Chapter 13 ndash; Aggregate Planning.ppt

Chapter 13 – Aggregate Planning Operations Management by R. Dan Reid Nada R. Sanders 3rd Edition ? Wiley 2007 Types of Operational Planning Activities ACTIVITY Long-range planning Medium-range planning Short-range planning TIME FRAME 18 months – 5+ years 6-18 months 1 day – 6 months The Role of the Aggregate Plan Aggregate Planning Based on composite (representative) products: Simplifies calculations Forecasts for grouped items are more accurate Considers trade-offs between holding inventory short-term capacity based on workforce Aggregate Production Planning Purpose: specify the combination of production rate, workforce level, and inventory on-hand that satisfies the forecasted demand at the lowest cost. Production rate: quantity of product produced per unit of time (autos/day). Workforce level: number of workers required to meet a specific level of output. Inventory on hand: unsold units carried over from one period to the next. Managing Demand Pricing Advertising and Promotion Backlogs and Reservations Develop Alternative Products Managing Supply (Capacity) Overtime/Undertime Hiring/Firing of Personnel Temporary/Part-time Personnel Subcontracting Adjusting Inventories Adjusting Lead Times Aggregate Planning: Objectives and Approaches Objectives: Match Supply and Demand (Effectiveness) Minimize Costs (Efficiency) Approaches Reactive approach: Allow volume forecasts based on Marketing plan to drive production planning Proactive approach: Coordinate Marketing Production plans to level demand using advertising price incentives Aggregate Plan Strategies Chase strategy: Match the production rate to meet the demand rate by adjusting the workforce level (hiring/firing) as the demand rate changes. Minimize finished good inventories by matching demand fluctuations. Level strategy: Use a stable workforce working at a constant production rate. Use inventories and backorders to absorb demand peaks and valleys. Pure Aggregate Strategies Chase Plan Example Chase