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Aggregate Production Planning in Industrial Engineering
Aggregate Production Planning in Industrial Engineering
Planning
Planning is probably one of the most important , yet least understood , jobs that a manager performs. Poor planning can mean a companys inability to handle unexpected occurrences. Good planning can place a company in an extremely competitive position !
Business/Functional Strategy
Process planning
Strategic capacity planning Sales and operations (aggregate) planning Sales plan Aggregate operations plan
Manufacturing
Master scheduling Material requirements planning
Services
Short range
Order scheduling
Weekly workforce and customer scheduling Daily workforce and customer scheduling
Aggregate Planning Aggregate planning is a first rough-cut approximation at determining how existing resources of facilities and people should be used.
This planning is done over an intermediate-range planning period of 3 to18 months Sets production rates, etc. by product group or some broad category or products (aggregation)
8000
6000
and suppose the lower figure represents the aggregate capacity of the company to meet demand.
What we want to do is balance the production rate, workforce levels, and inventory to make these figures match up.
4000
2000 0 Jan 10000 8000 6000 4000 2000 0 Jan Feb Mar Apr May Jun 6000 4500 4000 4000 Feb Mar 9000 Apr May Jun
8000
Market demand
External
External capacity
Production Planning
Economic conditions
Current workforce
Inventory levels
Internal
Level Aggregate Plans Maintains a constant workforce Sets capacity to accommodate average demand Often used for make-to-stock products like appliances Disadvantage- builds inventory and/or uses back orders Chase Aggregate Plans Produces exactly what is needed each period Sets labor/equipment capacity to satisfy period demands Disadvantage- constantly changing short term capacity
Step 1- Choose strategy: level, chase, or Hybrid Step 2- Determine the aggregate production rate Step 3- Calculate the size of the workforce Step 4- Test the plan as follows: Calculate Inventory, expected hiring/firing, overtime needs Calculate total cost of plan Step 5- Evaluate performance: cost, service, human resources, and operations
May 8000
Jun 6000
Materials Holding costs Marginal cost of stockout Hiring and training cost Layoff costs Labor hours required Straight time labor cost Beginning inventory Productive hours/worker/day Paid straight hrs/day
Chase: Assume you start with 7 workers Levelling: Assume you use 6 workers throughout
4250 units x $5/unit = $21 250 $1408/worker x 4 workers = $5 632 $250/layoff x 3 layoffs = $750
1063.33 units/worker x 6 workers = 6380 units 6380 units 4250 units = 2130 units
$1408/worker x 6 workers = $8 448 $5/units x 6380 units = $31 900 $1/unit x 2130 surplus units = $2 130
Example Problem
With the following demand forecast and production data, which production plan is best?
1. Chase strategy on 8-hour day 2. Constant workforce strategy 3. Produce to meet minimum expected demand and subcontract for extra production 4. Produce to meet expected demand for all but first two months and use overtime to meet additional requirements
Jan 1800 22 Feb 1500 19 Mar 1100 21 Apr 900 21 May 1100 22 Jun 1600 20
5 hours/unit $4/hour $6/hour 400 units 25% monthly demand
demand # days
Materials Holding costs Marginal cost of stockout Marginal subcontracting cost Hiring and training cost Layoff costs
$100/unit $1.50/unit per month $5/unit per month $20/unit $200/worker $250/worker
Labour hours required Regular labour cost Overtime labour cost Beginning inventory Safety stock
Chase hires and fires staff to exactly meet each periods demand Period 1 = (500 units x .64 std.)/160 = 2 people, need to fire 16 people