Operations Management. Aggregate Planning

Transcription

1 Operations Management Aggregate Planning

2 MacPherson Refrigerator Limited Executive staff meeting Whenever Business gets good, we run out of product and our customer service was lousy. Why so? Shortage situation was terrible I will tell you this can be avoided if we get decent forecast from sales department Wait a minute. We forecasted up turns and down turns as and when

3 MacPherson Refrigerator Limited Executive staff meeting You always revise forecast, we receive four days after the start of month. By then it was too late We should rethink on S & OPs I want to add on, we have burden more than once by building inventories for a business upturn that does not happen!!! We get stuck with tones of inventories and run out of cash.

4 MacPherson Refrigerator Limited Executive staff meeting Whenever Business gets good, we run out of product and our customer service was lousy. Why so? Shortage situation was terrible I will tell you this You always revise can be avoided if forecast, we receive we get decent four days after the forecast from start of month. By sales then it was too late department We should rethink on S & OPs I want to add on, we have burden more than once Wait by a building inventories minute. for a We business upturn that forecasted does up not happen!!! We get turns stuck and with tones of inventories down and turns as run out of cash. and when That s what? Focus on Aggregate operation plan for 1 st Jan st Dec 2012

5 An item representing an entire product family. Families: Group of items that share a common manufacturing setup cost; i.e., they have similar production requirements

6 Given the anticipated demand and overall capacity levels, management develops an aggregate plan for its resources, which is a formal document describing future production rates, workforce levels, and inventory holdings

7 Aggregate Production Plan Quarter 1 Jan Feb Mar 150, , ,000 Quarter 2 Apr May Jun 100, , ,000 Quarter 3 Jul Aug Sep 180, , ,000

8 Aggregate Production Plan Quarter 1 Jan Feb Mar 150, , ,000 Quarter 2 This plan Apr consisted May of planned gross Jun production by month for the year and did not indicate numbers of specific appliances, sizes or models to be made each month. 100, , ,000 Quarter 3 Jul Aug Sep 180, , ,000

9 Aggregate Planning Strategies 1. Use inventories to absorb changes in demand 2. Accommodate changes by varying workforce size 3. Use part-timers, overtime, or idle time to absorb changes 4. Use subcontractors and maintain a stable workforce 5. Change prices or other factors to influence demand

10 Aggregate Planning Strategies There are eight Aggregate Planning Strategies First five are called as capacity option Last three are called as demand options Capacity options Changing Inventory levels Varying workforce size by hiring or layoff Varying production rates through overtime or idle time Subcontracting Using part time workers Demand Options Influencing demand Back ordering during high demand periods Counter seasonal product and service mixing

11 Aggregate Planning Strategies Many manufacturers observe that the use of demand options and capacity options in combination may produce effective aggregate plan. So, there are two mixed strategies CHASE Strategy LEVEL Strategy

12 Mixing Options to Develop a Plan Chase strategy Match output rates to demand forecast for each period Vary workforce levels or vary production rate Favored by many service organizations

13 Level strategy Mixing Options to Develop a Plan Daily production is uniform Use inventory or idle time as buffer Stable production leads to better quality and productivity Some combination of capacity options, a mixed strategy, might be the best solution

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15 Methods 1. Determine the demand for each period 2. Determine the capacity for regular time, overtime, and subcontracting each period 3. Find labor costs, hiring and layoff costs, and inventory holding costs 4. Consider company policy on workers and stock levels 5. Develop alternative plans and examine their total costs

16 A Juraez, Mexico, manufacturer of roofing supplies has developed monthly forecasts for a family of products. Data for 6-month period January to June are presented herewith. The firm would like to begin development of aggregate plan.

17 Month Expected Demand Production Days Demand Per Day (computed) Jan Feb Mar Apr 1, May 1, June 1, ,

18 Cost information given Cost Information Inventory carrying cost Subcontracting cost per unit Average pay rate Overtime pay rate Labor-hours to produce a unit Cost of increasing daily production rate (hiring and training) Cost of decreasing daily production rate (layoffs) $ 5 per unit per month $10 per unit $ 5 per hour ($40 per day) $ 7 per hour (above 8 hours per day) 1.6 hours per unit $300 per unit $600 per unit Table 13.3

19 Calculate Average demand per day Month Expected Demand Production Days Demand Per Day (computed) Jan Feb Mar Apr 1, May 1, June 1, , Average requirement = Total expected demand Number of production days Table ,200 = = 50 units per day 124

20 Production rate per working day Plot daily (forecasted) and average demand Forecast demand Level production using average monthly forecast demand Figure Jan Feb Mar Apr May June = Month = Number of working days

21 Possible strategies Level strategy Maintain a constant workforce Combine constant workforce for lowest demand and subcontracting for extra demand Chase Hire and lay off workers to produce exact monthly requirments

22 Plan 1 Cost Information Inventory carrying cost Subcontracting cost per unit Average pay rate Overtime pay rate Labor-hours to produce a unit Cost of increasing daily production rate (hiring and training) Cost of decreasing daily production rate (layoffs) $ 5 per unit per month $10 per unit $ 5 per hour ($40 per day) $ 7 per hour (above 8 hours per day) 1.6 hours per unit $300 per unit $600 per unit Table 13.3

23 Cost Information Production at Month 50 Units per Day Inventory carry cost Table 13.3 Plan 1 $ 5 per unit per month Subcontracting Jan cost 1,100 per unit 900 $ per unit 200 Average pay rate Overtime pay rate Labor-hours to produce a unit Demand Forecast Cost of increasing daily production rate (hiring and training) Cost of decreasing daily production rate (layoffs) Monthly Inventory Change $ 5 per hour ($40 per day) $ 7 per hour (above 8 hours per day) 1.6 hours per unit $300 per unit $600 per unit Ending Inventory Feb Mar 1, Apr 1,050 1, May 1,100 1, June 1,000 1, ,850 Total units of inventory carried over from one month to the next = 1,850 units Workforce required to produce 50 units per day = 10 workers

24 Table 13.3 Plan 1 Monthly Costs Information Production at Demand Calculations Inventory Ending Inventory Month 50 carrying Units cost per Day $9,250 Forecast (= 1,850 $ 5 Change per units per carried Inventory month x $5 Subcontracting Jan cost 1,100 per unit 900 per $10 unit) +200 per unit 200 Average Regular-time Feb pay rate labor , (= 10 $ 5 workers per +200 hour ($40 x $40 per 400 per day) Mar 1, day x $ 7 per days) hour 650 Overtime pay rate Other (above 8 hours per day) Apr costs (overtime, 1,050 1, Labor-hours hiring, layoffs, to produce a unit 1.6 hours per unit subcontracting) May 1,100 1, Cost of increasing daily production rate $300 per unit Total June 1,000 1, (hiring cost and training) $58,850 1,850 Cost of decreasing daily production rate (layoffs) $600 per unit Total units of inventory carried over from one month to the next = 1,850 units Workforce required to produce 50 units per day = 10 workers????

25 Month Expected Demand Production Days Demand Per Day (computed) Jan Feb Mar Apr 1, May 1, June 1, ,

26 Plan 2: Subcontract Month Expected Demand Production Days Demand Per Day (computed) Jan Feb Mar Apr 1, May 1, June 1, , Table 13.2 Find minimum requirement (lowest demand) per day? Minimum requirement = 38 units per day

27 Production rate per working day Plan 2 Forecast demand Level production using lowest monthly forecast demand 0 Jan Feb Mar Apr May June = Month = Number of working days

28 Planning Example 2 Cost Information Inventory carrying cost Subcontracting cost per unit Average pay rate Overtime pay rate Labor-hours to produce a unit Cost of increasing daily production rate (hiring and training) Cost of decreasing daily production rate (layoffs) $ 5 per unit per month $10 per unit $ 5 per hour ($40 per day) $ 7 per hour (above 8 hours per day) 1.6 hours per unit $300 per unit $600 per unit Table 13.3

29 Planning Example 2 Cost Information Inventory carry cost Subcontracting cost per unit Average pay rate Overtime pay rate Labor-hours to produce a unit Cost of increasing daily production rate (hiring and training) Table 13.3 In-house production Cost of decreasing daily production rate (layoffs) $ 5 per unit per month = 38 $10 units per unit per day x 124 days = 4,712 units $ 5 per hour ($40 per day) $ 7 per hour (above 8 hours per day) Subcontract units = 6,200-4,712 = 1,488 $300 per units 1.6 hours per unit $600 per unit

30 Planning Example 2 Cost Information Inventory carry cost Subcontracting cost per unit Average pay rate Overtime pay rate Costs Labor-hours to produce a unit Table 13.3 In-house production $ 5 per unit per month $ 5 per hour ($40 per day) $ 7 per hour (above 8 hours per day) 1.6 hours per unit Cost Regular-time of increasing labor daily production $37,696 rate (= $ workers per unit x $40 per (hiring and training) Cost of decreasing daily production rate (layoffs) = 38 $10 units per unit per day x 124 days = 4,712 units Subcontract units = Calculations 6,200-4,712 = 1,488 units day x 124 days) $600 per unit Subcontracting 14,880 (= 1,488 units x $10 per unit) Total cost $52,576

31 Plan 3: Chase Month Expected Demand Production Days Demand Per Day (computed) Jan Feb Mar Apr 1, May 1, June 1, , Table 13.2 Production = Expected Demand

32 Production rate per working day Plan Forecast demand and monthly production 0 Jan Feb Mar Apr May June = Month = Number of working days

33 Plan 3 Cost Information Inventory carrying cost Subcontracting cost per unit Average pay rate Overtime pay rate Labor-hours to produce a unit Cost of increasing daily production rate (hiring and training) Cost of decreasing daily production rate (layoffs) $ 5 per unit per month $10 per unit $ 5 per hour ($40 per day) $ 7 per hour (above 8 hours per day) 1.6 hours per unit $300 per unit $600 per unit Table 13.3

34 Plan 3 Cost Information Inventory carrying cost Subcontracting cost per unit Month Forecast (units) Average pay rate Overtime pay rate Daily Prod Rate Basic Production Cost (demand x 1.6 hrs/unit x $5/hr) Labor-hours to produce a unit Cost Apr of increasing 1, daily production 9,600 rate (hiring and training) Cost May of decreasing 1, daily production 12,000 rate (layoffs) Extra Cost of Increasing Production (hiring cost) Extra Cost of Decreasing Production (layoff cost) $ 5 per unit per month $10 per unit $ 5 per hour ($40 per day) $ 7 per hour $1,200 6,800 (= 2 x $600) (above 8 hours per day) 1.6 hours per unit $300 per unit $600 per unit Total Cost Jan $ 7,200 $ 7,200 Feb ,600 Mar ,400 $5,700 (= 19 x $300) $3,300 (= 11 x $300) $600 (= 1 x $600) 7,000 15,300 15,300 $7,800 June 1, ,800 16,600 (= 13 x $600) Table 13.3 $49,600 $9,000 $9,600 $68,200

35 Comparison of Three Plans Cost Plan 1 Plan 2 Plan 3 Inventory carrying $ 9,250 $ 0 $ 0 Regular labor 49,600 37,696 49,600 Overtime labor Hiring 0 0 9,000 Layoffs 0 0 9,600 Subcontracting Total cost $58,850 $52,576 $68,200 Plan 2 is the lowest cost option Table 13.5

36 Mathematical Approaches Useful for generating strategies Transportation Method of Linear Programming Produces an optimal plan Management Coefficients Model Model built around manager s experience and performance Other Models Linear Decision Rule Simulation

37 Transportation Method Sales Period Mar Apr May Demand 800 1, Capacity: Regular Overtime Subcontracting Beginning inventory 100 tires Regular time Overtime Subcontracting Carrying Costs $40 per tire $50 per tire $70 per tire $ 2 per tire per month Table 13.6

38 Transportation Example Important points 1. Carrying costs are $2/tire/month. If goods are made in one period and held over to the next, holding costs are incurred 2. Supply must equal demand, so a dummy column called unused capacity is added 3. Because back ordering is not viable in this example, cells that might be used to satisfy earlier demand are not available

39 Transportation Example Important points 4. Quantities in each column designate the levels of inventory needed to meet demand requirements 5. In general, production should be allocated to the lowest cost cell available without exceeding unused capacity in the row or demand in the column

40 Transportation Example