AGGRGATE PLANNING, SYSTEMS OPERATIONS MANAGEMENT HELP

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Chapter 13 – Aggregate
Planning

Operations Management

by

R. Dan Reid & Nada R. Sanders

2nd Edition © Wiley 2005

PowerPoint Presentation by R.B. Clough - UNH

What is Aggregate Planning?

Aggregate planning is intermediate-range (2 to 12 months) capacity planning useful in particular for organizations that experience seasonal or other fluctuation in demand.

The goal of aggregate planning is to effectively utilize the organization’s resources to satisfy expected demand.

The Role of the Aggregate Plan

The Concept of Aggregation

Aggregate planning is a “big picture” approach that does not focus on individual products or services. Instead, the focus is on groups of similar products of an entire product line.

Examples:

  • Total number of bikes produced
  • Total number of customers served

Responses to Demand Fluctuations

  • Demand-based options are intended to alter (smooth) the pattern of the demand.
  • Capacity-based options to alter capacity to better match the demand.

Demand-based Options

  • Finished goods inventories:
  • To meet anticipate high demand
  • Back orders & lost sales:
  • Delay delivery or allow demand to go unfilled when demand exceeds capacity
  • Shift demand to off-peak times:
  • Proactive marketing: pricing, promotions
  • Create new (complementary) demand

Capacity-based Options

  • Overtime: Short-term option
  • Pay workers a premium to work longer hours
  • Idle time: Short-term option
  • Slow the production rate or send workers home early (lowers labor productivity, but doesn’t tie up capital in finished good inventories)
  • Subcontracting: Medium-term option
  • Hire & fire workers: Long-term option
  • Change the size of the workforce

Aggregate Plan Strategies

  • Level plans:
  • Use a constant workforce & produce similar quantities each time period.
  • Use inventories & backorders to absorb demand peaks & valleys
  • Chase plans:
  • Minimize finished good inventories by trying to keep pace with demand fluctuations

Hybrid Strategies

  • Use a combination of options:
  • Build-up inventory ahead of rising demand & use backorders to level extreme peaks
  • Layoff or furlough workers during lulls
  • Subcontract production or hire temporary workers to cover short-term peaks
  • Reassign workers to preventive maintenance during lulls

Developing Aggregate Plan

  • Choose the basic strategy:
  • Level, chase, or hybrid
  • Determine the production rate:
  • Level plan with back orders: rate = average demand over the planning horizon
  • Level plan without back orders: rate is set to meet all demand on time
  • Chase plan: assign regular production, amount of overtime & subcontracted work to meet demand

Developing the Aggregate Plan

  • Calculate the size of the workforce needed
  • Calculate period-to-period inventory levels, shortages, expected hiring & firings, and overtime
  • Calculate period-by-period costs, then sum for total costs of the plan
  • Evaluate the plan’s impact on customer service and human resource issues

Evaluating Alternative Plans

  • Level strategy plan
  • Chase strategy plan

Aggregate Planning Example

Template

Aggregate Production Planning Cost Total Total
Costs Per Unit Units Cost
Regular Time Labor Cost
Overtime/Subcontracting
Beginning Inventory Inventory Holding Cost
Beginning Workforce Backorders
Labor Standard (units/worker) Hiring
Layoff
Total Costs
Period 1 2 3 4 5 6 7 8
Demand
Cumulative Demand
Net Cumulative Demand
Production/Inventory Planning
Production
Cumulative Production
Inventory (Excess Units)
Backorders (Units Short)
Capacity Planning
Workers Hired
Workers Layed Off
Workforce Available
Regular Time Capacity (units)
Overtime/Subcontracting (units)
Total Production Capacity (units)

Template

Level Plan

Aggregate Production Planning Cost Total Total
Costs Per Unit Units Cost
Regular Time Labor Cost $9.60 28000 $268,800
Overtime/Subcontracting $14.40 0 $0
Beginning Inventory 2500 Inventory Holding Cost $5.00 25000 $125,000
Beginning Workforce 18 Backorders $7.50 0 $0
Labor Standard (units/worker) 250 Hiring $500.00 0 $0
Layoff $750.00 2 $1,500
Total Costs $395,300
Period 1 2 3 4 5 6 7 8
Demand 3000 6000 2000 1500 4000 5500 8500
Cumulative Demand 3000 9000 11000 12500 16500 22000 30500
Net Cumulative Demand 500 6500 8500 10000 14000 19500 28000
Production/Inventory Planning
Production 4000 4000 4000 4000 4000 4000 4000
Cumulative Production 4000 8000 12000 16000 20000 24000 28000
Inventory (Excess Units) 3500 1500 3500 6000 6000 4500 0
Backorders (Units Short) 0 0 0 0 0 0 0
Capacity Planning
Workers Hired 0 0 0 0 0 0 0
Workers Layed Off 2 0 0 0 0 0 0
Workforce Available 16 16 16 16 16 16 16
Regular Time Capacity (units) 4000 4000 4000 4000 4000 4000 4000
Overtime/Subcontracting (units) 0 0 0 0 0 0 0
Total Production Capacity (units) 4000 4000 4000 4000 4000 4000 4000

Level Plan

Chase Plan

Aggregate Production Planning Cost Total Total
Costs Per Unit Units Cost
Regular Time Labor Cost $9.60 28000 $268,800
Overtime/Subcontracting $14.40 0 $0
Beginning Inventory 2500 Inventory Holding Cost $5.00 0 $0
Beginning Workforce 18 Backorders $7.50 0 $0
Labor Standard (units/worker) 250 Hiring $500.00 50 $25,000
Layoff $750.00 34 $25,500
Total Costs $319,300
Period 1 2 3 4 5 6 7 8
Demand 3000 6000 2000 1500 4000 5500 8500
Cumulative Demand 3000 9000 11000 12500 16500 22000 30500
Net Cumulative Demand 500 6500 8500 10000 14000 19500 28000
Production/Inventory Planning
Production 500 6000 2000 1500 4000 5500 8500
Cumulative Production 500 6500 8500 10000 14000 19500 28000
Inventory (Excess Units) 0 0 0 0 0 0 0
Backorders (Units Short) 0 0 0 0 0 0 0
Capacity Planning
Workers Hired 0 22 0 0 10 6 12
Workers Layed Off 16 0 16 2 0 0 0
Workforce Available 2 24 8 6 16 22 34
Regular Time Capacity (units) 500 6000 2000 1500 4000 5500 8500
Overtime/Subcontracting (units) 0 0 0 0 0 0 0
Total Production Capacity (units) 500 6000 2000 1500 4000 5500 8500

Chase Plan

0 0
0 0
0 0
0 0
0 0
0 0
0 0

Template

Aggregate Production Planning Cost Total Total
Costs Per Unit Units Cost
Regular Time Labor Cost
Overtime/Subcontracting
Beginning Inventory Inventory Holding Cost
Beginning Workforce Backorders
Labor Standard (units/worker) Hiring
Layoff
Total Costs
Period 1 2 3 4 5 6 7 8
Demand
Cumulative Demand
Net Cumulative Demand
Production/Inventory Planning
Production
Cumulative Production
Inventory (Excess Units)
Backorders (Units Short)
Capacity Planning
Workers Hired
Workers Layed Off
Workforce Available
Regular Time Capacity (units)
Overtime/Subcontracting (units)
Total Production Capacity (units)

Template

Level Plan

Aggregate Production Planning Cost Total Total
Costs Per Unit Units Cost
Regular Time Labor Cost $9.60 28000 $268,800
Overtime/Subcontracting $14.40 0 $0
Beginning Inventory 2500 Inventory Holding Cost $5.00 25000 $125,000
Beginning Workforce 18 Backorders $7.50 0 $0
Labor Standard (units/worker) 250 Hiring $500.00 0 $0
Layoff $750.00 2 $1,500
Total Costs $395,300
Period 1 2 3 4 5 6 7 8
Demand 3000 6000 2000 1500 4000 5500 8500
Cumulative Demand 3000 9000 11000 12500 16500 22000 30500
Net Cumulative Demand 500 6500 8500 10000 14000 19500 28000
Production/Inventory Planning
Production 4000 4000 4000 4000 4000 4000 4000
Cumulative Production 4000 8000 12000 16000 20000 24000 28000
Inventory (Excess Units) 3500 1500 3500 6000 6000 4500 0
Backorders (Units Short) 0 0 0 0 0 0 0
Capacity Planning
Workers Hired 0 0 0 0 0 0 0
Workers Layed Off 2 0 0 0 0 0 0
Workforce Available 16 16 16 16 16 16 16
Regular Time Capacity (units) 4000 4000 4000 4000 4000 4000 4000
Overtime/Subcontracting (units) 0 0 0 0 0 0 0
Total Production Capacity (units) 4000 4000 4000 4000 4000 4000 4000

Level Plan

Chase Plan

Aggregate Production Planning Cost Total Total
Costs Per Unit Units Cost
Regular Time Labor Cost $9.60 28000 $268,800
Overtime/Subcontracting $14.40 0 $0
Beginning Inventory 2500 Inventory Holding Cost $5.00 0 $0
Beginning Workforce 18 Backorders $7.50 0 $0
Labor Standard (units/worker) 250 Hiring $500.00 50 $25,000
Layoff $750.00 34 $25,500
Total Costs $319,300
Period 1 2 3 4 5 6 7 8
Demand 3000 6000 2000 1500 4000 5500 8500
Cumulative Demand 3000 9000 11000 12500 16500 22000 30500
Net Cumulative Demand 500 6500 8500 10000 14000 19500 28000
Production/Inventory Planning
Production 500 6000 2000 1500 4000 5500 8500
Cumulative Production 500 6500 8500 10000 14000 19500 28000
Inventory (Excess Units) 0 0 0 0 0 0 0
Backorders (Units Short) 0 0 0 0 0 0 0
Capacity Planning
Workers Hired 0 22 0 0 10 6 12
Workers Layed Off 16 0 16 2 0 0 0
Workforce Available 2 24 8 6 16 22 34
Regular Time Capacity (units) 500 6000 2000 1500 4000 5500 8500
Overtime/Subcontracting (units) 0 0 0 0 0 0 0
Total Production Capacity (units) 500 6000 2000 1500 4000 5500 8500

Chase Plan

0 0
0 0
0 0
0 0
0 0
0 0
0 0

Template

Aggregate Production Planning Cost Total Total
Costs Per Unit Units Cost
Regular Time Labor Cost
Overtime/Subcontracting
Beginning Inventory Inventory Holding Cost
Beginning Workforce Backorders
Labor Standard (units/worker) Hiring
Layoff
Total Costs
Period 1 2 3 4 5 6 7 8
Demand
Cumulative Demand
Net Cumulative Demand
Production/Inventory Planning
Production
Cumulative Production
Inventory (Excess Units)
Backorders (Units Short)
Capacity Planning
Workers Hired
Workers Layed Off
Workforce Available
Regular Time Capacity (units)
Overtime/Subcontracting (units)
Total Production Capacity (units)

Template

Level Plan

Aggregate Production Planning Cost Total Total
Costs Per Unit Units Cost
Regular Time Labor Cost $9.60 28000 $268,800
Overtime/Subcontracting $14.40 0 $0
Beginning Inventory 2500 Inventory Holding Cost $5.00 25000 $125,000
Beginning Workforce 18 Backorders $7.50 0 $0
Labor Standard (units/worker) 250 Hiring $500.00 0 $0
Layoff $750.00 2 $1,500
Total Costs $395,300
Period 1 2 3 4 5 6 7 8
Demand 3000 6000 2000 1500 4000 5500 8500
Cumulative Demand 3000 9000 11000 12500 16500 22000 30500
Net Cumulative Demand 500 6500 8500 10000 14000 19500 28000
Production/Inventory Planning
Production 4000 4000 4000 4000 4000 4000 4000
Cumulative Production 4000 8000 12000 16000 20000 24000 28000
Inventory (Excess Units) 3500 1500 3500 6000 6000 4500 0
Backorders (Units Short) 0 0 0 0 0 0 0
Capacity Planning
Workers Hired 0 0 0 0 0 0 0
Workers Layed Off 2 0 0 0 0 0 0
Workforce Available 16 16 16 16 16 16 16
Regular Time Capacity (units) 4000 4000 4000 4000 4000 4000 4000
Overtime/Subcontracting (units) 0 0 0 0 0 0 0
Total Production Capacity (units) 4000 4000 4000 4000 4000 4000 4000

Level Plan

Chase Plan

Aggregate Production Planning Cost Total Total
Costs Per Unit Units Cost
Regular Time Labor Cost $9.60 28000 $268,800
Overtime/Subcontracting $14.40 0 $0
Beginning Inventory 2500 Inventory Holding Cost $5.00 0 $0
Beginning Workforce 18 Backorders $7.50 0 $0
Labor Standard (units/worker) 250 Hiring $500.00 50 $25,000
Layoff $750.00 34 $25,500
Total Costs $319,300
Period 1 2 3 4 5 6 7 8
Demand 3000 6000 2000 1500 4000 5500 8500
Cumulative Demand 3000 9000 11000 12500 16500 22000 30500
Net Cumulative Demand 500 6500 8500 10000 14000 19500 28000
Production/Inventory Planning
Production 500 6000 2000 1500 4000 5500 8500
Cumulative Production 500 6500 8500 10000 14000 19500 28000
Inventory (Excess Units) 0 0 0 0 0 0 0
Backorders (Units Short) 0 0 0 0 0 0 0
Capacity Planning
Workers Hired 0 22 0 0 10 6 12
Workers Layed Off 16 0 16 2 0 0 0
Workforce Available 2 24 8 6 16 22 34
Regular Time Capacity (units) 500 6000 2000 1500 4000 5500 8500
Overtime/Subcontracting (units) 0 0 0 0 0 0 0
Total Production Capacity (units) 500 6000 2000 1500 4000 5500 8500

Chase Plan

0 0
0 0
0 0
0 0
0 0
0 0
0 0

Aggregate Planning Template

Template

Aggregate Production Planning Cost Total Total
Costs Per Unit Units Cost
Regular Time Labor Cost
Overtime/Subcontracting
Beginning Inventory Inventory Holding Cost
Beginning Workforce Backorders
Labor Standard (units/worker) Hiring
Layoff
Total Costs
Period 1 2 3 4 5 6 7 8
Demand
Cumulative Demand
Net Cumulative Demand
Production/Inventory Planning
Production
Cumulative Production
Inventory (Excess Units)
Backorders (Units Short)
Capacity Planning
Workers Hired
Workers Layed Off
Workforce Available
Regular Time Capacity (units)
Overtime/Subcontracting (units)
Total Production Capacity (units)

Template

0 0
0 0
0 0
0 0
0 0
0 0
0 0

Level Plan

Aggregate Production Planning Cost Total Total
Costs Per Unit Units Cost
Regular Time Labor Cost $9.60 28000 $268,800
Overtime/Subcontracting $14.40 0 $0
Beginning Inventory 2500 Inventory Holding Cost $5.00 25000 $125,000
Beginning Workforce 18 Backorders $7.50 0 $0
Labor Standard (units/worker) 250 Hiring $500.00 0 $0
Layoff $750.00 2 $1,500
Total Costs $395,300
Period 1 2 3 4 5 6 7 8
Demand 3000 6000 2000 1500 4000 5500 8500
Cumulative Demand 3000 9000 11000 12500 16500 22000 30500
Net Cumulative Demand 500 6500 8500 10000 14000 19500 28000
Production/Inventory Planning
Production 4000 4000 4000 4000 4000 4000 4000
Cumulative Production 4000 8000 12000 16000 20000 24000 28000
Inventory (Excess Units) 3500 1500 3500 6000 6000 4500 0
Backorders (Units Short) 0 0 0 0 0 0 0
Capacity Planning
Workers Hired 0 0 0 0 0 0 0
Workers Layed Off 2 0 0 0 0 0 0
Workforce Available 16 16 16 16 16 16 16
Regular Time Capacity (units) 4000 4000 4000 4000 4000 4000 4000
Overtime/Subcontracting (units) 0 0 0 0 0 0 0
Total Production Capacity (units) 4000 4000 4000 4000 4000 4000 4000

Level Plan

0 0
0 0
0 0
0 0
0 0
0 0
0 0

Chase Plan

Aggregate Production Planning Cost Total Total
Costs Per Unit Units Cost
Regular Time Labor Cost $9.60 28000 $268,800
Overtime/Subcontracting $14.40 0 $0
Beginning Inventory 2500 Inventory Holding Cost $5.00 0 $0
Beginning Workforce 18 Backorders $7.50 0 $0
Labor Standard (units/worker) 250 Hiring $500.00 50 $25,000
Layoff $750.00 34 $25,500
Total Costs $319,300
Period 1 2 3 4 5 6 7 8
Demand 3000 6000 2000 1500 4000 5500 8500
Cumulative Demand 3000 9000 11000 12500 16500 22000 30500
Net Cumulative Demand 500 6500 8500 10000 14000 19500 28000
Production/Inventory Planning
Production 500 6000 2000 1500 4000 5500 8500
Cumulative Production 500 6500 8500 10000 14000 19500 28000
Inventory (Excess Units) 0 0 0 0 0 0 0
Backorders (Units Short) 0 0 0 0 0 0 0
Capacity Planning
Workers Hired 0 22 0 0 10 6 12
Workers Layed Off 16 0 16 2 0 0 0
Workforce Available 2 24 8 6 16 22 34
Regular Time Capacity (units) 500 6000 2000 1500 4000 5500 8500
Overtime/Subcontracting (units) 0 0 0 0 0 0 0
Total Production Capacity (units) 500 6000 2000 1500 4000 5500 8500

Chase Plan

0 0
0 0
0 0
0 0
0 0
0 0
0 0

Level Strategy

Template

Aggregate Production Planning Cost Total Total
Costs Per Unit Units Cost
Regular Time Labor Cost
Overtime/Subcontracting
Beginning Inventory Inventory Holding Cost
Beginning Workforce Backorders
Labor Standard (units/worker) Hiring
Layoff
Total Costs
Period 1 2 3 4 5 6 7 8
Demand
Cumulative Demand
Net Cumulative Demand
Production/Inventory Planning
Production
Cumulative Production
Inventory (Excess Units)
Backorders (Units Short)
Capacity Planning
Workers Hired
Workers Layed Off
Workforce Available
Regular Time Capacity (units)
Overtime/Subcontracting (units)
Total Production Capacity (units)

Template

Level Plan

Aggregate Production Planning Cost Total Total
Costs Per Unit Units Cost
Regular Time Labor Cost $9.60 28000 $268,800
Overtime/Subcontracting $14.40 0 $0
Beginning Inventory 2500 Inventory Holding Cost $5.00 25000 $125,000
Beginning Workforce 18 Backorders $7.50 0 $0
Labor Standard (units/worker) 250 Hiring $500.00 0 $0
Layoff $750.00 2 $1,500
Total Costs $395,300
Period 1 2 3 4 5 6 7 8
Demand 3000 6000 2000 1500 4000 5500 8500
Cumulative Demand 3000 9000 11000 12500 16500 22000 30500
Net Cumulative Demand 500 6500 8500 10000 14000 19500 28000
Production/Inventory Planning
Production 4000 4000 4000 4000 4000 4000 4000
Cumulative Production 4000 8000 12000 16000 20000 24000 28000
Inventory (Excess Units) 3500 1500 3500 6000 6000 4500 0
Backorders (Units Short) 0 0 0 0 0 0 0
Capacity Planning
Workers Hired 0 0 0 0 0 0 0
Workers Layed Off 2 0 0 0 0 0 0
Workforce Available 16 16 16 16 16 16 16
Regular Time Capacity (units) 4000 4000 4000 4000 4000 4000 4000
Overtime/Subcontracting (units) 0 0 0 0 0 0 0
Total Production Capacity (units) 4000 4000 4000 4000 4000 4000 4000

Level Plan

Chase Plan

Aggregate Production Planning Cost Total Total
Costs Per Unit Units Cost
Regular Time Labor Cost $9.60 28000 $268,800
Overtime/Subcontracting $14.40 0 $0
Beginning Inventory 2500 Inventory Holding Cost $5.00 0 $0
Beginning Workforce 18 Backorders $7.50 0 $0
Labor Standard (units/worker) 250 Hiring $500.00 50 $25,000
Layoff $750.00 34 $25,500
Total Costs $319,300
Period 1 2 3 4 5 6 7 8
Demand 3000 6000 2000 1500 4000 5500 8500
Cumulative Demand 3000 9000 11000 12500 16500 22000 30500
Net Cumulative Demand 500 6500 8500 10000 14000 19500 28000
Production/Inventory Planning
Production 500 6000 2000 1500 4000 5500 8500
Cumulative Production 500 6500 8500 10000 14000 19500 28000
Inventory (Excess Units) 0 0 0 0 0 0 0
Backorders (Units Short) 0 0 0 0 0 0 0
Capacity Planning
Workers Hired 0 22 0 0 10 6 12
Workers Layed Off 16 0 16 2 0 0 0
Workforce Available 2 24 8 6 16 22 34
Regular Time Capacity (units) 500 6000 2000 1500 4000 5500 8500
Overtime/Subcontracting (units) 0 0 0 0 0 0 0
Total Production Capacity (units) 500 6000 2000 1500 4000 5500 8500

Chase Plan

0 0
0 0
0 0
0 0
0 0
0 0
0 0

Non-Financial Criteria

  • Operations perspective:
  • Smooth & even flow is easy to manage
  • Human resources perspective:
  • Nobody hired or fired, no overtime or furloughs, so employee morale should be fine
  • Marketing perspective:
  • All demand met, so no customer service issues

Chase Strategy

Template

Aggregate Production Planning Cost Total Total
Costs Per Unit Units Cost
Regular Time Labor Cost
Overtime/Subcontracting
Beginning Inventory Inventory Holding Cost
Beginning Workforce Backorders
Labor Standard (units/worker) Hiring
Layoff
Total Costs
Period 1 2 3 4 5 6 7 8
Demand
Cumulative Demand
Net Cumulative Demand
Production/Inventory Planning
Production
Cumulative Production
Inventory (Excess Units)
Backorders (Units Short)
Capacity Planning
Workers Hired
Workers Layed Off
Workforce Available
Regular Time Capacity (units)
Overtime/Subcontracting (units)
Total Production Capacity (units)

Template

Level Plan

Aggregate Production Planning Cost Total Total
Costs Per Unit Units Cost
Regular Time Labor Cost $9.60 28000 $268,800
Overtime/Subcontracting $14.40 0 $0
Beginning Inventory 2500 Inventory Holding Cost $5.00 25000 $125,000
Beginning Workforce 18 Backorders $7.50 0 $0
Labor Standard (units/worker) 250 Hiring $500.00 0 $0
Layoff $750.00 2 $1,500
Total Costs $395,300
Period 1 2 3 4 5 6 7 8
Demand 3000 6000 2000 1500 4000 5500 8500
Cumulative Demand 3000 9000 11000 12500 16500 22000 30500
Net Cumulative Demand 500 6500 8500 10000 14000 19500 28000
Production/Inventory Planning
Production 4000 4000 4000 4000 4000 4000 4000
Cumulative Production 4000 8000 12000 16000 20000 24000 28000
Inventory (Excess Units) 3500 1500 3500 6000 6000 4500 0
Backorders (Units Short) 0 0 0 0 0 0 0
Capacity Planning
Workers Hired 0 0 0 0 0 0 0
Workers Layed Off 2 0 0 0 0 0 0
Workforce Available 16 16 16 16 16 16 16
Regular Time Capacity (units) 4000 4000 4000 4000 4000 4000 4000
Overtime/Subcontracting (units) 0 0 0 0 0 0 0
Total Production Capacity (units) 4000 4000 4000 4000 4000 4000 4000

Level Plan

Chase Plan

Aggregate Production Planning Cost Total Total
Costs Per Unit Units Cost
Regular Time Labor Cost $9.60 28000 $268,800
Overtime/Subcontracting $14.40 0 $0
Beginning Inventory 2500 Inventory Holding Cost $5.00 0 $0
Beginning Workforce 18 Backorders $7.50 0 $0
Labor Standard (units/worker) 250 Hiring $500.00 50 $25,000
Layoff $750.00 34 $25,500
Total Costs $319,300
Period 1 2 3 4 5 6 7 8
Demand 3000 6000 2000 1500 4000 5500 8500
Cumulative Demand 3000 9000 11000 12500 16500 22000 30500
Net Cumulative Demand 500 6500 8500 10000 14000 19500 28000
Production/Inventory Planning
Production 500 6000 2000 1500 4000 5500 8500
Cumulative Production 500 6500 8500 10000 14000 19500 28000
Inventory (Excess Units) 0 0 0 0 0 0 0
Backorders (Units Short) 0 0 0 0 0 0 0
Capacity Planning
Workers Hired 0 22 0 0 10 6 12
Workers Layed Off 16 0 16 2 0 0 0
Workforce Available 2 24 8 6 16 22 34
Regular Time Capacity (units) 500 6000 2000 1500 4000 5500 8500
Overtime/Subcontracting (units) 0 0 0 0 0 0 0
Total Production Capacity (units) 500 6000 2000 1500 4000 5500 8500

Chase Plan

Non-Financial Criteria

  • Operations perspective:
  • Can operations ramp up & back down this quickly?
  • Much more difficult to accomplish
  • Human resources perspective:
  • Will employees tolerate being hired & fired so rapidly?
  • What about training & learning curve issues?
  • Marketing perspective:
  • All demand is met (assuming no strikes)

A Minimum Cost Plan
(Hybrid Strategy)

Template (no formulas)

Aggregate Production Planning Cost Total Total
Costs Per Unit Units Cost
Regular Time Labor Cost
Overtime/Subcontracting
Beginning Inventory Inventory Holding Cost
Beginning Workforce Backorders
Labor Standard (units/worker) Hiring
Layoff
Total Costs
Period 1 2 3 4 5 6 7 8
Demand
Cumulative Demand
Net Cumulative Demand
Production/Inventory Planning
Production
Cumulative Production
Inventory (Excess Units)
Backorders (Units Short)
Capacity Planning
Workers Hired
Workers Layed Off
Workforce Available
Regular Time Capacity (units)
Overtime/Subcontracting (units)
Total Production Capacity (units)

Template (with formulas)

Aggregate Production Planning Cost Total Total
Costs Per Unit Units Cost
Regular Time Labor Cost 0 $0
Overtime/Subcontracting 0 $0
Beginning Inventory Inventory Holding Cost 0 $0
Beginning Workforce Backorders 0 $0
Labor Standard (units/worker) Hiring 0 $0
Layoff 0 $0
Total Costs $0
Period 1 2 3 4 5 6 7 8
Demand
Cumulative Demand 0 0 0 0 0 0 0
Net Cumulative Demand 0 0 0 0 0 0 0
Production/Inventory Planning
Production
Cumulative Production 0 0 0 0 0 0 0
Inventory (Excess Units) 0 0 0 0 0 0 0
Backorders (Units Short) 0 0 0 0 0 0 0
Capacity Planning
Workers Hired
Workers Layed Off
Workforce Available 0 0 0 0 0 0 0
Regular Time Capacity (units) 0 0 0 0 0 0 0
Overtime/Subcontracting (units)
Total Production Capacity (units) 0 0 0 0 0 0 0

Template (with formulas)

0 0
0 0
0 0
0 0
0 0
0 0
0 0

Level Plan

Aggregate Production Planning Cost Total Total
Costs Per Unit Units Cost
Regular Time Labor Cost $9.60 28000 $268,800
Overtime/Subcontracting $14.40 0 $0
Beginning Inventory 2500 Inventory Holding Cost $5.00 25000 $125,000
Beginning Workforce 18 Backorders $7.50 0 $0
Labor Standard (units/worker) 250 Hiring $500.00 0 $0
Layoff $750.00 2 $1,500
Total Costs $395,300
Period 1 2 3 4 5 6 7 8
Demand 3000 6000 2000 1500 4000 5500 8500
Cumulative Demand 3000 9000 11000 12500 16500 22000 30500
Net Cumulative Demand 500 6500 8500 10000 14000 19500 28000
Production/Inventory Planning
Production 4000 4000 4000 4000 4000 4000 4000
Cumulative Production 4000 8000 12000 16000 20000 24000 28000
Inventory (Excess Units) 3500 1500 3500 6000 6000 4500 0
Backorders (Units Short) 0 0 0 0 0 0 0
Capacity Planning
Workers Hired 0 0 0 0 0 0 0
Workers Layed Off 2 0 0 0 0 0 0
Workforce Available 16 16 16 16 16 16 16
Regular Time Capacity (units) 4000 4000 4000 4000 4000 4000 4000
Overtime/Subcontracting (units) 0 0 0 0 0 0 0
Total Production Capacity (units) 4000 4000 4000 4000 4000 4000 4000

Level Plan

0 0
0 0
0 0
0 0
0 0
0 0
0 0

Chase Plan

Aggregate Production Planning Cost Total Total
Costs Per Unit Units Cost
Regular Time Labor Cost $9.60 28000 $268,800
Overtime/Subcontracting $14.40 0 $0
Beginning Inventory 2500 Inventory Holding Cost $5.00 0 $0
Beginning Workforce 18 Backorders $7.50 0 $0
Labor Standard (units/worker) 250 Hiring $500.00 50 $25,000
Layoff $750.00 34 $25,500
Total Costs $319,300
Period 1 2 3 4 5 6 7 8
Demand 3000 6000 2000 1500 4000 5500 8500
Cumulative Demand 3000 9000 11000 12500 16500 22000 30500
Net Cumulative Demand 500 6500 8500 10000 14000 19500 28000
Production/Inventory Planning
Production 500 6000 2000 1500 4000 5500 8500
Cumulative Production 500 6500 8500 10000 14000 19500 28000
Inventory (Excess Units) 0 0 0 0 0 0 0
Backorders (Units Short) 0 0 0 0 0 0 0
Capacity Planning
Workers Hired 0 22 0 0 10 6 12
Workers Layed Off 16 0 16 2 0 0 0
Workforce Available 2 24 8 6 16 22 34
Regular Time Capacity (units) 500 6000 2000 1500 4000 5500 8500
Overtime/Subcontracting (units) 0 0 0 0 0 0 0
Total Production Capacity (units) 500 6000 2000 1500 4000 5500 8500

Chase Plan

500 0
6500 0
8500 0
10000 0
14000 0
19500 0
28000 0

Optimal Plan

Aggregate Production Planning Cost Total Total
Costs Per Unit Units Cost
Regular Time Labor Cost $9.60 28000 $268,800
Overtime/Subcontracting $14.40 0 $0
Beginning Inventory 2500 Inventory Holding Cost $5.00 2750 $13,750
Beginning Workforce 18 Backorders $7.50 0 $0
Labor Standard (units/worker) 250 Hiring $500.00 28 $14,000
Layoff $750.00 12 $9,000
Total Costs $305,550
Period 1 2 3 4 5 6 7 8
Demand 3000 6000 2000 1500 4000 5500 8500
Cumulative Demand 3000 9000 11000 12500 16500 22000 30500
Net Cumulative Demand 500 6500 8500 10000 14000 19500 28000
Production/Inventory Planning
Production 3250 3250 2000 1500 4000 5500 8500
Cumulative Production 3250 6500 8500 10000 14000 19500 28000
Inventory (Excess Units) 2750 0 0 0 0 0 0
Backorders (Units Short) 0 0 0 0 0 0 0
Capacity Planning
Workers Hired 0 0 0 0 10 6 12
Workers Layed Off 5 0 5 2 0 0 0
Workforce Available 13 13 8 6 16 22 34
Regular Time Capacity (units) 3250 3250 2000 1500 4000 5500 8500
Overtime/Subcontracting (units) 0 0 0 0 0 0 0
Total Production Capacity (units) 3250 3250 2000 1500 4000 5500 8500
Production -demand 2750 0 0 0 0 0 0
demand -production -2750 0 0 0 0 0 0

Optimal Plan

500 0
6500 0
8500 0
10000 0
14000 0
19500 0
28000 0

Exam Question

Aggregate Production Planning Cost Total Total
Costs Per Unit Units Cost
Reg. Time $10.00 21000 $210,000
Overtime $15.00 1000 $15,000
Beginning Inventory 2500 Inventory Holding $5.00 9000 $45,000
Beginning Workforce 16 Backorders $7.50 0 $0
Labor Standard (units/worker) 250 Hiring $500.00 4 $2,000
Layoff $750.00 4 $3,000
Total Costs $275,000
Period 1 2 3 4 5 6
Demand 3000 6000 2000 1500 4000 5500 3250
Cumulative Demand 3000 9000 11000 12500 16500 22000
Net Cumulative Demand 500 6500 8500 10000 14000 19500
Production/Inventory Planning
Production 3000 4000 2000 4000 3500 3000
Cumulative Production 3000 7000 9000 13000 16500 19500
Inventory (Excess Units) 2500 500 500 3000 2500 0
Backorders (Units Short) 0 0 0 0 0 0
Capacity Planning
Workers Hired 0 0 0 4 0 0
Workers Layed Off 4 0 0 0 0 0
Workforce Available 12 12 12 16 16 16
Regular Time Capacity (units) 3000 3000 3000 4000 4000 4000
Overtime/Subcontracting (units) 0 1000 0 0 0 0
Total Production Capacity (units) 3000 4000 3000 4000 4000 4000

Exam Question

0 0
0 0
0 0
0 0
0 0
0 0

Aggregate Planning Bottom Line

  • The Aggregate plan must balance several perspectives
  • Costs are important but so are:
  • Customer service
  • Operational effectiveness
  • Workforce morale
  • A successful AP considers each of these factors

Service Planning Issues

  • Intangible products can’t be inventoried
  • Possible approaches:
  • Try to proactively shift demand away from peaks
  • Use overtime or subcontracting to handle peaks
  • Allow lost sales

Chapter 13 HW Assignment

Problems

1 – 5, 10 -12.

Aggregate Production PlanningCostTotalTotal

CostsPer UnitUnitsCost

Regular Time Labor Cost

Overtime/Subcontracting

Beginning InventoryInventory Holding Cost

Beginning WorkforceBackorders

Labor Standard (units/worker)Hiring

Layoff

Total Costs

Period12345678

Demand

Cumulative Demand

Net Cumulative Demand

Production/Inventory Planning

Production

Cumulative Production

Inventory (Excess Units)

Backorders (Units Short)

Capacity Planning

Workers Hired

Workers Layed Off

Workforce Available

Regular Time Capacity (units)

Overtime/Subcontracting (units)

Total Production Capacity (units)

Aggregate Production Planning CostTotalTotal

Costs Per UnitUnitsCost

Regular Time Labor Cost $9.6028000$268,800

Overtime/Subcontracting $14.400$0

Beginning Inventory 2500Inventory Holding Cost $5.002750$13,750

Beginning Workforce 18Backorders $7.500$0

Labor Standard (units/worker) 250Hiring $500.0028$14,000

Layoff $750.0012$9,000

Total Costs$305,550

Period 12345678

Demand 3000600020001500400055008500

Cumulative Demand 300090001100012500165002200030500

Net Cumulative Demand 5006500850010000140001950028000

Production/Inventory Planning

Production 3250325020001500400055008500

Cumulative Production 32506500850010000140001950028000

Inventory (Excess Units) 2750000000

Backorders (Units Short) 0000000

Capacity Planning

Workers Hired 000010612

Workers Layed Off 5052000

Workforce Available 131386162234

Regular Time Capacity (units) 3250325020001500400055008500

Overtime/Subcontracting (units) 0000000

Total Production Capacity (units) 3250325020001500400055008500

Period1234567

Demand3000600020001500400055008500

Beginning Inventory2500

Beginning Workforce18

Labor Standard (units/worker)250

Cost

CostsPer Unit

Regular Time Labor Cost$9.60

Overtime/Subcontracting$14.40

Inventory Holding Cost$5.00

Backorders$7.50

Hiring$500.00

Layoff$750.00

Aggregate Production PlanningCostTotalTotal

CostsPer UnitUnitsCost

Regular Time Labor Cost$9.6028000$268,800

Overtime/Subcontracting$14.400$0

Beginning Inventory2500Inventory Holding Cost$5.0025000$125,000

Beginning Workforce18Backorders$7.500$0

Labor Standard (units/worker)250Hiring$500.000$0

Layoff$750.002$1,500

Total Costs$395,300

Period12345678

Demand3000600020001500400055008500

Cumulative Demand300090001100012500165002200030500

Net Cumulative Demand5006500850010000140001950028000

Production/Inventory Planning

Production4000400040004000400040004000

Cumulative Production400080001200016000200002400028000

Inventory (Excess Units)3500150035006000600045000

Backorders (Units Short)0000000

Capacity Planning

Workers Hired0000000

Workers Layed Off2000000

Workforce Available16161616161616

Regular Time Capacity (units)4000400040004000400040004000

Overtime/Subcontracting (units)0000000

Total Production Capacity (units)4000400040004000400040004000

Aggregate Production PlanningCostTotalTotal

CostsPer UnitUnitsCost

Regular Time Labor Cost$9.6028000$268,800

Overtime/Subcontracting$14.400$0

Beginning Inventory2500Inventory Holding Cost$5.000$0

Beginning Workforce18Backorders$7.500$0

Labor Standard (units/worker)250Hiring$500.0050$25,000

Layoff$750.0034$25,500

Total Costs$319,300

Period12345678

Demand3000600020001500400055008500

Cumulative Demand300090001100012500165002200030500

Net Cumulative Demand5006500850010000140001950028000

Production/Inventory Planning

Production500600020001500400055008500

Cumulative Production5006500850010000140001950028000

Inventory (Excess Units)0000000

Backorders (Units Short)0000000

Capacity Planning

Workers Hired0220010612

Workers Layed Off160162000

Workforce Available22486162234

Regular Time Capacity (units)500600020001500400055008500

Overtime/Subcontracting (units)0000000

Total Production Capacity (units)500600020001500400055008500