3 - Aggregate Planning

Question 1

AGGREGATE PLANNING (black box) ?

Answer 1

• Inputs:
• Accounting data (costs)
• Demand (orders + demand forecasts)
• Machine, manpower availability
• Supplier, subcontractor availability
• FInished product availability
• Output:
  Master Prodcution Scheduling (MPS)

Question 2

What does the Master Production Scheduling (MPS) consist ?

Answer 2

It defines how many units of finished products are going to be manufactured in the medium-long term

Considerations in the MPS:

• Only finished products are considered (not materials)
• Only the most critical production resources (bottlenecks *) are considered

Question 3

What does the AGGREGATE PLANNING determine?

Answer 3

Determines the necessary resource capacity that a company will need in order to meet its expected demand.

Question 4

What about the results of the Aggregate Planning phase?

Answer 4

The results of the aggregate planning phase are on of the “first” inputs to the Production Planning process

Question 5

Draw the hierarchical diagram with the processes(from high to low risk) and their time horizon.

Answer 5

1. Business Planning (5 -10 years)
2. Aggregate Planning (1 years )
3. Master Scheduling (3-12 months)
4. Materials Requirement (1-6 months)
5. Capacity Requirements Planning (1-3 months)
6. Operations Scheduling (1 week)
7. Production Activity Control (hours - days)

Question 6

Which are the objectives of Aggregate Planning ?

Answer 6

NOTE: The aim of AGGREGATE PRODUCTION PLANNING is the formulation of an “optimal” production plan able to fulfill the customer demand, while minimizing the cost associated with its implementation and compliance with all the constraints

• Business objectives
• Production objectives
• Financial objectives
• Human resources objectives

Question 7

Describe the “business objectives” of Aggregate Planning?

Answer 7

• Always have (or quickly) a wide range of products
• ability to do things
• high level of customer service.

Question 8

Describe the “production objectives” of Aggregate Planning

Answer 8

• production rate constant
• large lots
• no changes

Question 9

Describe the “Financial objectives” of Aggregate Planning

Answer 9

• Limited financial exposure (purchasing, WIP, sales)

Question 10

Describe the “Human resources objectives” of Aggregate Planning

Answer 10

• contant level of workforce use

Question 11

Which are the constraints of the Aggregate Planning?

Answer 11

• Production capacity available in normal hours
• Production capacity available in overtime
• Constraints on warehouse stocks: Stock limits, obsolescence
• Restrictions on subcontracting:
• Limited quantities (upper/lower)
• Delivery time
• Quality
• Suppliers availability

Question 12

What about the Nature of the Planning problem?

Answer 12

The demand pattern may be cyclical in nature (it may change based on seasons)

So company capacity may be:
*sufficient to meet peak demand, thus management accepts that capacity will be idle at times ( this will increase production costs);

• only sufficient to meet the base demand, therefore overtime, sub-contracting, temporary operators may be used to meet the peak demand (e.g. drinks industry brings in temporary operators and sub-contracts to meet Christmas demand);
• sufficient to meet the average demand, thus stock holding will be used to balance between supply and demand.

Question 13

More details about the AGGREGATE PLANNING?

Answer 13

• Aggregate planning phase is connected to the annual budget setting process.
• Aggregate plans are a rough analysis useful for high level planning, but contain insufficient detail to manage production in practice (e.g. to control equipment and operators).

*The Master Production Schedule (MPS) is the schedule of what “final products” are needed and in what quantity:
e.g. one particular entry in the MPS could specify the
need to produce 300 CF-ECO-800 washing machines
in the month of May.

*The MPS is generated by the aggregate plans and uses sales forecast and booked orders to determine specific quantities of products to be produced on particular dates.

Question 14

What else does the Master Production Schedule (MPS) include?

Answer 14

Orders and Sales Forecasts

Question 15

AGGREGATE PLANNING determination:

How to develop an Aggregate Plan?

Answer 15

• Develop alternative plans and calculate the cost for each of them.
• Therefore, choose the best overall plan based on company objectives

Question 16

What does it entail if the Capacity and Demand are nearly equal?

Answer 16

The emphasis should be placed on meeting the Demand as efficiently as possible.

Question 17

What does it entail if the Capacity is greater than Demand?

Answer 17

• Production capacity will not reach its saturation point
• The company should implement advertising in order to increase the customer’s demand.
• Excess of production capacity might be used for other purposes like subcontracted work, development of new product types.

Question 18

What does it entail if the Capacity is lower than Demand?

Answer 18

• The company should decide whether subcontrating a portion of the workload or implement overtime
• If the phenomenon is systematic, the firm might consider to buy further capacity (new employees, new machines)

Question 19

Which are the two Production Planning strategies ?

Answer 19

• Level
• Chase

NOTE: What is the best plan?:
Level and Chase production represent the trade-off between the Stock Holding costs and Setup costs

Question 20

What does the “Level” strategy for Production planning consist?

Answer 20

In mantaining a constant output rate along the planning horizon

NOTE: By means of inventories, delayed deliveries.

Question 21

What does the “Chase” strategy for Production planning consist?

Answer 21

In matching the production rate to the order rate along the planning horizon.

NOTE: The production may also vary by means of hire and fire, subcontracts, overtime.

Question 22

In Aggregate Planning, to which categories do the Overall costs belong?

Answer 22

• Inventory holding
• Setup
• Efficiency …
• Production rate
• Subcontracting
• Workforce size
• Production level
• Shortage

Question 23

Planning Strategies: “Mixed strategy” is feasible..

What about the graph (Cumulative units vs time) with the plans within the zones B,C and A?

Answer 23

• Plans within Zone A: They are not feasible since the demand is not met.
• Plans within the zone B: They are ineffective since they are dominated by the Level plan strategy.
• Plans within the zone C: They represent real-life plans. They are feasible and represent a trade-off b/w Level and Chase plans.

Question 24

How is it possible to convert an ‘infeasible plan’ into a ‘feasible plan’?

Answer 24

Through “left-wise shifts or lots” at expenses of both Stock holding and Setup costs.

Question 25

Comparison b/w LEVEL and CHASE?

Answer 25

*Chase: - It could not be feasible for industries requiring highly skilled workers + It could be effective during periods of highly unemployment - It could have negative motivational impacts (when workload is low, employees may feel compelled to slow down) *Level: - It could not be feasible for products which can become obsolete + Employees benefit from stable work hours + In case of unforeseen demand fluctuation, it is less risky than the Chasestrategy

Question 26

Which are the AGGREGATE PLANNING techniques?

Answer 26

* Trial and Error: Costing out the production alternatives and choosing the one with the lowest cost. * Linear programming * Heuristic methods like: Wargner-Whithin, Karni-Roll, Aucamp, etc

Question 27

What are the implications in terms of costs of increasing or decreasing the Production rate?

Answer 27

* If Production rate increases: Leads to Overtime cost | * If Production rate decreases: Leads to idle time cost.

Question 28

What does Subcontracting entail?

Answer 28

* Administration costs * Usually production of subcontractors is a more costly production method * Cost increase depends on supplier's profit margin

Question 29

What are the implications of increasing or decreasing the Workforce size?

Answer 29

* Increasing the workforce leads to: - advertising - interviewing - training costs * Decreasing workforce leads to: - redundancy costs - affects company image

Question 30

What does Inventory entail?

Answer 30

Inventory -holding costs

Question 31

What do Shortages ("escasez") entail?

Answer 31

- Backlogs - Back orders - Stok-out - Lost sales

Question 32

What does Production level entail?

Answer 32

Shift overheads ("cambio de gastos generales"): security, supervision, canteen

Question 33

Multi-product planning

Answer 33

* The plan must be defined in terms of bottleneck hours (not units!) * Once necessary bottleneck capacity is determined, it must be split among the products of the family in order to define the MPS: - The more the plan approaches the present, the more it is detailed; therefore it can drive the production and purchase orders

Question 34

what about Product variety and MPS feasibility ?

Answer 34

* The MPS is a key coordinating element, but problems occur when there is a high variety of final products (e.g. cars); * Hence, when there is a high number of product variants, it is convenient to: - Make forecast for groups of products (e.g. 20% red, 20% brown, etc.) - or produce MPS at point of minimum variety:

Question 35

What is it convenient to do when there is a high number of product variants?

Answer 35

- Make forecast for groups of products (e.g. 20% red, 20% brown, etc.) - or produce MPS at point of minimum variety:

Question 36

Name the decision variables in Aggregate Production Planning.

Answer 36

Decisions are to be taken to “match” DEMAND with CAPACITY, by using: *Inventory management *Outsourcing of resources *Sub-contracting *Investment to gain elasticity of the production system *Shifts and Labor force organization *Use of overtime *Negotiation with customers *Production shifts organization and use …..