CHAPTER THREE OMpptz

CHAPTER THREE
OPERATIONS PLANNING & CONTROL

Objective Of Chapter
At the end of this chapter you will be able to:
 Explain operations planning & control.
 Define forecasting.
 Identify aggregate production planning.
 Discuss material requirement planning.
 Determine operations Scheduling.
By: Zenebe El. 2023/24.

What's Forecasting?
 In business, forecasts are basis for capacity
planning, budgeting, sales, production and
inventory, manpower, purchasing planning, etc.
 Forecasts play such as important role in the planning
process because they enable managers to anticipate the
future and to plan accordingly.
 Forecasting art/science of predicting future events.
 Forecasting may involve taking historical data and
projecting them into the future with some sort of
mathematical model.
 Experience, judgment, and technical expertise will all play
a role in successful forecasting.
 Forecasting is not an exact science.
Common Features to all forecasts
 Existed in past will continue to exist in the future.
 Forecasts are rarely perfect.
 Forecasts for groups of items accurate > individual.
 Forecast accuracy decreases as time period covered
 Elements of Good Forecast
 The forecast should be timely.
 Accurate & degree of accuracy should be stated.
 The forecast should be reliable (consistent).
 The forecast should expressed in meaningful terms.
 The forecast should be in writing.
 The forecasting technique should be simple.
Forecasting time horizons
Time horizon falls in to three categories:
1.Short-range forecast: span up to one year. > 3month.
2.Medium-range: spans up to 3 years. 3month up 3year.
3.Long-range forecast: 3 years or more.
Steps in the forecasting process
1. Determine the purpose & when it will be needed.
2. Establish the time horizon of forecast must cover.
3. Select a forecasting technique.
4. Gather & analyze appropriate data, prepare.
5. Monitor forecast to see if it is performing.
Methods of forecasting
A. Top-down forecasting: general business conditions.

B. Bottom-up forecasting: begins with individual end –
product demand expectations.
 Actually, companies use both top-down and bottom-up methods at
the same time & combine the resulting projections into a single
forecast.
 Approaches to forecasting:-
 Two general approaches: qualitative & quantitative.
 Quantitative forecasts use a variety of mathematical models
that relay on historical data and/or causal variables to forecast
demand.
 Qualitative forecasts incorporate such variables as the decision
maker’s intuition, emotions, personal experiences, and value
system in reaching a forecast.
Time serious models
 A time series is a time-ordered sequence of
observations taken at regular intervals over a
period of time (e.g. hourly, daily, weekly, monthly,
quarterly, and annually).
 Forecasting techniques based on time series data
are made on the assumption that future values of
the series can be estimated from past values.
 Time series analysis will have a variable which is
dependent & independent variable.
 The time is independent variable because it
doesn’t dependent on the other variable.
Time serious models techniques of forecast:
a) Naive forecasts
b) Moving averages
c) Exponential smoothing
d) Trend projection
a) Naive forecasts
 The simplest way to forecast is too assume that
demand in next period will be equal to demand in
the most recent period.
 Example: if the actual demand of umbrella is 60
units on Monday, the forecasted demand for
Tuesday will be 60 units.
b) Simple Moving averages
 Moving average forecast uses a number of historical
actual data values to generate a forecast.
 Moving averages are useful if we can assume that
market demand will stay fairly steady overtime.
 Moving average = DD in previous n periods/N.
 N is the number of periods in the moving average.
 There are two problems with this approach.
 First, it requires keeping all of the past data, no matter
how long the time series records are kept.
 Second, it will become weighed too much toward in the
distant past (be too smooth) and fail to be responsive to
any changes in recent data.
Cont.….
 e.g depending on ten weeks past data to predict the
coming weeks = x1+ x2+…x10/N= XX.
 Therefore, a reasonable method for forecasting is to
use only the more recent data.
 E.g: The number of admission at Gishabay Clinic
over the past ten weeks, to predict coming week.
 SMA = x1+ x2+…x10/N.

 Notice average over ten
weeks is = 30.7 or ( 307/10).
 But overall more recent data are
well above the overall average.

eg. the following forecasts would be made for N ranging from 1 to 5
N Forecasts
1 37/1 = 37
2 (37 + 41)/ 2 = 78/2 = 39
3 (37 + 41 + 37) /3 =115/3 = 38.33
4 (37 + 41 + 37+33) /4 = 145/4 = 37
5 (37 + 41 +) 37+33+29 /5 = 177/4 = 35.4
 Of course if N=1 the method simply uses the data of

one week to predict admissions for the next, while the
overall average is the predictor in this eg N= 10
(because we have ten weeks worth of data).
 The table uses the three-week moving average to
present forecasts for all of the data.
 Note that the computations cannot begin until week 4,
b/c three weeks of data are needed for forecasting.
Computation of three-week moving average for Gishabay Clinic data is as follow:
Week Actual admission For casting admission using three-week moving average
1 22
2 21
3 25
4 27 (22+21+25)/3 = 88/3 = 22.67
5 35 (21 + 25 + 27)/3 = 73/3 = 24.33
6 29
(25 + 27 + 35)/3 = 87/3 =29
7 33
8 37 (27 +35 +29)/3 = 91/3 = 30.33
9 41 (35 + 29 + 33)/3 = 97/3 = 32.33
10 37 (29 + 33 + 37)/3 = 99/3 = 33
11 ? (33 + 37 + 41)/3 + 111/3 = 37
(37 + 41 + 37)/3 = 115/3 = 38.33
Example 2: Compute a three-period moving average forecast given

demand for shopping spare parts for the last five periods.
Period Age Demand
1 5 42
2 4 40
3 3 43
4 2 40
5 1 41

Cont…
 Solution MA3 = 41+40+43/3 = 41.33

 If actual demand in period 6 turns out to be 39, the
moving average forecast for period 7 would be
 MA7= = 40
 Note that in a moving average, as each new actual
value becomes available, the forecast is updated by
adding the newest value and dropping the oldest
and then re computing the average consequently,
the forecast “moves” by reflecting only the most
recent values.
 The advantages of a moving average forecast are
that it is easy to compute and understand.
Cont.….
 A possible disadvantage is that all values in the
average are weighted equally.
 For instance in a 10-period moving average, each
value has a weight of 1/10.
 Hence, the oldest value has the same weight as the
most recent value.
 If a change occurs in the series, a moving average
forecast can be slow to react, especially if there are
a large number of values in the average.
 This problem is solved by using weighted
moving average.
Cont.….
 Summary: moving average presents 3 problems:
1. Increasing the size of N does smooth out
fluctuations better, but it makes the method less
sensitive to real changes in the data.
2. Moving averages cannot pick up trends very well.
 Because they are averages, they will always stay
with in past levels and will not predict changes to
either higher or lower levels.
 That is, they lag the actual values.
3. Moving averages require extensive records of past
data.
C) Weighted moving average
 When detectable trend or pattern is present, weights
be used to place more emphasis on recent values.
 One possible variation, known as weighted moving
averages; involves selecting different weights for
each data value and then computing a weighted
mean as the forecast.
 In most cases, most recent observation receives the
most weight, & weight decreases for older data
values.
 This practice makes forecasting technique more
responsive to changes b/c most recent periods may
be more heavily weighted.
Cont.….
 In fact, it is quite reasonable to weight data from
last week more than the data from two weeks ago.
 D/t weights are assigned for the different periods.
 The weights assigned should add = to 1.
 For e.g, if the clinic has decided that the weights to
be used are 0.5, 0.3, and 0.2, then the forecast for
weeks 11 is given by 0.5 (last week) + 0.3 ( two
weeks ago) + 0.2 (admissions three weeks ago).
 0 .5 (37) + 0.3 (41) + 0.2 (37)
= 18.5 + 12.3 + 7.4
= 38.2
Three week WMA for Gishabay Clinic data.
Week Actual admission Three week weighted moving average for
Gishabay clinic data
1 22
2 21
3 25
4 27 .5 (25) + .3 (21) + .2 (22) = 23.2
5 35 .5 (27) + .3 (25) + .2(21) = 25.2
6 29 .5 (35) + .3 (27) + . 2(25) = 30.6
7 33 .5 (29) + .3 (35) + .2 (27) = 30.4
8 37 .5 (33) + .3 (29) + .2 (35) = 32.2
9 41 .5 (37) + .3 (33) + .2 (29) = 34.2
10 37 .5 (41) + .3 (37) + .2 (33) = 38.2
11 ? .5 (37) + .3(41) + .2 (37) = 38.2
 The WMA has a definite advantage over SMA in being

able to vary the effects of past data.
 eg. Super market may find that in a four-month period the
best forecast is derived by using 40% of the actual sales for
the most recent month, 30% of two months ago, 20% of
three months ago, and 10% of four months ago.
If actual sales experience was as follows:
Month 1 Month2 Month3 Month4 Month5
100 90 105 95 ?
M5=0.40(95) + 105(0.3)+ 90(0.2)+100(0.1)
=38+31.5+18+10 = 97.5
 The WMA has a definite advantage over the SMA
in being able to vary the effects of past data.
 However, it is more inconvenient & costly to use.
 And the choice of weights is somewhat arbitrary
and generally involves the use of trial and error to
find a suitable weighting scheme.

d) Exponential smoothing
 Exponential smoothing is a sophisticated WMA
forecasting method that is still fairly & easy to use.
 The reason this called “exponential smoothing” b/c
each increment in the past is decreased by (1-), or
 Most recent weighting = (1-)0
 Data 1 time period older = (1-)1
 Data 2 time periods older = (1-)2
 Data 3 time periods older = (1-)3
 Exponential smoothing is the most used of all
forecasting techniques.
Cont.….
 In the ES method, only three pieces of data are
needed to forecast the future: 1. the most recent
forecast, 2. the actual demand that occurred for
the forecast period, and 3. a smoothing constant
alpha.
 This smoothing constant determines the level of
smoothing and the speed of reaction to differentiate
between forecasts and actual occurrences.
 The value for constant is arbitrary & determined
both by the nature of the product and the manager’s
sense of what constitutes a good response rate.
Cont.….
 New forecast= Old forecast + (Actual – Old forecast)
 Ft = Ft-1 +  (At-1-Ft-1)
 Ft= the exponentially smoothed forecast for period t
 Ft-1=the exponentially smoothed forecast made for
the prior/previous period.
 At-1= actual demand in the prior/previous period.
  = desired response rate, or smoothing constant.
 This equation states the new forecast is equal to the
old forecast plus a portion of the error (d/c b/n
the previous forecast and what actually occurred).
Example
 Assume last month’s forecast (ft-1) was 1050 units.
 If the At-1 were1000 units rather than 1,050,  =
0.05, the forecast for this month would be:..
 Ft =Ft -1+ ɑ(At – 1 - Ft – 1) = 1,050+0.05(1,000-1,050)
=1,050+0.05(-50) = 1050-2.5 = 1,047.5 units
 B/c the smoothing coefficient is small, the reaction
of the new forecast to an error of 50 units is to
decrease the next month’s forecast by only 2 ½
units, i.e. (1050- 1047.5).
 Eg: In February car dealer predicted dd March 142
autos, but in March dd was turned out153 autos…
Cont.….
 Exponential smoothing requires that the smoothing
constant alpha () be given value between 0 and 1.
 If the real demand is stable, we would like a
small alpha to lessen the effects of short term or
random changes.
 If the real demand is rapidly increasing or
decreasing, we would like a large alpha to try to
keep up with the change.
 Therefore, we need some automatic method to
track and change our alpha values.
 Time & revised future method to predict alpha.
Associative forecasting techniques
 There are factors other than time that are often
related to demand changes called Associative or
explanatory forecasting models.
 Associative or explanatory forecasting models
incorporate one or more variables that are related
to the variable of interest and, therefore, they can
be used to predict future values of that variable.
 Most common quantitative associative forecasting
model is linear regression analysis X- Y graph.
 Many factors considered in an associative analysis.
 E.g the sales of Vestal TV might be related to….
Cont.….
 Advertising, prices, competitor’s & promotional
strategies, & nation’s economy & unemployment.
 In this TV sales = DV & other variables called IV.
 Manager develop best statistical r/ship b/n DV&IV.
Simple Linear regression analysis
 Regression can be defined as a functional r/ship
b/n two or more correlated variables.
 It is used to predict one variable given the other.
 A simple linear regression model consists of two
variables that are taught to be related.
Cont.….
 Extended period of rain increase sales of umbrellas.
 Cost of text book may depend on number of pages.
 Yield from land depends on soil conditions, amount
and timing of rain, and fertilizer applications.
 Umbrella & yield crop is DV, rain/fertilizer… is IV.
 The r/hip is usually developed from observed data.
 In order to make forecast, the two variables must
be expressed in a linear equation of the form:….
Y = a + bx
 Y= DV, x= IV, a = value of y when X=0, b= slope of line.

Cont.….
 LR is useful for long-term forecasting of major
occurrences & aggregate planning.
 Marketing manager must feel that advertising
expenditure is a major factor in determining sales.
 Note: It is conventional to represent values of the
predicted(DV) variable on the y-axis and value of
the predictor(IV) variable on the x-axis.
 Coefficient a & b of computed using two equations:
b= n(xy)-( x) (y)
a=
 y  b x 
or Y  b X

Where n= number of
n paired observations.
nx2-(x) 2
Example
 Meta brewery factory sell draft to AA Market. The
companies have found that its sales volume of draft
dependent on AA area construction employees. As
the number of construction employees’ increase
they generate more money and use more drafts.
This table lists Meta

brewery’s revenues
and amount of money
earned by wage of
construction
employees during the
past six months.

Cont.….
 We can find a mathematical equation by using the
least squares regression approach.

X=
 x 18
= =3 Y=
Y 15
= = 2.5
6 6 6 6

 XY  n xy = 51.5  632.5 =0.25
b=
 x  nx
2 2
80  6 3 
2 a = b = 2.5-(0.25)(3) = 1.75
The estimated regression equation, therefore, is
= mean
Y= 1.75 + 0.25 (wage) Wage is IV, d/t iv are there

Accuracy and control of forecasts
 It is important to monitor forecast errors to
determine if errors are within reasonable bounds.
 Forecast error is the d/c b/n value that occurs and
value that was predicted for a given time period.
 Error = Actual - forecast = et = At-Ft
Source of error
 Unaware, bias or random…
 Measurement of the accuracy of forecast
 1. Mean absolute deviation (MAD).
 2. Mean square error (MSE).
Cont.….
MAD =
 Actual  forecast MSE=
 Actual  forecast 2
n n 1
 Sample standard deviation(s)= square root of MSE.

E.g. Compute MAD and MSE for the following data.
MAD =
 e 2  3  1  4  2  5  1  4 22
= = =2.75
n 8 8
MSE =
e 2
=
76
 10.86 76/(n-1) = 76 (8-1) = 76/7 = 10.86
n 1 8 1

Controlling the forecast
 Variety of possible sources of forecast errors:.
1.Inadequate model: Omission, change. new variable.
2.Irregular variations: Natural phenomena.
3.Incorrectly/ misinterpreted.
4.Random variations in the data.
 Forecasts can be monitored using either tracking signals
or control charts.
 A tracking signal focuses on the ratio of cumulative
forecast error to the corresponding value of MAD:
Tracking signal (TS) =

 Actual  Forecast )
MAD

Cont.….
 A tracking signal is a measurement that indicates
whether the forecast average is keeping pace with
any genuine upward or downward changes in dd.
 Tracking signal is the number of MAD that forecast
value is above or below the actual occurrence.
 The table below illustrates the procedure for
computing MAD and TS for a six month period
where the forecast had been set at a constant 1,000
and the actual demands that occurred are as shown.
 Compute MAD, the running sum of forecast errors
(RSFE), & TS from forecast & actual data given.
Table
Clarification
 MAD for month 6,
= 400/6 = 66.7.
 TS = RSFE/MAD =
220/66.7 = 3.3.
 Deviation = Actual
– Forecast values.
 RSFE = Deviation
p1+0 =-50/RSFE1.
 Absolute
Deviation =
of deviation.
 Sum of absolute
deviation=50+0=50
 MAD = sum of
absolute deviation
of month 1,2,3…/
by month 1,2,3…
50/1=50,120/2=60…
TS= RSFE/MAD= -50/50 = -1

Using forecast information
 A manager can take a reactive or a proactive
approach to a forecast.
 A reactive approach views forecasts as probable
descriptions of future DD, & manager reacts to
meet it.
 Proactive approach requires either an explanatory
model (eg regression) or a subjective assessment of
the influence on demand.
 It is possible that manager might use two forecasts:
One to predict what will happen under the status.
Two forecast are unacceptable.
Overview of Planning Levels
 Process planning: determining technologies &
procedures required to produce product or service.
 Long range planning: > 1 year, determine product
& service, facility location, equipment…
 Define capacity of intermediate must function.
 Intermediate range planning: 6 up 18 month.
 Relate to scheduling employment, output,
inventory
 Define boundaries for short range capacity made.
 Short range planning: from 1 day to 6 month.
 Related to scheduling, jobs, workers, equipment…
AGGREGATE PRODUCTION PLANNING
 Aggregate planning begins with forecast of
aggregate demand for the intermediate range.
 It is general plan to meet dd requirements by
setting output, employment, and finished goods
inventory.
 The production plan is essentially the output of
aggregate planning.
 Product planning serves as input to process design.
 Task of aggregate planners is to achieve rough
equality of demand & capacity over entire
planning horizon.
Purpose & Scope of Aggregate Planning
 To balancing of supply and demand.
 To cost minimizing, but cost not only
consideration
 To dealing with uneven demand.
 For effective aggregate planning
 Info of: available resources, demand & policies.
 Aggregate Planning Strategies
 Proactive involve with demand options.
 Reactive involve with capacity options.
 Mixed strategies involve an element of each.
 Mixed strategy have the following three approach.
1. Strategies for Adjusting Capacity
 Aggregate planning becomes more of a challenge
when demand fluctuates over the planning
horizon.
 Seasonal demand patterns can be met by:
 Producing at a constant rate and using inventory.
 Hiring & firing workers to match dd (chase dd).
 Maintaining resources for high-demand levels.
When two
 Increasing or decreasing working hours.or more
company
 Subcontracting work to other firms. have mixed
strategy.
 Using part-time workers.
 When one is selected comp have pure strategy.
1.LEVEL PRODUCTION STRATEGY
 Level production strategy, sets production at a
fixed rate (usually to meet average demand) &
uses inventory to absorb variations in demand .
 During periods of low dd, overproduction is stored

as inventory, to be depleted in periods of high dd.
 2. CHASE DEMAND STRATEGY
 Matches production plan to dd pattern & absorbs
variations in demand by hiring & firing workers.
 dd low, production is cut back & workers laid off.
 During periods of high dd, production is increased
and additional workers are hired.
Cont.…..
 Cost chase strategy is cost of hiring & firing
worker
 A variation of chase demand is chase supply.
 Depend on supply of RM, not on dd pattern.
 3. PEAK DEMAND STRATEGY
 Maintaining resources for peak dd levels ensures
high levels of customer service.
 It is very costly, b/c need extra workers, machine.
 This strategy is used when superior customer
service is important or when customers willing to
pay extra for availability of critical staff/equipment.
4. OVERTIME AND UNDERTIME
 Overtime & under time: common strategies when
demand fluctuations are not extreme.
 Competent staff is maintained, hiring & firing costs
are avoided, & demand is met temporarily without
investing in permanent resources.
 Disadvantages: premium paid, tired, less efficient..
 Overtime alone may be insufficient to meet peak
demand periods.
 Under time can be achieved by working fewer
hours during the day or fewer days per week.

5. SUBCONTRACTING STRATEGY
 Subcontracting/outsourcing is feasible alternative if
supplier can reliably meet quality & time required.
 It is a common solution for component parts when
demand exceeds expectations for the final product.
 The subcontracting decision requires maintaining
strong ties with possible subcontractors and first-
hand knowledge of their work.
 Disadvantages: reduced profits, loss of control over
production, long lead times, and the potential that
the subcontractor may become a future competitor,
viewed as a high-risk strategy.
6. PART-TIME WORKERS STRATEGY
 Part-time workers is feasible for unskilled jobs or
temporary labor.
 Part-time workers less costly than full-time worker.
 More flexible, their hours usually vary considerably
 Accepted in manufacturing and government jobs.
 7. INVENTORIES
 The use of finished goods, inventories allows firms
to produce goods in one period & sell or ship them
in another period.
 This involves holding or carrying those goods as
inventory until they are needed.
Cont.…..
 Inventories can be built when production capacity
exceeds demand and drawn down when demand
exceeds production capacity.
 This method is more amenable to manufacturing
than to service industries. WHY?
 2. Strategies for Managing Demand
 Pricing: Degree of price elasticity for p or s. AIR.
 Promotion: Advertising to achieve desired results.
 Back orders: Shift to later period. Depend on
customer.
 New demand: Seasonal dd,= bus transportation.
3. Mixing Options to Develop a Plan
 Effective aggregate schedule is combination of
capacity and demand options.
 Demand options has been fully explored by the
marketing department.
 Techniques for Aggregate Planning
 1. Informal techniques: trial & error.
 2. Mathematical techniques.
 Informal techniques are most commonly used.
 General procedure for aggregate planning consists
of the following steps:
Aggregate planning steps
1. Determine demand for each period.
2. Determine capacity (regular time, overtime,
subcontracting) for each period.
3. Identify company or departmental policies that are
pertinent.
4. Determine unit costs for regular time, overtime,
subcontracting, holding inventories, backorders,
layoffs, and other relevant costs.
5. Develop different plans & compute cost for each.
6. If satisfactory plans emerge, select the one that
best satisfies objectives.
1. Informal Techniques: Trial -and -Balance using graphs
 Informal Techniques consist of developing simple
tables or graphs that enable planners to visually
compare projected demand requirements with
existing capacity.
 Alternatives are usually evaluated in terms of
their overall costs.
 Chief advantage of such techniques is that they do
not necessarily result in the optimal aggregate plan.
Relevant costs to aggregate production planning:
Basic production costs: FC & VC, direct & indirect cost.
Costs associated with changes in production rate: hiring, training, & laying off
Inventory holding costs: capital tied up in inventory.
Backordering costs: loss of customer, loss of sales revenues
Example
To illustrate the general principles in aggregate plan
with a shorter horizon, suppose we wish to set up a
production plan for the ABC company. for the next six
months. We are given the following information:
Month Jan. Febr Mar. April May June Total
DD forecast 1,800 1500 1100 900 1100 1600 8,000

W/ Day 22 19 21 21 22 20 125
 Costs Information:
Materials $100.00/unit
Inventory holding cost $1.5unit/month
Marginal cost of stock out $ 5.00unit/month

Cont.…..
Marginal cost of subcontracting; $20.00/unit ($120 subcontracting
cost Less $100 material savings)
Hiring and training cost $200.00/worker
Layoff cost $250.00/worker
Labour hrs required $ 5/unit
Straight line cost (first eight hrs each day) $4.00/hour
Overtime cost (time and half) $6.00/hour
Inventory
Beginning inventory 400 units
Safety stock 25% of month demand
Beginning inventory at end of first period = 400 units.
Before investigating alternative production plans, it is often
useful to convert demand forecasts into production
requirements, which take into account the safety stock
Cont.….
 Ending inventory of each month equals to safety
stock for that month.
 The January safety stock = 450 (25% of January dd
of 1800) the inventory at the end of January.
 The production requirement for January is demand
plus safety stock minus beginning inventory:
(1800+ 450-400= 1,850).
 Developing Aggregate production planning
Requirements:

Cont.….
Month Jan Feb Mach Appr May Jun
Beginning Inventory 400 450 375 275 225 275
Demand forecast 1800 1500 1100 900 1100 1600
Safety stock (.25 x Demand forecast) 450 375 275 225 275 400
Production requirement: ( Demand 1850 1425 1000 850 1150 1750

Forecast + Safety stock – Begin invt.)
Ending inventory :( Beginning Inv.+ 450 375 275 225 275 400
production Requirement - demand
forecast)
 Now, we must formulate alternative production plans for CO.

with the objective of finding the one with the lowest total cost:
Plan 1: Exact production; Vary workforce
Month Jan Feb Mach Appr May June Total
Production requirements(1) 1850 1425 1000 850 1150 1750 Frm pr

Production hrs. required (2) 9250 7125 5000 4250 5750 8625
[(1) X 5hr.per unit]
Working days per month (3) 22 19 21 21 22 20 Frm pr
Hrs. Per month per worker(4): 176 152 168 168 176 160
[(3) X 8hr/day]
Workers required (5): [(2)/ 53 47 30 25 33 54
(4)]
New workers hired (assuming 0 0 0 0 8 21 53-53=
opening workforce= to first 53-47=
month’s requirement of 53 25-
33=8?
workers) (6)
Hiring cost (7): [(6) X$200] $0 $0 $0 $0 $1600 $4200 $5800
Workers laid off (8) 0 6 17 5 0 0
Layoff cost (9) [workers laid $0 1500 4250 1250 $0 $0 $7000
off x $250)
Cont.….
Straight time $37000 $28500 $20000 $17000 $23000 $34500 $160,000
cost: [(2) x $4]
Total cost Str t Hc+l $172,800
c+ off cost
 Plan 2: Produce to meet expected average dd over

6 months by maintaining a constant workforce.
 Constant number of workers = Total production
requirement (pt) X Time required for Each unit /
total time that one person works over Horizon.
 [(8,000 units x 5 hours per unit)/(125 days x 8 hrs per day) =40 workers].
 Inventory is allowed to accumulate, with shortages

filled from next month’s prdn by back ordering.
 Use our safety stock in J, F, M,A & J to meet dd.
Production Plan 2: Constant Workforce; Vary Inventory and Stock out
Month Jn Fbr Mar Apr May June Total
Beginning inventory 400 8 -276 -32 412 720 given
Working days per month 22 19 21 21 22 20 given
Production hrs available 7040 6080 6720 6720 7040 6400

(working days per month
x8 hr./Day x40 workers*)
Actual prdn (Pdn.hrs 1408 1216 1344 1344 1408 1280
available/5hr/u
DD forecast (from the 1st. 1800 1500 1100 900 1100 1600
Endi invt (Beg invt + Actua 8 -276 -32 412 720 400
Production - DD forecast)
Shortage cost(Units sh x$5) $0 $1.380 $160 $0 $0 $0 $1,540
Safety stock (from the… 450 375 275 225 275 400 From
Units excess (End invt – 0 0 0 187 445 0

safety stock) only if +.
Cont.….
Invt cost (Units excess x $0 $0 $0 $281 $668 $0 $948
$1.50)
Straight time cost 28160 24320 26880 26880 28160 25600 $160000
(Prdtion hrs availa x $4)
Total cost $162,488
 Plan 3 Produce to meet the minimum expected dd

(April) using a constant workforce on regular
time. Subcontract to meet additional requirements.
 No of workers is calculated by locating minimum
monthly production requirement & determining
how many workers would be needed for that month
[(850x5hr/u)/(21d x8hr/d)=25 workers] & subcontracting
any monthly d/c b/n requirements & production.
Cont.….
Month Jan Feb Marc Appr May June Total
Production requirement 1,850 1,425 1,000 850 1,150 1,750 From p
Working days per month 22 19 21 21 22 20 From p
Production hours 4,400 3800 4200 4200 4400 4000

available
= Working day * 8*25.
Actual production= 880 760 840 840 880 800
Production hour/5hour
Units subcontract = prdn 970 665 160 10 270 925
requirement - actual
production
Subcontracting cost = 19,400 13,300 3,200 200 5,400 18,500 60,000
(Units 100,000
subcontractedx$20)
Straight time cost (Prdn 17,600 15,200 16,800 16,800 17,600 16,000 160,000
hours available x $4)

Plan 4.
 Produce to meet expected dd for all but first two
months using constant workforce on a regular time.
 Use overtime to meet additional output requirement
 The number of workers is more difficult to
compute for this plan, but the goal is to finish June
with an ending inventory as close as possible to the
June safety stock.
 By trial and error it can be shown that a constant
work force of 38 workers is closest approximation

Cont.….
Month Jun Feb Marc Appr May June Total
Beginning inventory 400 0 0 177 $54 792 Given
Working days per month 22 19 21 21 22 20 Given
Production hours available 6688 5776 6384 6384 6688 6080

(Working days x 8 hr./day x
38 workers)*
Regular shift production 1338 1155 1277 1277 1338 1216
(Production hour’s
available/5 hrs. per unit)
Demand forecast 1800 1500 1100 900 1100 1600 Given
Units available before -62 -345 177 554 792 408

overtime(Beg invt + Regular
shift production – Demand
forecast).
Units overtime 62 345 0 0 0 0

Cont.….
Overtime cost (Units $1860 $10350 $0 $0 $0 $0 $12210
Overtime x 5hr/ unit
x $6/hr.)
Safety stock 450 375 275 225 275 400 From p
Units excess =(Units 0 0 0 329 517 8 From

avail before = = = 408- unit
overtime safety 554- 792- 400 avail
stock) only if 225 275 before
positive amount OT
Inventory cost (Unit $0 $0 $0 $494 $776 $12 $1281
excessive x 1.50)
Straight time cost $26752 $23104 $25536 $25536 $26752 $24320 $152000
(Prdn hrs avail x $4)
12210 1281 $165,491

Workers determined by trial-&-error explanation
 Comparison of cost b/n d/t types aggregate plans:
Cost Plan1:Exact Plan2: Constant Plan 3: constant plan4:
production; Vary Workforce; Low Workforce; Constant
Workforce Vary Inventory Subcontract Workforce;
and Stock out Overtime
Hiring $ 5,800 $0 $0 $0
Layoff 7,000 0 0 0
Excess 0 948 0 1,281
inventory 0 1,540 0 0
Shortage 0 0 60,000 0
Subcontract 0 0 0 12,210
Overtime 160,000 160,000 100,000 152,000
Straight time $172,800 $162,488 $160,000 $165,491

Mathematical Techniques
 1.Linear Programming method: obtaining optimal
solutions to problems involving the allocation of
scarce resources in terms of cost minimization &
profit maximization.
 Minimize costs of regular labor time, overtime,
subcontracting, inventory holding costs & costs of
changing size of workforce should be minimized.
 Constraints capacities of workforce, inventories &
subcontracting or balance check b/n them.
 2. Linear Decision Rule: Minimize costs of regular
payroll, hiring & layoffs, overtime etc.
Cont.……
3. Simulation Models: Computerized models that
tested under different scenarios to identify
acceptable solution to problems.
 Aggregate Planning in Services
Some d/c b/n manufacturing & services:
 Services occur when they are rendered.
 Demand for service can be difficult to predict.
 Capacity availability can be difficult to predict.
 Labor flexibility can be an advantage in
services.
Material Requirements Planning (MRP)
 Primarily inventory required purpose is production.
 Inventories that support the production process
are called manufacturing inventories.
 Material requirement planning is not new concept.
 MRP converts gross inventory requirements into
net requirements.
 Gross requirements: Supplies on hand.
 Net requirements: Time phased of order response.
 MRP: Computer-based information system that
designed to handle ordering & scheduling of
dependent-demand inventories, like….
Cont.….
Raw material, Component parts, and Subassemblies.
 In manufacturing environment, the items carried in
inventory generally consists: raw materials, parts,
subassemblies & assemblies used to produce end p.
 DD for finished goods can be chrcts as indp DD.
 DD for items that become part of another product
can be chrctz as derives or dependent demand.
 Managed Inventories is results from the nature of
demand for those items.
 Plans to make certain products have dependent DD.
 Eg wheels, nuts and bolts, screws…
Cont.….
 The main purpose of a basic MRP system are:
 A. To control inventory levels.
 B. To assign operating priorities for items.
 C. To plan capacity to load the production system.
A. To control inventory levels
 Order the right part.
 Order in the right quantity.
 Order at the right time.
B. To assign operating priorities for items
 Order with the right due date.
 Keep the due date valid.
C. To plan capacity to load the production system.
 Plan for a complete load.
 Plan an accurate load.
 Plan for an adequate time to view future load.
 The subject of MRP is ''getting the right materials to
the right place at the right time.'‘

 Objective of inventory mgt under MRP system:
 To improve customer service.
 To minimizing inventory investment.
 To maximize production operating efficiency..
Cont.….
 Ordering & scheduling of assembled products
suffered from two things.
1. Enormous task of setting up schedules, keeping
track of large numbers of parts and components,
and coping with schedule and order changes.
2. Differentiate b/n independent dd & dependent dd.
 Techniques designed for independent-dd items
were being used to handle assembled items,
which result in excessive inventories.
 Later MRP begins with schedule for finished goods
is converted into a schedule of dpt DD requirements.
MRP is designed to answer three questions:
What is needed?
How much is needed?
When is it needed for dependent demand items?
 MRP has three advantages
1. Statistical forecasting for components with lumpy dd results in
large forecasting errors. Used safety stock
 MRP calculates the dependent demand of components from the
production schedules.
 Providing better forecast of component requirements.
Cont.….
 Provide useful information for planning capacities
& estimates financial requirements.
 Prdn schedules & material purchases = Capacities.
 Financial requirements = time periods when appear.
 Update dependent dd & inventory replenishment
schedules of components when the prdn schedules
of parent items change.
 MRP system alerts planners whenever is needed
on any component.

MRP INPUTS AND OUT PUTS
 There are three major inputs of MRP:
 Master production schedule: Tells finished product is composed of...
 Bill of materials: Tells how much finished product is desired & when
 Inventory record file: Tells how much inventory is on hand or order.
 Outputs decisions resulting from use of MRP system.
Which parts, How many, When to order

1. Master production schedule:
 States which end items are to be produced, x items
 When these items are needed, weekly, monthly…
 What quantities are needed, amount: 10,100, 200..
Cont.…..
 The quantities in a master p/schedule can come from a

number of different sources, including customer orders,
forecasts, order from wholesalers and external demand.
 Master schedule is generated initially in terms of what is
needed and not, what is possible.
 Master schedule may or may not be feasible.
 To be feasible master schedule may not be so it is,
when end items are translated into requirements for
procurement, fabrication, and assembly.
.
Cont.…..
 MRP system cannot distinguish b/n a feasible master
schedule and a non feasible one, only to run proposed
master schedule, to obtain a clearer picture required.
 If current master schedule is not feasible, a decision may
be made to increase capacity through over time,
subcontracting or revise the master schedule.
 It need several revisions is run through the system
until a feasible plan is By:

obtained .
Zenebe El. 2023/24.
2. The Bill of Materials (BOM):
 Contains listing of all assemblies, sub assemblies, parts&RM needed to

produce one unit of finished prd
 Each end item have bill of materials & items required for productions.
 Bill of materials used in MRP system also provides additional
information.
 This type of bill is ''structured'' bill of materials.
3. Inventory Record File or Inventory Master File
 Inventory master file contains an extensive amount of information on every
item that is produced, ordered, or inventoried in the system. All information's up
to end.

Cont.…..
 Inventory master file is updated whenever items
are withdrawn from or added to inventory or
whenever order is released, revised or completed.
 Estimated that 95% inventory accuracy is necessity
for an effective MRP system.
 MRP system cannot determine how many of a
particular part to order until it knows how many of
that part is currently has on hand.
 IRF provides this information for MRP system.
 MPS specifies number & time requirements for
end items. MPS =Master production schedule.
Cont.…..
 The bill of materials is used to calculate the needs for all
components, in terms of number & time.
 IRF used to determine if the needs can be met from current
stocks or if an order needs to be placed.
 MRP is tells the composition of finished product.
 Product Structure File(PSF)
 Once MPS is set, MRP system accesses the product structure file
to determine which component items need to be scheduled.
 The PSF contains a BOM for every item produced.
 BOM lists when & what quantity is needed in assembly process.
.
The following is called product structure tree,
 The listing in BOM life is hierarchical, its shows

quantity of each item (in parentheses) needed to
complete one unit of the following level of assembly.
 Here ‘’X’’ is end items and composed of all other
parents.
 Product structure tree determine quantities needed.
Example: depend on PSF information.
a. Determine quantities of B, C, D, E, and F needed to assemble one X.
b. Determine the quantities of these components that will be required to
assemble 100 Xs.
Component Quantity
B -------- 2 BS per X =2
D --------- 3 Ds per B x 2 BS per X =6
E -------- 4 Es' per D x 3 Ds per 2 BS per X = 24
E ------ 1 Es' per B x 2 BS per X =2
C ----- 1 Cs per X =1
E ----- 2 Es' per C x 1C per X =2
F ---- 2 Fs per C x 1Cs per X =2
Note that E appears in three separate places; its total requirements can be
determined by summing the separate amounts, which gives 28.
b) In order to assemble 100 units of X, quantities of each component must be
multiplied by 100:. 100(2) = 200Bs, 100(6) = 600 Ds, 100(28) = 2800 Es, &
100(2) = 200Fs.
MRP Processing
 The essence of MRP is to determined & achieve the
quantity & timing of end items in master schedule.
 The process then begins with master schedule.
 End Items: MRP-- Master schedule -- BOM file.
 Quantities that are generated by exploding the bill
of materials are gross requirements: not include on
hand inventory b/c it is received.
 Materials that must actually be required to meet the
demand generated by the master schedule are the
net requirements.
 Net requirements in period t = Gross requirements in period t-
project inventory in periodBy:t.Zenebe El. 2023/24.
Cont.…..
 Timing & sizes of orders determined by planned-
order releases. Place order.
 Timing of receipts these quantities is indicated by
planned-order receipts. Receive order.
 Gross requirements: are total expected demand for
an item or raw material during each time
period/production plan.
 It include dd not accounted, dd for replacement parts
for units already sold.
 Schedule receipts/Open orders are orders that have
been placed but not yet completed or scheduled to
arrive from vendors or elsewhere in the pipeline.
Cont.….
 Project on hand: Expected amount of inventory that will
be on hand at beginning of each time period:
 Scheduled receipt + available from last period.
 Net requirements: actual amount needed in each T/ period.
 Planned order receipt: is a new order not yet released to
the shop or the supplier.
 It is the quantity expected to be received.
 Planned-order-releases: is indicates when an order for a
specified quantity of an item is to be issued.
 When an order is executed, it is removed from the
“planned-order receipts” and “planned-order release”
rows and entered in the “scheduled receipts” row.

MRP output
 MRP systems have the ability to provide
management with a fairly broad range of outputs.
 These are primary reports: main reports and
secondary reports, which are optional outputs.
 Primary reports concerns: production , inventory
planning & control.
1.Schedule of planned order: indicates amount &
timing of future orders.
2.Order release: which authorizes the execution of
planned orders.
3.Changes to planned orders: revisions of due
dates or order quantities, cancellations of orders.
Secondary reports concern
1. Performance-control reports: used to evaluate
system operation: measuring deviations from plans.
2. Planning reports: useful in forecasting future
inventory requirements. purchase commitments & to
assess future material requirements.
3. Exceptional reports: call attention to major
discrepancies such as late, overdue orders, excessive
scrap rates, reporting errors and requirements for
non-existing parts.
 The wide range of outputs generally permits users
to adapt MRP to their particular needs.
OTHER CONSIDERATIONS
 Safety stock is not needed, if effective master
schedule has been established: but important in the
bottleneck process or shortage.
 In this case safety stock maintain smooth operation.
 When lead times variable: Concept of safety time.
 When quantities tend to vary: safety stock.
 Lot Sizing
 How many to order” must be answered.
 Determining appropriate lot size for production.
 To balance ordering & set inventory holding cost.
Some models used to cost minimization
Lot-for-Lot Ordering: Simplest of all methods.
 The order or run size for each period is set equal to
demand for that period.
 Adjust order size, eliminate holding costs for
parts, minimizes investment in inventory.
 A. Involves in d/t order sizes & not have
advantage in the economies of fixed.
 B. It requires a new setup for each run.
Economic Order Quantity Model:
To minimum costs if usage is fairly uniform.

 Fixed-Period Ordering:
 Provides coverage for some predetermined number
of periods.
 Depend on arbitrary, review historical, dd patterns.
 Operations Scheduling
 OS is detailed day-to- day planning of operations.
 Scheduling decisions allocate available capacity
or resources in tasks.
 Scheduling is the last & most constrained decision
in the hierarchy of capacity planning decisions.
 It indicates what is to be done, when, by whom,
and with what equipment.
Cont.….
 Aggregate planning: determine resources needed.
 Scheduling: allocates the resources made available
through aggregate planning in the best manner to
meet operations objectives.
 Scheduling deals with questions such as:
 Which work centers will do & which job?
 When should an operation? Start & end time.
 By which equipment be done, and by whom?
 What is the sequence of jobs?

Why scheduling is necessary?
 To allocate what each worker has to do.
 To provides the detailed instructions.
 To minz inefficiency & maxz customer service.
 To allocates its production capacity to meet dd.
 To achieving a competitive advantage.
 Basic of scheduling
 Schedules should be easy to use, understand, carry out & flexible.
 The primary objective of short range scheduling:
 Minimizing waste and inefficiency.
 Maximizing customer service.
Scheduling methods
 Forward scheduling: Actual production activities
begin when a job Order is received.
 In Forward scheduling product dd is unknown
until announced by the customer.
 Backward scheduling: production activities are
scheduled by their due dates.
 Starts from some date in the future & schedules the
required operations in reverse sequence.
 The backward schedule tells when an order must
be started in order to be done by specific date.

Combination of forward & backward scheduling
 Combination of scheduling requires:…
 Routing sheets/routing files: Set of detailed inform:
 List of operation, sequence, skill, times, testing….
 Explains how a product is to be produced in….
 Job loading: is assigned to individual work centers
or workstations, upon its standard capacity.
 Loading is assigning jobs to minimize costs by…
 Based on capacity, scheduling systems use either
infinite loading or finite loading.
 Infinite loading: work is assigned to a work
center By: Zenebe El. 2023/24.
Cont.….
simply based on what is needed overtime.
 No consideration of capacity, resources to complete
 Considered actual sequence of work is done.
 Finite loading: schedules in detail each resource using & time
required for each job.
 Job sequencing: ordering of jobs to achieve object.
 Dispatching: releasing job orders to workers for completion
according jobs sequence.
Common dispatching or priority rules in p or s.
 First-come, first-served: According jobs arriving work station
or service center.
.
 Earliest due date.
 Earliest due date is dispatched first, second, 3rd…
 Longest processing time: Job arriving workstation or
service center that requires the longest amount of processing
time is dispatched first, second, 3rd….
 Logic: more value, maximize sales, profit & service
 Shortest processing time: Job require least amount of
processing time is dispatched first, second,3rd…
 Rule is based: maximizing flow of completed jobs, reduce
costs & maximize profits.
 Standard measures of schedule performance used to
evaluate priority rules:….
Cont.….
1. Meeting due dates of customers or operations.
2. Minimizing flow time ( time job spends in process)
3. Minimizing work in process inventory.
4. Minimizing idle time of machines or workers.
 Priority rules and Scheduling techniques
A. Gantt Charts: Simple bar graphs schedule operation.
 Two basic types of Gantt Charts are:.
1. Gantt Work load charts: predict work load levels for
equipment, work stations or departments.
2. Gantt scheduling chart: used to track progress of jobs.
B. Job sequencing rules
 To minimize total time & cost, improve efficiency...
C. Johnson’s job sequencing rules: Used for set of
known jobs.
Ten priority rules for job sequencing
1. FCFS (first come, first served).
2. SOT/SPT (shortest operating/Processing time).
3. Due date : Earliest due date first.
4. Start date : Due date - normal lead time.
5. STR(Slack time remaining): Time remaining
before the due date – the processing time remaining.
 Orders with the shortest STR are run first.
Cont.…..
6. STR /OP (Slack time remaining per operation):
STR/OP =
7. CR (Critical Ratio): The d/c b/n due date & current

date divided by the number of work days remaining.
 Orders with the smallest CR are run first.
CR =
8. QR (Queue ratio): The slack time remaining in the

schedule divided by the planned remaining queue time.
 Orders with smallest QR are run first.

Cont.…..
9. LCFS (Last come, First served): This rule occurs
frequently by default.
 As orders arrive they are placed on the top of slack;
operator usually picks up order on top to run first.
10. Random order or whim: Supervisors or operators
usually select whichever job they feel like running.
 Scheduling n Jobs on one Machine: n=5, machine 1
 Five customers submitted their orders at the
beginning of the week.
 Specific scheduling data are as follows:….

Cont.…..
Job (in order Processing Due Date SOLUTION: T/ Flow Mean
of arrival) Time days (Days hence) Flow time Time
(days)
A 3 5 0+3=3 +
B 4 6 3+4=7 +
C 2 7 3+4+2=9 +
D 6 9 3 + 4 + 2 + 6 = 15 +
E 1 2 3 + 4 + 2 + 6 + 1 = 16 + = 50 10 days
 All orders require only color copy machines available.
 Firm determine the processing sequence for five orders.
 The evaluation criterion is minimum flow time.
 Use FCFS rule an attempt to become fair to its customer.
 Comparing due date with its flow time, only job A is on time done.
 Jobs B, C, D & E late by 1, 2, 6 & 14 days respectively.
 On average, a job will be late by (0 + 1+ 2+ 6+ 14)/ 5 = 4.6 days.
Cont.…..
 FIND SOLUTIONS USING RULES: SOT, Due DATE, LCFS, RANDOM &STR.
 SOT SCHEDULE:
Job sequence Processing Time (days) Due Date (Days hence) Flow time (days)
E 1 2 0+1=1
C 2 7 1+2=3
A 3 5 3+3=6
B 4 6 6 + 4 = 10
D 6 9 10 + 6 = 16
T/ flow time 36 Days
Mean flow T. 7.2 Days
 SOT results in a lower average flow time than the FCFS rule.
 Jobs E and C will be ready before the due date.
 job A is late by only one day.
 Average a job will be late by (0+ 0+ 1+4+7)/5 = 2.4 days.
 DUE DATE schedule:
E 1 2 0+1=1
A 3 5 1+3=4
B 4 6 4+4=8
C 2 7 8 + 2 = 10
D 6 9 10 + 6 = 16
T/completion T 39 Days
Mean flow T 7.8 days
 In this case jobs B, C, and D will be late.

 Average job will be late( 0+ 0+2+3+7)/5= 2.4 days.
 LCFS schedule
Job sequence Processing Time Due Date (Days hence) Flow time (days)
(days)
E 1 2 0+1=1
D 6 9 1+6=7
C 2 7 7+2=9
B 4 6 9 + 4 = 13
A 3 5 13 + 3 = 16
T/completion T 46 days
Average 4.0 days

lateness

 RANDOM schedule
D 6 9 0+6=6
C 2 7 6+2=8
A 3 5 8 + 3 = 11
E 1 2 11 + 1 = 12
B 4 6 12 + 4 = 16
Average 5.4 days

lateness

 STR. Schedule
Job sequence Processing Time Due Date (Days hence) Flow time (days)
(days)
E 1 2 0+1=1
A 3 5 1+3=4
B 4 6 4+4=8
D 6 9 8 + 6 = 14
C 2 7 14 + 2 = 16
Mean flow time 8.6 days
Average lateness 3.2 days

COMPARISON OF PRIORITY RULES:
RULE T/COMPLETION Time AVERAGE AVERAGE

Days COMPLETION T Days LATENESS
FCFS 50 10 4.6
SOT 36 7.2 2.4
D DATE 39 7.8 2.4
LCFS 46 9.2 4.0
RANDOM 53 10.6 5.4
STR 43 8.6 3.2
 Here SOT is better than the rest of the rules.

Scheduling n Jobs on Two Machines (n/2 Flow)
 Johnson’s rule or method
 Objective is to minimize flow time from beginning
of the first job until the finish of the last.
 Johnson’s rule consists of the following steps:
1. List operation time for each job on both machines.
2. Select the shortest operation time.
3. If shortest time is for first machine, do the job first; if it is
for the second machine, do the job last.
4. Repeat steps 2 & 3 for each remaining until the job
scheduling is complete.
 If no d/c b/n both machine jobs time we assign arbitrarily.
E.g. Scheduling four jobs through two machines
 Solution. Step 1: list operation times.
Job operation time on machine 1 operation time on machine 2
A 3 2
B 6 8
C 5 6
D 7 4
 Step 2 & 3: Select the shortest operation time and assign.

 Job A is shortest on machine 2 & is assigned first & performed last.
 Once assigned job A is no longer available to be scheduled.
 Step 4: Repeat steps 2 and 3 until completion of schedule.
 Select the shortest operation time among the remaining jobs.
 Job D is second shortest on machine 2, so it is performed second to
last:(Remember Job A is last).
 Job C is the shortest on machine one among the remaining jobs.
Optimal scheduling of jobs using Johnson’s rule
MACHINE 1 Job C Job B Job D Job A Idle but available for
other work
MACHINE 2 Idle Job C Job B Job D Job A
0 5 11 18 21 24
Scheduling a set number of Jobs on same

number of machines:
 Some job have enough right kinds of machines to
start all jobs at the same time.
 Problem is not which job to do first, but assignment
of individual jobs to individual machines.
 This problem is solved through assignment method
The assignment method:
 It is a special case of the transportation method
of linear programming.
 Applied there are n supply sources & n DD uses.
 Objective is to minimize or maximize some
measures of effectiveness.
 Assignment method solve the following problems:
1. If n things to be distributed to n destinations.
2. Each thing be assigned to & only one destination.
3. Only one criterion can be used/min or max….

Used to:…
 Assigning tasks or jobs to resources.
 Assigning jobs to machines.
 Assigning contractors to bidders.
 Assigning people to projects.
 Assigning salespeople to territories etc.
 The objective is to minimize total costs or time
required to perform the task at hand.
 Assignment problems is that only one job (or work)
is assigned to one machine (or project).
 Hungarian method: is method of assigning jobs by
one for one matching to identify the lowest cost
Assignment method Steps to lower costs solution.
1. Acquire the relevant cost information and arrange it
in tabular form.
2. Obtain the Row Reduction; subtracting smallest
number from each
3. Obtain the Column Reduction by subtracting the
smallest number.
4. Test whether an optimum assignment can be made.
 If number of lines equal the numbers of row, an
optimum assignment is possible.
5. If the numbers of lines are less than the number of
rows, modify the table as in the following manner:..
Cont.…..
 Subtract the smallest uncovered number from every
uncovered number in the table.
 Add the smallest uncovered number to the numbers
at the intersections of covering lines.
 Numbers crossed out but not at intersections of
cross out lines carry over unchanged to next table.
6. Repeat steps 4&5 unless optimal table is obtained.
7. Make the assignments:
 Begin with rows or columns with only one zero.
 Match items that have zeros, using only one match
for each row and each column. Cross out both r&c.
E,g: Determine optimal assignment of jobs to machines
Machine
JOB A B C D
1 8 6 2 4
2 6 7 11 10
3 3 5 7 6
4 5 10 12 9
1. Select the Raw minimum and Subtract in each row

Machine. Machine
JOB A B C D R/ min Job A B C D
1 8 6 2 4 =2 1 6 4 0 2
2 0 1 5 4
2 6 7 11 10 =6
3 0 2 4 3
3 3 5 7 6 =3
4 0 5 7 4
4 5 10 12 9 =5 C/min 0 1 0 2
Cont.…..
Machine. Machine.
JOB A B C D JOB A B C D
1 6 3 0 0 1 6 3 0 0
2 0 0 5 4 2 0 0 5 2
3 0 2 4 3 3 0 1 4 1
4 0 5 7 4 4 0 4 7 2
 Determine the minimum

 Subtract the smallest number of lines needed to
number in each column & cross Out all zeros.
Enter the results to form a  Here we have three lines
new table only but rows are 4, so the
solution is not optimal.
Cont.…..
Machine. Machine.
JOB A B C D JOB A B C D
1 6+1=7 3 0 0 1 7 3 0 0
2 0+1=1 0 5 2 2 1 0 5 2
3 0 0 3 0 3 0 0 3 0
4 0 3 6 1 4 0 3 6 1
 Subtract the smallest value that

 Determine the minimum
has not been crossed out from number of lines needed to
every number that has not been cross Out all 0 (4), since
crossed out ( here1) & add this this equals the number of
to numbers that are at rows , we obtain optimum
intersections of covering lines
assignment.
Step-7 Make assignments, start with rows & columns with Only one 0.
 Match jobs with machines that have 0 costs.
Machine
JOB A B C D
1 7 3 0 0
2 1 0 5 2
3 0 0 3 0
4 0 3 6 1
 Assignments Cost (From the original cost table)

1-C ------------- $ 2  If the objective is maximization
2-B ------------- $ 7 instead of minimization subtract
3-D ------------- $6 largest value from all values in
4-A ------------- $5 table & continue as usual
End of chapter 3, thanks 4 your attention!!

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CHAPTER THREE

OPERATIONS PLANNING & CONTROL

By: Zenebe El. 2023/24.

A. Top-down forecasting: general business conditions.

 SMA = x1+ x2+…x10/N.

By: Zenebe El. 2023/24.

 Of course if N=1 the method simply uses the data of

Example 2: Compute a three-period moving average forecast given

By: Zenebe El. 2023/24.

 Solution MA3 = 41+40+43/3 = 41.33

 The WMA has a definite advantage over SMA in being

By: Zenebe El. 2023/24.

By: Zenebe El. 2023/24.

This table lists Meta

By: Zenebe El. 2023/24.

Y= 1.75 + 0.25 (wage) Wage is IV, d/t iv are there

 Sample standard deviation(s)= square root of MSE.

By: Zenebe El. 2023/24.

Tracking signal (TS) =

By: Zenebe El. 2023/24.

By: Zenebe El. 2023/24.

 During periods of low dd, overproduction is stored

By: Zenebe El. 2023/24.

DD forecast 1,800 1500 1100 900 1100 1600 8,000

By: Zenebe El. 2023/24.

By: Zenebe El. 2023/24.

Beginning Inventory 400 450 375 275 225 275

Demand forecast 1800 1500 1100 900 1100 1600

Production requirement: ( Demand 1850 1425 1000 850 1150 1750

 Now, we must formulate alternative production plans for CO.

Production requirements(1) 1850 1425 1000 850 1150 1750 Frm pr

 Plan 2: Produce to meet expected average dd over

 Inventory is allowed to accumulate, with shortages

Month Jn Fbr Mar Apr May June Total

Beginning inventory 400 8 -276 -32 412 720 given

Working days per month 22 19 21 21 22 20 given

Production hrs available 7040 6080 6720 6720 7040 6400

Units excess (End invt – 0 0 0 187 445 0

 Plan 3 Produce to meet the minimum expected dd

Production requirement 1,850 1,425 1,000 850 1,150 1,750 From p

Working days per month 22 19 21 21 22 20 From p

Production hours 4,400 3800 4200 4200 4400 4000

By: Zenebe El. 2023/24.

By: Zenebe El. 2023/24.

Beginning inventory 400 0 0 177 $54 792 Given

Working days per month 22 19 21 21 22 20 Given

Production hours available 6688 5776 6384 6384 6688 6080

Units available before -62 -345 177 554 792 408

By: Zenebe El. 2023/24.

Units excess =(Units 0 0 0 329 517 8 From

12210 1281 $165,491

By: Zenebe El. 2023/24.

Excess 0 948 0 1,281

Overtime 160,000 160,000 100,000 152,000

Straight time $172,800 $162,488 $160,000 $165,491

By: Zenebe El. 2023/24.

the right place at the right time.'‘

By: Zenebe El. 2023/24.

 Outputs decisions resulting from use of MRP system.

Which parts, How many, When to order

 The quantities in a master p/schedule can come from a

 MRP system cannot distinguish b/n a feasible master

schedule and a non feasible one, only to run proposed

master schedule, to obtain a clearer picture required.