Chapter 8 Flashcards
Aggregate Planning
A process by which a company determines levels of capacity, production, subcontracting, inventory, stockouts, and pricing over a specified time horizon
Goal of Aggregate Planning
build a plan that satisfies demand while maximizing profit
Aggregate planning solves problems involving aggregate decisions rather than stock-keeping unit (SKU)-level decisions
Decisions made at a product family level (not SKU level)
production rate
the number of units to be completed per unit time (such as per week or per month)
workforce
the number of workers or units of labor capacity needed for production
overtime
the amount of overtime production planned
machine capacity level
the number of units of machine capacity needed for production
subcontracting
the subcontracted capacity required over planning horizon
backlog
demand not satisfied in the period in which it arises, but is carried over to future periods
inventory on hand
the planned inventory carried over the various periods in the planning horizon
the aggregate plan serves as a broad blueprint for operations and establishes
the parameters within which short-term production and distribution decisions are made.
The aggregate plan allows the supply chain to
alter capacity allocations and change supply contracts.
Aggregate Planning Problem
Given the demand forecast for each period in the planning horizon, determine the production level, inventory level, and the capacity level (internal and outsourced), and any backlogs (unmet demand) for each period that maximizes the firm’s (supply chain’s) profit over the planning horizon
Planning horizon
the time period over which the aggregate plan is to produce a solution – usually between 3 and 18 months.
Production quantity from regular time, overtime, and subcontracted time
used to determine number of workers and supplier purchase levels
inventory held
used to determine the warehouse space and working capital required
backlog/stockout quantity
used to determine customer service levels
workforce hired/laid off
used to determine any labor issues likely to be encountered
Machine capacity increase/decrease
used to determine whether new production equipment should be purchased or available equipment idled.
the fundamental trade-offs available to a planner:
- Capacity (regular time, overtime, subcontracted)
- inventory
- backlog/lost sales because of delay
aggregate planning strategies
- chase strategy
- flexibility strategy
- level strategy
The strategy where the production rate is synchronized with the demand rate by varying machine capacity or hiring and laying off employees as the demand rate varies is the
Chase strategy.
The strategy where workforce (capacity) is kept stable but the number of hours worked is varied over time in an effort to synchronize production with demand is the
time flexible strategy.
The strategy where a stable machine capacity and workforce are maintained with a constant output rate, with inventory levels fluctuating over time, is the
level strategy.
Most strategies that an aggregate planner actually uses are in combination and are referred to as the
mixed strategy.
As capacity utilization increases,
it becomes more important to perform aggregate planning.
The aggregate planner’s main objective is to identify 7 operational parameters over the specified time horizon:
WIMPSOB
Production rate Workforce Overtime Machine capacity level Subcontracting Backlog Inventory on Hand
The aggregate plan serves as a broad blueprint for operations and establishes the parameters within which short-term production and distribution decisions are made.
The aggregate plan allows the supply chain to alter capacity allocations and change supply contracts.
The Chase strategy results in
low levels of inventory in the supply chain
and
high levels of change in capacity and workforce.
The chase strategy should be used when
the cost of carrying inventory is very expensive
and
costs to change levels of machine and labor capacity are low.
The Time flexibility strategy results in
low levels of inventory but with lower average utilization.
Time flexibility strategy should be used when
inventory carrying costs are relatively high
and
machine capacity is relatively inexpensive.
A drawback associated with the Level strategy is that
large inventories may accumulate and customer orders may be delayed.
the level strategy keeps
capacity and costs of changing capacity relatively low.
the level strategy should be used when
inventory carrying and backlog costs are relatively low.
The operational parameter concerned with the number of units completed per unit time (such as per week or per month) is
production rate.
The operational parameter concerned with the number of workers/units of capacity needed for production is
workforce.
the operational parameter concerned with the amount of overtime production planned is
overtime
The operational parameter concerned with demand not satisfied in the period in which it arises, but carried over to future periods is
backlog
The operational parameter concerned with the planned inventory carried over the various periods in the planning horizon is
inventory on hand.
The operational parameter concerned with the number of units of machine capacity needed for production is
machine capacity level.
The operational parameter concerned with the subcontracted capacity required over the planning horizon is
subcontracting
Aggregate planning is concerned with determining
the production level, inventory level, and capacity for each period.
Which of the following is a cost of changing capacity?
- Cost of adding machine capacity
- Cost of hiring workforce
- Cost of laying off workforce
- Cost of reducing machine capacity
The fundamental trade-offs available to an aggregate planner are between
capacity, inventory, and backlog costs.
forecasting errors are dealt with using
safety capacity.
and
safety inventory.
