Outline. Role of Aggregate Planning. Role of Aggregate Planning. Logistics and Supply Chain Management. Aggregate Planning

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1 Logisics and upply Chain Managemen Aggregae Planning 1 Ouline Role of aggregae planning in a supply chain The aggregae planning problem Aggregae planning sraegies mplemening aggregae planning in pracice Chopra and Meindl (200) upply Chain Managemen: raegy, Planning and Operaion. Prenice Hall Pearson Educaion Amir amimi Civil Engineering Deparmen, harif Universiy of Technology Role of Aggregae Planning Role of Aggregae Planning 2 Capaciy has a cos, lead imes are greaer han zero Aggregae planning: process by which a company deermines levels of capaciy, producion, subconracing, invenory, sockous, and pricing over a specified ime horizon goal is o maximize profi decisions s made a a produc family (no KU) level ime frame of 3 o 18 monhs how can a firm bes use he faciliies i has? 3 pecify operaional parameers over he ime horizon: producion rae workforce overime machine capaciy level subconracing backlog invenory on hand All sages should work ogeher on an aggregae plan ha will opimize supply chain performance 1

2 Aggregae Planning Problem nformaion Needed 4 5 Given he demand forecas, deermine he bes Demand forecas in each period producion level, l invenory level, capaciy level. Producion coss labor coss: regular ime and overime subconracing coss cos of changing capaciy: hiring or layoff pecify he planning horizon duraion of each period key required informaion cos of adding or reducing machine capaciy Labor/machine hours required per uni nvenory holding cos ockou or backlog cos Consrains: limis on overime, layoffs, capial available, sockous and backlogs Oupus raegies 7 Producion quaniy Trade-off regular ime, overime, and subconraced ime o deermine number of workers and supplier purchase levels nvenory o deermine required warehouse space and working capial Backlog/sockou quaniy: o deermine wha cusomer service levels will be Machine capaciy increase/decrease: o find if new producion equipmen needs o be purchased A poor aggregae plan can b beween capaciy, invenory, backlog/los sales Chase sraegy using capaciy as he lever Time flexibiliy: workforce or capaciy using uilizaion as he lever Level sraegy using invenory as he lever Mixed sraegy los sales, los profis, excess invenory, or excess capaciy 2

3 Chase raegy Time Flexibiliy raegy 8 9 Producion rae is synchronized wih demand orking hours synchronize producion and demand varying machine capaciy Fixed workforce and variable number of hours worked hiring and laying off workers Excess machine capaciy is available Cons Pros difficul o vary capaciy and workforce on shor noice Use a flexible work schedule Expensive if cos of varying capaciy is high Avoids morale problems Negaive effec on workforce confidence Low levels l of invenory, Pros Cons low levels of invenory Lower uilizaion Used when Used when nvenory coss are high and changing capaciy is flexible nvenory coss are high and capaciy is inexpensive. Level raegy Case udy: Red Tomao Tools Consan oupu rae Produce gardening ools able machine capaciy and workforce levels peaking in he spring Pros Beer for worker confidence High uilizaion Cons Flucuaions in invenory levels over ime Large invenories and backlogs may accumulae nvenories are buil up in anicipaion of fuure demand To overcome he seasonaliy, add workers during he peak season, subconrac ou some of he work, build up invenory during he slow monhs, build up a backlog of orders ha will be delivered laer. Backlogs are carried over from high o low demand periods Used when nvenory holding and backlog coss are relaively low How o bes use hese opions hrough an aggregae plan? 3

4 Demand Fundamenal Tradeoffs Capaciy (regular ime, overime, subconrac) Monh Demand Forecas January 1,00 February 3,000 March 3,200 April 3,800 May 2, June 2,200 nvenory Backlog / los sales Basic raegies Chase sraegy Time flexibiliy from workforce or capaciy Level sraegy Basic nformaion Decision Variables 14 em Cos Maerials $10/uni nvenory holding cos $2/uni/monh Marginal cos of a sockou $5/uni/monh Hiring and raining coss $300/worker Layoff cos $500/worker Lb Labor hours required 4/uni Regular ime cos $4/hour Over ime cos $/hour Cos of subconracing $30/uni 15 = Monh ( = 1,, ) = orkforce size for monh H = Number of employees hired L = Number of employees laid off P = Producion = nvenory a he end of monh = Number of unis socked ou a he end of monh C = Number of unis subconraced for monh, O = Number of overime hours worked in monh, 4

5 Objecive Funcion Consrains 1 Regular-ime labor cos Overime labor cos Cos of hiring and layoffs Cos of holding invenory Cos of socking ou Cos of subconracing Maerial cos Minimum O H C P L orkforce size for each monh is based on hiring and layoffs H L for 1,..., Consrains Consrains Producion for each monh canno exceed capaciy nvenory balance for each monh P O 40 4, for 1,..., Each worker can produce 40 unis per monh on regular ime 1 uni for every four hours of overime P C D 1, for 1,..., 5

6 Consrains cenarios Over ime for each monh O 10, for 1,..., 21 ncrease in holding cos (from $2 o $) Overime cos drops o $4.1 per hour ncreased demand flucuaion No employee work more han 10 hours of overime each monh. in Pracice ummary 22 Think beyond he enerprise o he enire supply chain Make plans flexible because forecass are always wrong Rerun he aggregae plan as new informaion emerges Use aggregae planning as capaciy uilizaion i increases 23 ha ypes of decisions are bes solved by aggregae planning? ha is he imporance of aggregae planning as a supply chain aciviy? ha kinds of informaion are needed o produce an aggregae plan? ha are he basic rade-offs a manager makes o produce an aggregae plan? How are aggregae planning problems formulaed and solved using Microsof Excel?

7 24 Homework 4 Exercises: 4 5 Chaper 8 7