Aggregae Planning and Maerial Requirem en Planning ( MRP)
The Planning Sequence Forecas of aggregae demand for period planning horizon Aggregae Planning: Deermining he aggregae producion, workforce, and invenory levels for period planning horizon Maser Producion Schedule: Producion levels by iem by ime period Maerial Requirem en Planning: Deailed imeable for producion and assembly of componens and subassemblies
Planning Sages Agg. Plan G G2 G3 Gn produc groups MPS P P2 P3 produc s MRP C C2 componens C3 C4 C5 C6
Aggregae Planning
Role of Aggregae Planning Need for aggrega e planning: Opim ally uilize he faciliies and m inim ize overloading and underloading Make sure enough capaciy available o saisfy expeced dem and Plan for he orderly and sysem aic change of producion capaciy o m ee he peaks and valleys of expeced cusom er dem and Ge he m os oupu for he am oun of resources available Capaciy has a cos, lead im es are greaer han zero
Role of Aggregae Planning (con ) Wha is Aggrega e Planning: Aggregae planning is a big picure approach o producion planning I is no concerned wih individual producs, bu wih a single aggregae produc represening all producs All m odels are lum p ogeher and represen a single produc; hence he erm aggregae planning. For exam ple, in a TV m anufacuring plan, he aggregae planning does no go ino all models and sizes. I only deals wih a single represenaive aggregae TV. Such an aggregae TV m ay even does no exis in realiy.
Role of Aggregae Planning (con ) Feaures of Aggregae Planning: Process by which a com pany deerm ines levels of capaciy, producion, subconracing, invenory, sockous, and pricing over a specified im e horizon o m ee is expeced dem and Goal is o m axim ize profi Decisions m ade a a produc fam ily i.e. aggregae, and no a he individual sock keeping uni (SKU) level Com bines (aggregaes) he producion in com m on unis (hours, dollars, aggregae unis per m onh,...ec.) Tim e fram e of 3 o 8 m onhs Answers he quesion: How can a firm bes use he faciliies i curren ly has?
Role of Aggregae Planning (con ) Specify operaional parameers over he ime horizon: producion rae workforce overim e m achine capaci y level subcon rac ing backlog inven ory on hand
General Procedure for Aggregae Planning For making an aggregae plan: Deerm ine dem and for each period Deerm ine capaciies (regular im e, over im e, subconracing) for each period I den ify com pany s policies regarding inven ories and work force» How m uch invenory is allowed» Wha rae of overim e and ousourcing is allowed Deerm ine cos of working regular im e and over im e work, subcon rac ing, inven ories, back orders Develop alernaive plans, com pare hem and selec
Term inologies in Aggregae Planning Producion Plan (manufacuring aggregae plan): A m anufacuring firm s aggregae plan which focusses on he period-by-period (im ephased) producion raes, work-force levels, and invenory invesm en, given cusom er requirem ens and capaciy lim iaions. Saffing Plan (service aggregae plan): A service firm s aggregae plan which focusses on he periodby-period saff sizes and labour-relaed capaciies, given cusom er requirem ens and capaciy lim iaions.
The Aggregae Planning Problem Objecive: Maxim ize he firm s profi over he planning horizon I npu: Demand forecas for each period in he planning horizon Oupu: For each period of he planning horizon, deermine: Produc ion level I nvenory level Capaciy level (inernal and ousourced)
The Aggregae Planning Problem (con ) To creae an aggregae plan, he company mus specify he following: Planning horizon (ypically 3-8 m onhs) Duraion of each period wihin he planning horizon (e.g. weeks, m onhs, or quarers) Key inform aion required o develop an aggregae plan Decisions for which he aggregae plan will develop recom m endaions
I nform aion Needed for an Aggregae Plan Dem and forecas in each period Produc ion cos s labor coss: regular im e (Rs./ hr) and overim e (Rs./ hr) subconracing coss (Rs./ hr or Rs./ uni) cos of changing capaciy: hiring or layoff (Rs./ worker) and cos of adding or reducing m achine capaciy (Rs./ machine) Labor/ m achine hours required per uni I nvenory holding cos (Rs./ uni/ period) Sockou or backlog cos (Rs./ uni/ period) Consrains: limis on overime, layoffs, capial available, sockous and backlogs
Oupus of Aggregae Plan Producion quaniy from regular im e, overim e, and subconraced im e: Used o deermine number of workers and supplier purchase levels I nvenory held: Used o deermine how much warehouse space and working capial is needed Backlog/ sockou quaniy: Used o deermine wha cusomer service levels will be Workforce hired/ laid off: Used o deermine any labor issues ha will be encounered Machine capaciy increase/ decrease: Used o deermine if new producion equipmen need o be purchased/ idled
Aggregae Planning Sraegies Fundamenal rade-offs available o a planner are be ween: Capaciy (regular ime, overime, subconraced) I nvenory Backlog/ los sales S ra egies for aggrega e planning: Acive Sraegy Chase Sraegy Tim e flexibiliy from w orkforce or capaciy Sraegy Passive Sraegy Mixed Sraegy Level Sraegy Mix of above hree sraegies
Acive Sraegy Aemps o handle flucuaions in demand by focusing on dem and m anagem en Use pricing sraegies and/ or adverising and prom oion Reques cusom ers o backorder or advance-order Do no m ee dem and
Passive Sraegy Aemps o handle flucuaions in demand by focusing on supply and capaciy m anagem en Vary size work force size by hiring or layoffs Vary uilizaion of labour and equipm en hrough overim e or idle im e Build or draw from invenory Subcon rac produc ion Negoiae cooperaive arrangem ens wih oher firms Allow backlogs, back orders, and/ or s ockou s
Mixed Sraegy Combines elemens of boh an acive sraegy and a passive (reacive) sraegy Firms will usually use some combinaion of he wo
Chase Sraegy Sraegy: Producion rae is synchronized wih demand by varying machine capaciy or hiring and laying off workers as he demand rae varies Advanage: Resuls in low levels of invenory Lim iaions: I n pracice, i is ofen difficul o vary capaciy and workforce on shor noice Expensive if cos of varying m achine or labor capaciy is high Nega ive effec on workforce m orale When o use: Should be used when invenory holding coss are high and coss of changing capaciy are low
Tim e Flexibiliy Sraegy Sraegy: Workforce is kep sable, bu he number of hours worked is varied over ime (using overime or flexible work schedule) o synchronize produc ion and dem and Advan ages: Avoids m orale problem s of he chase sraegy Low levels of inven ory Lim iaions: Requires flexible workforce Lower u iliza ion When o use: Should be used when invenory holding coss are high and excess (flexible) capaciy is available and rela ively inexpensive
Level Sraegy Sraegy: Mainain sable m achine capaciy and workforce levels wih a consan oupu rae Shorages and surpluses resul in flucuaions in invenory levels over im e Eiher invenories are buil up in anicipaion of fuure dem and or backlogs are carried over from high o low dem and periods Advanage: Beer for worker morale Lim iaion: Large invenories and backlogs may accumulae When o use: Should be used when invenory holding and backlog coss are relaively low
Da a: Num erical Exam ple Saring invenory in January:,000 unis Selling price o he reailer: Rs.40/ uni Workforce a he beginning of January: 80 # of working days per m onh: 20 Regular work per day per em ployee: 8 hours Maximum overim e allowed per em ployee per m onh: 0 hours Ending invenory required (a end of June): Minim um 500 unis Dem and forecas: Monh January February March April May June Demand,600 3,000 3,200 3,800 2,200 2,200
Num erical Exam ple (con ) Cos Daa: Iem Maerials Invenory holding cos Marginal cos of a sockou Hiring and raining coss Layoff cos Labor hours required Regular ime cos Over ime cos Cos of subconracing Cos Rs.0/uni Rs.2/uni/monh Rs.5/uni/monh Rs.300/worker Rs.500/worker 4/uni Rs.4/hour Rs.6/hour Rs.30/uni
Num erical Exam ple ( Define Decision Variables) The decision variables are as follows: W = Workforce size for m onh H = Num ber of em ployees hired a he beginning of m onh L = Num ber of em ployees laid off a he beginning of m onh P = Producion in m onh I = I nvenory a he end of m onh S = Num ber of unis socked ou a he end of m onh C = Num ber of unis subconraced for m onh O = Num ber of overim e hours worked in m onh (com bined for all em ployees) Noe: For all he above variables, =, 2,, 6 giving a oal of 48 decision variables.
Num erical Exam ple ( Com ponens of Objecive Funcion) Regular ime labor cos Rs. 4/ hour * 8 hr/ day * 20 day/ monh = Rs.640/ monh Therefore, regular ime labor cos per m onh: Overim e labor cos Overim e labor cos is Rs.6/ hour and O represens he num ber of overim e hours worked in monh (com bined for all employees) Therefore, overime ime labor cos per monh: Cos of hiring and layoff This cos is calculaed as: Cos of holding invenory and socking ou This cos is calculaed as: Cos of maerials and subconracing ou This cos is calculaed as: 6 = 6 = 6 = 300 H 2 I 0P + + + 6 = 6 = 6 = 5 S 500 L 30C 6 = 640 6 = W 6 O
Num erical Exam ple ( Objecive Funcion) = = = = = = = = + + + + + + + 6 6 6 6 6 6 6 6 30 0 5 2 500 300 6 640 C P S I L H O W The objecive funcion is: Minim ize Z =
Num erical Exam ple ( Define Consrains Linking Variables) Workforce size, hiring and layoff cons rain s: W = W + H or W W + H + L = 0 L where =, 2,, 6 and W 0 = 80 Capaci y cons rain s: P 40 W + ( / 4) O or 40 W + ( / 4)O P where =, 2,, 6 0
Num erical Exam ple ( Define Consrains Linking Variables) (con ) I nvenory balance consrains: I - + P + C = D + S + I S or I - + P + C D S I + S = 0 where =, 2,, 6 and I 0 =,000, I 6 > = 500, and S 0 = 0, Overime limi consrains: O O 0 W or 0 W 0 where =, 2,, 6
Average I nvenory and Average Flow Tim e Average invenory for a period : Average inven ory over he planning horizon: i.e. Average flow ime: (Average invenory)/ (Throughpu) ) I (I 2 + = + T T ) I (I 2 + + = I ) I (I 2 T T = = + + T T T T D I ) I (I 2
Various Scenarios Some of he possible scenarios are: I ncrease in holding cos (from Rs.2 o Rs.6) Overime cos drops o Rs.5 per hour I ncreased demand flucuaion Monh January February March April May June Demand,000 3,000 3,800 4,800 2,000,400 Your plan will change wih he change in scenarios
Transporaion Tableau for Aggregae Planning Suppose w e have he follow ing inform aion Period 2 3 4 Dem and D D 2 D 3 D 4 Regular Capaciy R R 2 R 3 R 4 Overim e Capaciy O O 2 O 3 O 4 Subconrac Capaciy S S 2 S 3 S 4 Beginning I nvenory: I 0 Regular im e producion cos per uni: r Overim e producion cos per uni: c Subconrac producion cos per uni: s Holding cos per uni per period: h Backorder cos per uni per period: b Underim e cos per uni: u Desired invenory level a he end of period 4 : I 4 Toal unused capaciies: U
Forecas Errors in Aggregae Plans An inpu o he aggregae plan is dem and forecas Bu, forecass are prone o errors Aggregae planning m ehodology discussed so far does no ake in o accoun any forecas errors Forecasing errors are deal wih using eiher safey invenory or safey capaciy, hus creaing a buffer for forecas errors Som e way for achieving his: Use overim e as a form of safey capaciy Carry exra workforce perm anenly as a form of safey capaciy Use subconracors as a form of safey capaciy Build and carry exra invenories as a form of safey invenory Purchase capaciy or produc from an open or spo marke as a form of safey capaciy
Aggregae Planning in Pracice Think beyond he enerprise o he enire supply chain Facors ouside he enerprise hroughou he supply chain can dram aically im pac he opim al aggregae plan Com m unicae he aggregae plan o all supply chain parners who will be affeced by i Make plans flexible because forecass are prone o errors Use m ehods o produce safey invenory and/ or safey capaci y Perform sensiiviy analysis of he inpus ino an aggregae plan Rerun he aggregae plan as new informaion emerges Use laes values of inpus o avoid subopim izaion based on old daa Use aggrega e planning as capaci y u iliza ion increases When uilizaion becom es high, capaciy becom es an issue Likelihood of saisfying all he orders as hey arrive becom es very low Develop plans o m ake bes uilizaion of capaciy
Maerial Requirem en Planning ( MRP)
Planning Sages Agg. Plan G G2 G3 Gn produc groups MPS P P2 P3 produc s MRP C C2 componens C3 C4 C5 C6
Role of MRP Need for MRP: Alhough he cusom er dem and for a finished produc occurs coninuously, he producion dem and for individual com ponens occurs sporadically and usually in relaively large quaniies (lum py) Saisical forecasing for com ponens wih lum py dem and resuls in large forecasing errors and com pensaing for such errors wih large safey sock is cosly Som e com ponens m ay have dependen as well as independen dem ands, and m anaging heir invenories m ay be com plicaed
Role of MRP (con ) Wha is MRP: A com puerized inform aion sysem Developed specifically o aid in m anaging dependen dem and inven ory and scheduling replenishm en orders Translaes he MPS and oher sources of independen dem and ino he requirem ens for all subassem blies, com ponens, and raw m aerials needed o produce he required paren iem (MRP explosion)
I npus o he MRP Bill of Maerials (BOM) Gives paren-com ponen relaionship along wih he usage quaniies Mas er Produc ion Schedule Breaks he aggregae plan ino specific produc schedule I nven ory Record Gross requirem en s Scheduled receip s Projeced on-hand invenory Planned receip s Planned order releases
Exam ple of an MRP Sysem Suppose for an iem : Lo size is fixed as 230 unis Lead ime is 2 weeks Week 2 3 4 5 6 7 8 Gross requiremens 50 0 0 20 0 50 20 0 Scheduled receip s 230 0 0 0 0 0 0 0 Projeced on-hand inven ory 37 7 7 7 227 227 77 87 87 Planned receip s 230 230 Planned order release 230 230
Planning Facors in an MRP Planning lead ime Accuracy is im poran in planning lead im e Lo sizing rules Deerm ines he im ing and size of order quaniies Deerm ine he num ber of seups required and he invenory holding cos for each iem Exam ples: Fixed order quaniy, periodic order quaniy Safey sock
Benefis of he MRP Calculaes dependen demand of componens and hence provides a beer forecas of he individual componen requirem en s Provides managers wih informaion ha is useful for planning capaciies and esimaing financial requiremens Auomaically updaes he dependen demand and invenory replenishmen schedules of componens when he producion schedules of paren i em changes