 38 | |
| April | 1200 | 21 | 57 | |
| May | 1500 | 22 | 68 | |
| June | 1100 | 20 | 55 | |
| Total | 6200 | 124 | 50 |
Sheet2
Sheet3
Sheet1
| Expected demand | Production days available | Expected demand per production day | ||
| Jan | 900 | 22 | 41 | |
| Feb | 700 | 18 | 39 | |
| Mar | 800 | 21 | 38 | |
| April | 1200 | 21 | 57 | |
| May | 1500 | 22 | 68 | |
| June | 1100 | 20 | 55 | |
| Total | 6200 | 124 | 50 |
Sheet2
Sheet3
Expected
demand
Days
worked/
monthProd./day
Expected
demand/
day
Ending
inventory
Jan900225041198
Feb700185039198
Mar800215038252
April1200215057-147
May1500225068-396
June1100205055-100
5
Expected
demand
Days
worked/
monthProd./day
Expected
demand/
day
Monthly
inventory
change
Ending
Inventory
Jan900225041198198
Feb700185039198396
Mar800215038252648
April1200215057-147501
May1500225068-396105
June1100205055-1005
51853
Expected
demand
Production
per day
Expected demand
per production
day
Monthly
inventory
change
Ending
inventory
Jan900504199
Feb70050391120
Mar80050381232
April12005057-725
May15005068-187
June11005055-52
Total62002
Sheet1
| Expected demand | Production per day | Expected demand per production day | Monthly inventory change | Ending inventory | ||||
| Jan | 900 | 50 | 41 | 9 | 9 | |||
| Feb | 700 | 50 | 39 | 11 | 20 | |||
| Mar | 800 | 50 | 38 | 12 | 32 | |||
| April | 1200 | 50 | 57 | -7 | 25 | |||
| May | 1500 | 50 | 68 | -18 | 7 | |||
| June | 1100 | 50 | 55 | -5 | 2 | |||
| Total | 6200 | 2 |
Sheet2
Sheet3
Expected
demand
Expected
demand
per
production
day
Workers
needed
Jan900418.2
Feb700397.8
Mar800387.6
April12005711.4
May15006813.6
June11005511.0
Total6200
Sheet1
| Expected demand | Expected demand per production day | Workers needed | Days worked per month | Production cost | Hiring cost | Layoff costs | |||
| Jan | 900 | 41 | 8.2 | 22 | 14400 | 0 | 0 | ||
| Feb | 700 | 39 | 7.8 | 18 | 11200 | 600 | |||
| Mar | 800 | 38 | 7.6 | 21 | 12800 | 120 | |||
| April | 1200 | 57 | 11.4 | 21 | 19200 | 1143 | |||
| May | 1500 | 68 | 13.6 | 22 | 24000 | 662 | |||
| June | 1100 | 55 | 11.0 | 20 | 17600 | 1582 | |||
| Total | 6200 | 99200 | 1805 | 2302 | |||||
Sheet2
Sheet3
Expected
demand
Expected
demand
per
production
day
Workers
needed
Days
worked
per
month
Production
cost
Jan900418.22214400
Feb700397.81811200
Mar800387.62112800
April12005711.42119200
May15006813.62224000
June11005511.02017600
Total620099200
Sheet1
| Expected demand | Expected demand per production day | Workers needed | Days worked per month | Production cost | Hiring cost | Layoff costs | |||
| Jan | 900 | 41 | 8.2 | 22 | 14400 | 0 | 0 | ||
| Feb | 700 | 39 | 7.8 | 18 | 11200 | 600 | |||
| Mar | 800 | 38 | 7.6 | 21 | 12800 | 120 | |||
| April | 1200 | 57 | 11.4 | 21 | 19200 | 1143 | |||
| May | 1500 | 68 | 13.6 | 22 | 24000 | 662 | |||
| June | 1100 | 55 | 11.0 | 20 | 17600 | 1582 | |||
| Total | 6200 | 99200 | 1805 | 2302 | |||||
Sheet2
Sheet3
Expected
demand
Expected
demand
per
production
day
Workers
needed
Days
worked
per
month
Production
cost
Hired
workers
Hiring
cost
Layoff
workers
Layoff
costs
Jan900418.2221440000
Feb700397.81811200(8.2-7.8)240
Mar800387.62112800(7.8-7.6)120
April12005711.42119200(11.4-7.6)1143
May15006813.62224000(13.6-11.4)662
June11005511.02017600(13.6-11)1582
Total62009920018051942
Sheet1
| Expected demand | Expected demand per production day | Workers needed | Days worked per month | Production cost | Hired workers | Hiring cost | Layoff workers | Layoff costs | |||
| Jan | 900 | 41 | 8.2 | 22 | 14400 | 0 | 0 | ||||
| Feb | 700 | 39 | 7.8 | 18 | 11200 | (8.2-7.8) | 240 | ||||
| Mar | 800 | 38 | 7.6 | 21 | 12800 | (7.8-7.6) | 120 | ||||
| April | 1200 | 57 | 11.4 | 21 | 19200 | (11.4-7.6) | 1143 | ||||
| May | 1500 | 68 | 13.6 | 22 | 24000 | (13.6-11.4) | 662 | ||||
| June | 1100 | 55 | 11.0 | 20 | 17600 | (13.6-11) | 1582 | ||||
| Total | 6200 | 99200 | 1805 | 1942 | |||||||
Sheet2
Sheet3
Aggregate Plan
MonthJan
amplifiers1500
MPS
Weeks1234
240 watt amps100100
150 watt amps500500
75 watt amps300
Sheet1
| Aggregate Plan | ||||||||
| Month | Jan | Feb | ||||||
| amplifiers | 1500 | 1200 | ||||||
| 8 | ||||||||
| MPS | 5 | 6 | 7 | |||||
| Weeks | 1 | 2 | 3 | 4 | ||||
| 240 watt amps | 100 | 100 | ||||||
| 150 watt amps | 500 | 500 | ||||||
| 75 watt amps | 300 |
Sheet2
Sheet3
Quantity
needed
Part B2*50100
Part C3*50150
Part E2*100+2*150500
Part F2*150300
Part G1*300300
Part D2*100 +1*300500
Sheet1
| Aggregate Plan | ||||||||
| Month | Jan | Feb | ||||||
| amplifiers | 1500 | 1200 | ||||||
| 8 | ||||||||
| MPS | 5 | 6 | 7 | |||||
| Weeks | 1 | 2 | 3 | 4 | ||||
| 240 watt amps | 100 | 100 | ||||||
| 150 watt amps | 500 | 500 | ||||||
| 75 watt amps | 300 | |||||||
| Quantity needed | ||||||||
| Part B | 2*50 | 100 | ||||||
| Part C | 3*50 | 150 | ||||||
| Part E | 2*100+2*150 | 500 | ||||||
| Part F | 2*150 | 300 | ||||||
| Part G | 1*300 | 300 | ||||||
| Part D | 2*100 +1*300 | 500 | ||||||
Sheet2
Sheet3
ABCDEFEDG2wks1 wk3 wks2wks2wks2wks1 wk1 wk1 wkweek1week8
Quantity
needed
Part B2*50100
Part C3*50150
Part E2*100+2*150500
Part F2*150300
Part G1*300300
Part D2*100 +1*300500
ItemsWeeks12345678
ARequired date50
AOrder date50
BRequired date100
BOrder date100
CRequired date150
COrder date150
ERequired date500
EOrder date500
FRequired date300
FOrder date300
GRequired date300
GOrder date300
DRequired date500
DOrder date500
Sheet1
| Aggregate Plan | ||||||||||||||||||||
| Month | Jan | |||||||||||||||||||
| amplifiers | 1500 | Items | Weeks | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | |||||||||
| A | Required date | 50 | ||||||||||||||||||
| MPS | A | Order date | 50 | |||||||||||||||||
| Weeks | 1 | 2 | 3 | 4 | B | Required date | 100 | |||||||||||||
| 240 watt amps | 100 | 100 | B | Order date | 100 | |||||||||||||||
| 150 watt amps | 500 | 500 | C | Required date | 150 | |||||||||||||||
| 75 watt amps | 300 | C | Order date | 150 | ||||||||||||||||
| E | Required date | 500 | ||||||||||||||||||
| E | Order date | 500 | ||||||||||||||||||
| F | Required date | 300 | ||||||||||||||||||
| F | Order date | 300 | ||||||||||||||||||
| G | Required date | 300 | ||||||||||||||||||
| G | Order date | 300 | ||||||||||||||||||
| D | Required date | 500 | ||||||||||||||||||
| D | Order date | 500 | ||||||||||||||||||
| Quantity needed | ||||||||||||||||||||
| Part B | 2*50 | 100 | ||||||||||||||||||
| Part C | 3*50 | 150 | ||||||||||||||||||
| Part E | 2*100+2*150 | 500 | ||||||||||||||||||
| Part F | 2*150 | 300 | ||||||||||||||||||
| Part G | 1*300 | 300 | ||||||||||||||||||
| Part D | 2*100 +1*300 | 500 |
A
B
C
D
E
F
E
2 wks
1 wk
3 wks
2 wks
2 wks
2 wks
1 wk
1 wk
1 wk
week 1
week 8
Sheet2
Sheet3
Quantity
needed
Part B2*50100
Part C3*50150
Part E2*100+2*150500
Part F2*150300
Part G1*300300
Part D2*100 +1*300500
Hrs/order1
Capacity (hrs/day)12
Day12345
Orders1014131014
Capacity needed (hrs)1014131014
Capacity available (hrs)2-2-12-2
Sheet1
| Hrs/order | 1 | |||||
| Capacity (hrs/day) | 12 | |||||
| Day | 1 | 2 | 3 | 4 | 5 | |
| Orders | 10 | 14 | 13 | 10 | 14 | |
| Capacity needed (hrs) | 10 | 14 | 13 | 10 | 14 | |
| Capacity available (hrs) | 2 | -2 | -1 | 2 | -2 | |
Sheet2
Sheet3
Sheet1
| Hrs/order | 1 | |||||
| Capacity (hrs/day) | 12 | |||||
| Day | 1 | 2 | 3 | 4 | 5 | |
| Orders | 10 | 14 | 13 | 10 | 14 | |
| Capacity needed (hrs) | 10 | 14 | 13 | 10 | 14 | |
| Capacity available (hrs) | 2 | -2 | -1 | 2 | -2 | |
