FAISAL FARIS BIN RAHIM

MOHD HANEESYAH BIN CHE HASSAN

NOR SYAKIRA BT ZAUKIFLI

ANISAH BT ABD LATIFF

 Outline
Costs in aggregate planning

Solving in aggregate planning problem

Linear decision rule (LDR)

Modeling management behavior

1. Smoothing Costs
2. Holding Costs
3. Shortage Costs
4. Regular Costs
5. Overtime & Subcontracting Costs
6. Idle Time Costs
Issues in Aggregate Planning
Smoothing – refer to the cost of changing production
and workforce level between periods. (Firing & Hiring
Costs)
Bottleneck Problem – Inability to respond to sudden
changes in demand as a result of capacity restrictions
(High demand in one period & breakdown of a vital
piece of equipment)
Issues in Aggregate Planning
Planning Horizon- Number of periods for which the
demand forecast and aggregate planning are done.
If it is too small ( current aggregate plan may lead into
not meeting the demand beyond planning horizon)
If it is too large ( forecasts into far future will be less
accurate)
End-of-horizon effect
Cost in Aggregate Planning
1. Smoothing Cost
 Hiring costs (advertising, interviewing & training)
 Firing costs ( lack of labor force in future)
 Assumed to be a linear function of the number of
workers
Cost in Aggregate Planning
Cost of Changing the Size of the Workforce

Firing costs Hiring costs

Cost in Aggregate Planning
2. Holding Costs
 Occurs as a result of having capital tied up in
inventory.
 Assumed to be linear in the level of inventory
 For aggregate planning, it is expressed in terms of
dollars per unit held per planning period; (e.g. 100
$/month for one item)
(e.g. 100 $/month for one item)
Cost in Aggregate Planning
3. Shortage Costs
 Shortage occurs when demands are higher than
anticipated
 For aggregate planning, it is assumed that excess
demand is backlogged and filled in a future period.
 In a highly competitive situation, the excess demand
may be lost---lost sales.
Cost in Aggregate Planning
4. Regular Time Costs
Involve the cost of producing one unit of output during
regular working hours
5. Overtime or Subcontracting Costs
Costs of production units not produced on regular time.
Overtime-production by regular-time employees
beyond work day;
Subtracting-the production of items by an outside
supplier;
Cost in Aggregate Planning
6. Idle Time Costs
 Under utilization of workforce
SOLVING AGGREGATE
PLANNING PROBLEMS
 BASIC RELATIONSHIPS
Workforce

Number of workers in a period = Number of workers at end of

previous period + Number of new workers at the start of the
period- Number of laid off workers at start of the period
Inventory

Inventory at the end of a period = Inventory at end of the

previous period + production in current period – Amount used to
satisfy demand in current period
Cost

Cost for a period = Output Cost( Reg + OT+ Sub) +Hire/Lay off
Cost +Inventory Cost +Back-order Cost
A firm producing one product is scheduling (allocating) its January-March
production capabilities. Part of the decision involves scheduling overtime work.
A unit produced on overtime costs an extra $300. Similarly, a unit made one
month before it is needed incurred an inventory carrying cost of $100; two
months costs $200 per unit.
The units delivered according to this schedule follows:
•January - 80 units.
•February - 120 units.
•March - 150 units.
Production capacities are:
Formulate the production scheduling problem as a transportation problem and
solve it by the Northwest Corner Rule.
Regular Time Overtime
January 100 50
February 100 40
March 100 30
 Demand for

Unused Total
Supply from January February capacity capacity
March (dummy) available
(Supply)
January Regular 80 20 100
Overtime 50 50
February Regular 50 50 100
Overtime 40 40
March Regular 60 40 100
Overtime 30 30
Demand 80 120 150 70 420
a) The production planner of Omega Research, a maker of
industrial lenses, devised the following level output aggregate
plan for the next 4 periods. Calculate the projected beginning
and ending inventory for each period. Possible backorders
may be shown by a negative number.

Period Demand Planned Beginning Ending

forecast production inventory inventory
1 40,000 48,000 9,000
2 70,000 48,000
3 30,000 48,000
4 55,000 48,000
 Period Demand Planned Beginning Ending
forecast production inventory inventory
1 40,000 48,000 9,000 17,000
2 70,000 48,000 17,000 -5,000
3 30,000 48,000 -5,000 13,000
4 55,000 48,000 13,000 6,000

Note that ending inventory = beginning inventory +

planned production - demand forecast
b) Develop a chase demand strategy that gradually
increases the inventory level to 14,000 units by the
end of period 4. Show the effect of the plan on
inventory level for each period.

Inventory is increased by 1250 units in each period:

(14,000 - 9,000)/4

Period Demand Planned Beginning Ending

forecast production inventory inventory
1 40,000 41,250 9,000 10,250
2 70,000 71,250 10,250 11,500
3 30,000 31,250 11,500 12,750
4 55,000 56,250 12,750 14,000
 c) Assume that the company currently has 10 employees
and each employee, on average, can produce 4,000
units per period. Develop a staffing plan showing the
number of employees that should be hired or laid off
at the beginning period, using the following worksheet
format.

Period Required Required Available at the Hire

work force number of end of previous Layoff
employees period
1
2
3
4
FORMULA= Total Cost Over the T-
Period Planning Horizon
FORMULA= Optimal Production
Level in Period t

The terms of a,b,c and d are constant

that depend on the cost parameters
EXAMPLE:
a) Compute the values of the aggregate production
level and the number of workers that the company
should be using in the current period:
Solution:
Pt= 0.463(150) + 0.234(164)+ 0.111(185)+ 0.046(193)+
0.993(180)– 0.464(45)+ 153
Ans:………………..

W t = 0.010D t + 0.0088D t+1 + 0.0071D t+2 + 0.0054D t+2

+0.743W t-1 – 0.01I t-1 – 2.09
Ans:………………….
 THE
ADVANTAGES

•The result is optimal production

in period t will be form.
 THE
DRAWBACKS

•The main weakness of the method is that it

requires symmetric cost functions and there is
no
convincing argument to justify such cost curves.
• The quadratic lead to LDR there is no
guarantee that the solution will be non-negative.
 MODELING MANAGEMENT BEHAVIOR

Created by Bowman Construct model for

(1963) controlling production
level

Avoids problem arise

when using traditional
modeling method

Exp : Avoids determine Exp : determining the

values of parameter that accuracy of assumption
difficult to measure that required by model.
 Pt = Dt for 1 ≤ t ≥ T

1 Pt = Dt + α(Pt-1 – Dt) Not given : β, IN , α and a

2 Pt = Dt + α(Pt-1 – Dt) + β(IN – It-1) Not given : a

D = forecast demand P = production level

α = smoothing factor / exponential smoothing
IN = Smoothing for inventory level β = Relative weight
a = for determination of P
EXAMPLE

Using the following values of management coefficient for

Bowman smoothed production model, determine the
production level should plan in the coming year with
demand of 100,000 packages. Assume current production
level is 150,000 packages

Given :
Pt-1 = 150,000 a1 = 0.3475 a2 = 0.1211
a3 = 0.556 a4 = 0.0663 a5 = 0.0023
α = 0.6 β = 0.3 IN = 40,000
Dt = 130,000 It-1 = 20,000