Chapter 11 Aggregate Planning and Master Scheduling

Aggregate Planning and Master Scheduling o Aggregate planning – intermediate-range capacity planning that typically covers a time horizon of 2-12 months (can go up to 18 months), useful in companies that experience seasonal or other fluctuations in demand/capacity o The goal of aggregate planning is to achieve a production plan that will effectively utilize the organizations resources to match expected demand o Organizations make capacity decisions on three levels: long term (product/service o o o o o o o o selection, facility size/location), intermediate term (employment, output, inventories), and short term (deciding the best way to achieve desired results within the constraints of long and intermediate decisions; scheduling jobs, workers). Long term decisions essentially establish the capacity constraints within which intermediate planning must function. Intermediate decisions establish boundaries in which short-term decisions must be made. Aggregate planning is essentially a ‘big picture’ approach to planning. Planners usually try to avoid focusing on individual products/services and instead focus on a group of similar products/services or an entire line Aggregate (GROUP) planning generally provides a more accurate forecast Why do organizations need to do aggregate planning::: 1) planning (takes time to implement plans). 2) strategic (aggregation is important because it enables an organization to have more time (by not wasting it focusing on individual items) to respond to the market). 3) can help synchronize flow throughout the supply chain. Generally, aggregate planning is connected to the budgeting process. Major variations generally have a major impact on the ability to match supply/demand Strategies to counter variations in cyclical business: 1) maintain a certain amount of excess capacity. 2) maintain a degree of flexibility in dealing with changes. 3) wait as long as possible before committing to a certain level of supply capability o Aggregate planning begins with a forecast of aggregate demand for the intermediate range, this is followed by a general plan to meet demand requirements, aggregate plans are updated periodically (rolling planning horizon). o Aggregate planners are concerned with the quantity and the timing of expected demand. The task of aggregate planners is to achieve rough equality of demand and capacity. o Effective aggregate planning requires good information (available resources, forecast, significant policies). o Supply chain capabilities must be taken into account when doing aggregate planning. o Demand options::: 1) pricing (shift demand from peak to off-peak periods). 2) promotion o o o o (advertising can shift demand so it conforms to capacity). 3) back orders (orders are taken in one period and delivered in another period). 4) new demand (create new demand for products/services at other times than their peak). Supply options::: 1) hire and lay off workers (union contracts are a factor, people can be hired/fired during peak months [seasonal retail]). 2) overtime/slack time (employees work overtime or hours are cut during peak/non-peak). 3) part-time workers (also independent contractors can be brought in when capacity is high). 4) inventories (produce goods in one period and sell/ship them in another). 5) subcontracting Level capacity strategy – variations in demand are met by using some combination of inventories, overtime, part-time workers, subcontracting and back orders while maintaining a steady rate of output Unions and many organizations tend to prefer a level workforce The organization applying a level capacity strategy must maintain a constant level of output and still satisfy varying demand (must do subcontracting, backlogging, etc). o Chase demand strategy – planned output for a period = expected demand for a period o A chase demand strategy presupposes a great deal of ability and willingness on the part of managers to be flexible in adjusting to demand (major advantage is that inventories can be kept low, disadvantage is lack of stability) o Whatever strategy an organization is considering, factors such as company policy, flexibility, and costs are important o Techniques available to help with aggregate planning: 1) informal trial-and-error techniques. 2) mathematical techniques o General procedure for aggregate planning:: 1) determine demand for each period. 2) determine capacities for each period. 3) ID company/dept policies that are pertinent. 4) determine unit costs and other relevant costs. 5) develop alternative plans, compute cost of each. 6) select the best plan. o Trial and Error techniques::: consist of developing simple tables/graphs that enable planners to visually compare projected demand with existing capacity o Assumptions::: regular output capacity is the same in all periods, cost is a linear function, plans are feasible, all costs associated with a decision option can be represented by a lump sum or by unit costs that are independent of the quantity involved, cost figures can be reasonably estimated, inventories are built up and drawn down at a uniform rate Number of workers in a period = number of workers at end of period + number of new workers at start of period – number of laid off workers at start of the period Inventory at end of period = inventory at end of previous period + production in current period – amount used to satisfy demand in the current period Cost for a period = output cost (reg + OT + subcontract) = hire/lay off cost + inventory cost + backorder cost o ***see page 479 for more costs and their formulas*** o Mathematical techniques::: o Linear programming (LP) models::: methods for obtaining optimal solutions to problems o o o o involving the allocation of scarce resources in terms of cost minimization or profit maximization; planners must ID capacity of regular time/overtime/subcontracting/and inventory on a period by period basis The goal of aggregate planning is usually to minimize the sum of costs related to regular labor time, overtime, subcontracting, carrying inventory, and costs associated with changing the size of the workforce Simulation models – essence is the development of computerized models that can be tested under a variety of conditions Differences between aggregate planning for manufacturing and services::: 1) demand for service can be difficult to predict. 2) capacity availability can be difficult to predict (types of variety in service are more pervasive then in manufacturing). 3) labor flexibility can be an advantage in services (labor comprises a significant portion of service compared to manufacturing). 4) services occur when they are rendered (most services cannot be inventoried). Because service capacity is perishable, aggregate planners need to take that into account when deciding how to match supply and demand o Yield management – approach that seeks to maximize revenue by using a strategy of variable pricing; prices are set relative to capacity availability o For the production plan to be translated into meaningful terms for production, it is necessary to disaggregate the aggregate plan o Master production schedule (MPS) – shows the quantity and timing of specific end items for a schedule horizon, often covers about 6-8 weeks ahead; shows the planned output for individual products rather than an entire product group, along with the timing of production; contains important info for marketing and production o the master schedule is the heart of production planning and control, it determines the o o o o o quantities needed to meet demand from all sources, and governs key decisions and activities throughout the organization The master schedule interfaces with marketing, capacity planning, production planning, and distribution planning The master schedule also drives the material requirements planning (MRP) system The capacities used for master scheduling are based on decisions made during aggregate planning There is a time lapse between when the aggregate plan is made and the development of the master schedule Master scheduler – central person in the master scheduling process o A master schedule indicates the quantity and timing for a product or group of products but it does NOT show planned production o Rough cut capacity planning (RCCP) – once a tentative master schedule has been o o o o o developed it must be validated. RCCP is that validation and involves testing the feasibility of a proposed master schedule relative to available capacities Time fences – divide a scheduling time horizon into three sections or phases (sometimes referred to as frozen/slushy/liquid) in reference to the firmness of the schedule Frozen is the near-term phase that is so soon that delivery of a new order would be impossible or highly costly Slushy’s time fence is usually a few periods beyond the frozen phase, order entry in this phase necessitates trade offs but is less costly/disruptive than frozen. Liquid is the farthest out on the time horizon, new orders or cancellations can be entered with ease. A key element in the success of the master scheduling process is strict adherence to time fence policies and rules o three inputs of the master schedule::: beginning inventory, actual forecasts for each period, and customer orders o available to promise (ATP) inventory – master scheduling process uses the three inputs (*above*) to determine the projected inventory, production requirements, and uncommitted inventory (which is ATP) o the master scheduling process begins with a preliminary calculation of projected on-hand inventory, this reveals when additional inventory will be needed Projected on-hand inventory = inventory from previous week – current weeks requirements o Current weeks requirements are the LARGER of forecast and committed customer orders o When the projected on-hand inventory becomes negative, this is a signal that production will be needed to replenish inventory