Topic2 Aggregate Planning, Apuntes de Administración de Empresas

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Topic 2

Aggregate planning

Operations Management

Economy & Business organization department

M. del Mar Viñas

Index

• Aggregate planning
• Measures to adjust production capacity.
• Calculation of Aggregate planning
• Techniques of Aggregate planning
• M.P.S (Master Production Schedule)

Bibliography:

DOMÍNGUEZ MACHUCA/ ÁLVAREZ GIL/ GARCÍA GONZÁLEZ/RUÍZ JIMÉNEZ:

Dirección de Operaciones. Aspectos tácticos y operativos en la producción y los servicios. Mc. Graw-

Hill. Interamericana de España, S.A. Madrid, 1994.

These transparencies have been designed to support the classroom lectures of this subject.

 Considerations

 Units: family of products

 Time horizon: 6 - 18 months

 Time cubs: The time horizon is divided in months or

trimesters.

 Definition

Medium term production planning which is possible

from the capacity point of view.

It allows the Strategic Planning to be achieved

effectively taking into account the tactical objectives

of the production subsystem.

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Aggregate Planning of Production

 A company manufactures just one family of products. One standard hour is required to produced 1 unit of this family.

 Each operator works an average of 100 hours per month. The company has a staff of 100 workers.

 We assume that each month has the same number of working days.

 There are NOT pending orders. The initial inventory of the company equals 500 units. This is exactly the security stock that the company has determined to face possible deviations with respect to the sales forecasts.

 No capacity problems have been reported concerning the machinery & equipment.

6

Aggregate Planning: A simple example

 Imagine a production of 120.000 units per year and a constant

monthly production equal to 10.000 units (as alternative 1). However the monthly needs are variable:

 If the monthly capacity is just 10.000 units, there will be

imbalance between market demand and the company supply in some months.

8

Alternative 2 – Seasonal behaviour

Months Jan Fe Ma Ap My Ju Jl Ag Se Oc No De

Needs of production

(Alternative 2)

(Quantities in thousands o f units)

 From January to May:  Needs > Production  Delays in deliveries  Low service level to customers

 From May to December:  Production > Demand needs  Possession cost

9

Monthly needs of production

Ja Fe Ma Ap My^ Ju^ Jl Ag Se Oc No^ De Months

Thousands of units

Alternative 2 – Seasonal behaviour (2)

Temporary steps to adjust the capacity

Option Advantages Inconvenients Costs

Hiring/ dismissal of labour

• Avoids idle timing,

inventory increase and

overtime hours.

• Legal limitations
• Industrial/labour disputes
• Unfeasible if labour is

highly specialised

• High training capacity
• Productivity decrease

Hiring

• Advertisements
• Recruitment tests
• Administrative work
• Labour training
• Productivity decrease

Dismissal

• Labour economic

compensations

• Administrative work
• Labour conflicts

Overtime hours

• Avoid hiring and

dismissals.

• Avoid inventory increase

and service delays.

• Legal limitations.

Collective agreements

• Optional.
• Influence over

motivation, quality,

productivity, accidents,…

• Extra cost of production
• Costs for lower

productivity

• …

Temporary steps to adjust the capacity (2)

Option Advantages Inconvenients Costs

Idle/spare timing

• Cheaper than dismissals

if the capacity deviation is

low

• Avoids conflicts due to

dismissals.

• Qualified and trained

workers are kept.

• Avoids inventory

increase.

• Salaries are paid to

labour

• Low efficiency of

machinery

• Salaries
• Fixed costs assumed

even if machinery is not

used 100%.

Subcontracting

• No additional

investments

• Avoids machinery

overwork

• No legal limitations
• No subsequent

dismissals.

• Risk to loose customers.
• Lack of availability by

subcontracting companies

• Lower control over

production process.

• Higher production costs.
  • Cost of subcontracting

company.

• Risk of penalization by

customers.

Programming of labour vacation

• Reduction of labour

without other risks.

• Legal and collective

agreements limitations.

• None

• Environmental limitations

• Company policies

• Costs

• Customer satisfaction

• Basic cost of production is the same in all plans.

• Comparison of incremental cost of each plan.

14

Factors to be considered

Aggregate planning process

Calculation of

production

quantities

Temporary

adjustments

of capacity

Alternative

aggregate

plans

Plans

evaluation

Definitive

aggregate

planning

Appropriate aggregate

planning?

YES

NO

Desired

objectives

Best

present

alternative

• A company manufactures just one family of products.
• One unit requires 1,5 standard labour hours. Each operator develops an average of 8h per day.
• At present, December 2012, the company staff is 150 workers (50 fixed, 100 eventual).
• The present stock is 0 units even though a security stock of 500 units is required.

17

Example of Aggregate plan

Example of Aggregate planning

We’ll use a table to calculate the monthly production needs:

Jan Feb Mar Apr May Jun Jul Ago Sep Oct Nov Dec Total

Compromised orders Pending orders Security Stock Production needs plan Cummulative plan Productive days 20 20 22 20 22 21 20 22 22 20 21 20 250

Forecast

Company costs are the following:

 Materials per family unit: 5.000 m.u.

 Standard labour hour cost: 1.000 m.u./h

 Standard overtime hour cost: 1.500 m.u/h

 Idle labour hour cost: 1.100 m.u./h

 Recruitment cost: 100.000 m.u./operator

 Cost of dismissal of temporary worker: 150.000 m.u.

 Subcontracting 1 unit of the family: 1.000 m.u, over the regular cost of production in the company.

 Possession cost: 200 m.u/u. & month

 Delayed service cost: 1.500 m.u/u. & month

20

Example of aggregate plan

Other factors to be considered to develop the agregate planning, derived from the company policies:

 There are 3 shifts and it is possible that 50 operators work simultaneously. This implies a maximum number of working hours per day: 1.200 h/day (150 operators x 8 h/day& operator).

 The maximum number of overtime hours is 10% of regular working hours.

 No dismissal of fixed workers.

 All costs are considered lineal functions.

 The daily market demand, inside one month, is considered uniform and continuous.

21

Example of aggregate plan