Chapter 7

Chapter 7

AGGREGATE PLANNING AND MASTER SCHEDULING Copyright 2015 by McGraw Hill Education (India) Private Limited. All rights reserved. CHAPTER 7 Aggregate planning is intermediate-range capacity planning that typically covers a time horizon of 2 to 12 months, Sales and operations planning is defined as making intermediate-range decisions to balance supply and demand, integrating financial and operations planning

Copyright 2015 by McGraw Hill Education (India) Private Limited. All rights reserved. Aggregate Planning A business plan is a plan that encompasses both long-term and intermediate-term planning. The business plan establishes guidelines for the organization, taking into account the organizations strategies and policies; forecasts of demand for the organizations products or services; and economic, competitive, and political conditions.

A key objective in business planning is to coordinate the intermediate plans of various organization functions, such as marketing, operations, and finance. In manufacturing companies, coordination also includes engineering and materials management. Copyright 2015 by McGraw Hill Education (India) Private Limited. All rights reserved. Business Plan One part is related to planning: It takes time to implement plans.

The second part is strategic: Aggregation is important because it is not possible to predict with any degree of accuracy the timing and volume of demand for individual items. Copyright 2015 by McGraw Hill Education (India) Private Limited. All rights reserved. Why Do Organizations Need To Do Aggregate Planning? Generally speaking, aggregate planning is connected to the budgeting process.

Most organizations plan their financial requirements annually on a department-by-department basis. Aggregate planning is important because it can help synchronize flow throughout the supply chain; it affects costs, equipment utilization, employment levels, and customer satisfaction. A key issue in aggregate planning is how to handle variations. Copyright 2015 by McGraw Hill Education (India) Private Limited. All rights reserved. The Concept of Aggregation Aggregate planning begins with a forecast of aggregate demand for the intermediate range. This is followed by a general plan to meet demand requirements by setting output, employment, and finished-goods inventory levels or service capacities. Managers might consider a number of plans, each of which

must be examined in light of feasibility and cost. If a plan is reasonably good but has minor difficulties, it may be reworked. Conversely, a poor plan should be discarded and alternative plans considered until an acceptable one is uncovered. An aggregate production plan is essentially the output of aggregate planning. Aggregate plans are updated periodically, often monthly, to take into account updated forecasts and other changes. This results in a rolling planning horizon (i.e., the aggregate plan always covers the next 12 to 18 months). Copyright 2015 by McGraw Hill Education (India) Private Limited. All rights reserved.

An Overview of Aggregate Planning Demand Options Demand options include pricing, promotions, using back orders (delaying order filling), and creating new demand. Supply Options Supply options include hiring/laying off workers, overtime/slack time, part-time or temporary workers, inventories, and subcontractors. 1. 2. 3.

4. 1. 2. 3. 4. 5. Pricing Promotion Back orders New demand Hire and lay off workers Overtime/slack time Part-time workers Inventories

Subcontracting Copyright 2015 by McGraw Hill Education (India) Private Limited. All rights reserved. Demand Options & Supply Options Aggregate planners might adopt a number of strategies. Some of the more prominent ones are the following: 1. Maintain a level workforce (level capacity). 2. Maintain a steady output rate (level capacity). 3. Match demand period by period (chase demand). 4. Use a combination of decision variables. Copyright 2015 by McGraw Hill Education (India) Private Limited. All rights reserved. Basic Strategies For Meeting Uneven Demand

Level capacity strategy: Maintaining a steady rate of regular-time output while meeting variations in demand by a combination of options. Chase demand strategy: Matching capacity to demand; the planned output for a period is set at the expected demand for that period. Copyright 2015 by McGraw Hill Education (India) Private Limited. All rights reserved. Basic Strategies For Meeting Uneven Demand A general procedure for aggregate planning consists of the following steps: 1. Determine demand for each period. 2. Determine capacities (regular time, overtime, subcontracting) for each

period. 3. Identify company or departmental policies that are pertinent (e.g., maintain a safety stock of 5 percent of demand, maintain a reasonably stable workforce). 4. Determine unit costs for regular time, overtime, subcontracting, holding inventories, backorders, 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. Otherwise, return to step 5. Copyright 2015 by McGraw Hill Education (India) Private Limited. All rights reserved. Procedure For Aggregate Planning 1. 2.

Trial-and-Error Techniques : Using Graphs and Spreadsheets Mathematical Techniques : Linear Programming Simulation Models Copyright 2015 by McGraw Hill Education (India) Private Limited. All rights reserved. Techniques For Aggregate Planning Master production schedule (MPS)-This schedule indicates the quantity and timing of planned completed production. Copyright 2015 by McGraw Hill Education (India) Private Limited. All rights reserved. Master Production Schedule

Most manufacturing organizations have (or should have) a master scheduler. The duties of the master scheduler generally include: 1. Evaluating the impact of new orders. 2. Providing delivery dates for orders. 3. Dealing with problems: a. Evaluating the impact of production delays or late deliveries of purchased goods. b. Revising the master schedule when necessary because of insufficient supplies or capacity. c. Bringing instances of insufficient capacity to the attention of production and marketing personnel so that they can participate in resolving conflicts. Copyright 2015 by McGraw Hill Education (India) Private Limited. All rights reserved. The Master Scheduler

A master schedule indicates the quantity and timing (i.e., delivery times) for a product, or a group of products, but it does not show planned production. Rough-cut capacity planning (RCCP)Approximate balancing of capacity and demand to test the feasibility of a master schedule. Copyright 2015 by McGraw Hill Education (India) Private Limited. All rights reserved. The Master Scheduling Process Time Fences

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. Time fences Points in time that separate phases of a master schedule planning horizon. Copyright 2015 by McGraw Hill Education (India) Private Limited. All rights reserved. Time Fences in an MPS

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