Lecture 7 & 8 - Aggregate Planning Techniques & MRP

Question 1

Define aggregate planning

Answer 1

a process used by companies to determine the optimal levels of workforce, volume and mix of production, and inventory to meet overall customer demand

Question 2

Different objectives an aggregate plan may have

Answer 2

*react quickly to change
–> hire/fire workers during busy/slow periods

*stability
–> build up inventory during low demand periods

• maximise profit under capacity constraints

Question 3

Key concept about aggregate planning

Answer 3

*manage groups of items rather than single items

*

Question 4

Why is aggregate planning closely related to hierarchical production planning

Answer 4

*must consider workforce sizes at different hierarchy

• lowest level = items
• middle level = families of items,
• top level = types –> groups of families of types

suggests aggregate planning should be done at types

Question 5

Describe the hierarchy of production planning positions

Answer 5

*Forecast of aggregate demand

*Aggregate production plan
–> determine production and workforce level

• Master Production Schedule (MPS)
  –> consider production levels by item

*Materials Requirements Planning System (MRP)
–> detailed timetable for production and assembly of components and subassemblies

Question 6

Define aggregate units of production

provide examples of how they can be categorised

Answer 6

A fictional item that represents an entire family of products

e.g. aggregate unit isn’t a specific shoe, its a category of similar shoes (e.g. casual shoes, athletic shoes)

other examples: volume, price, amount of work required to make

Question 7

Overview of what aggregate planning does

Answer 7

*aggregate planning translates aggregate demand forecast into a blueprint for planning and staffing production over a horizon

Question 8

Costs involved in aggregate planning, and notation

Answer 8

• smoothing cost
  (hiring Cʰ and firing Cf)
• holding cost
  (Ci)

*backordering (shortage) cost
(Cp)

*regular time labour cost
(Cr)

• overtime and subcontracting cost
  (Co and Cs)
• cost of underutilisation (idle cpu in production)
  (Cu)

!!! assume all costs are linear !!!

Question 9

System parameters in aggregate planning

Answer 9

K = how many agg units of production a worker can make per hour/day

nt = how many days of production in period t

Question 10

if demand of two product is highly variable

Answer 10

can’t create a fictitious aggregate unit

Question 11

three different types of aggregate planning

Answer 11

*chase strategy (zero inventory plan)

*minimum constant workforce plan

• mixed strategy

Question 12

define chase strategy (zero inventory plan)

Answer 12

company changes its workforce each month, and produces just enough to meet demand

• aim to achieve 0 inventory

Question 13

define a minimum constant workforce plan

Answer 13

aims to maintain a fixed number of employees throughout the planning period, regardless of fluctuations in demand.

• prioritises workforce stability
• avoids costs of hiring/firing

Question 14

Key differences between chase strategy (0 inventory) and minimum constant workforce plan

Answer 14

1* Chase strategy focuses on cumulative demand over time

1* whereas, Minimum constant workforce plan focuses on cumulative productivity over time

2* chase strategy aims for minimal inventory

2* minimum constant workforce plan uses inventory buffers to manage demand

3* chase strategy adjusts production to match demand

3* minimum constant workforce plan has periods of underutilisation during low demand

Question 15

Steps to complete a minimum constant workforce plan

Answer 15

1. calculate min. no. of workers required
   –> by cumulative demand / cumulative productivity (take maximum worker no.)
2. calculate production and inventory
3. calculate costs
4. plot agg.units (hours) against time, with cumulative demand and cumulative production (Straight line)

Question 16

Steps to complete a chase strategy

Answer 16

1. find productivity per worker (hours per worker) –> working days x no. of hours per worker
2. then find workers required
   (demand in agg units / no.of hours per worker)
3. calculate workers hired/fired each month
4. calculate production (no.of hours per worker x no.of workers
5. therefore, find inventory
6. work out costs
7. plot agg.units (hours) against time, with cumulative demand and cumulative production (virtually both the same line)

Question 17

Steps to complete a mixed strategy

Answer 17

May keep workforce the same until min. workers needed is greater than that number, then hire people to catch up demand in rest of the months

Question 18

How to find inventory

Answer 18

Inventory =
(inventory of previous period) + production - demand

Question 19

What is the role of aggregate planning

Answer 19

*balance production capacity with forecasted customer demand

• bridge gap between high-level strategic goals and more detailed, short-term production schedules
• helps manage fluctuations in demand
• can smooth with temp works, hiring or firing

*helps optimise the efficiency of resource allocation
-> by considering factors like workforce size, inventory and raw materials

Question 20

What are aggregate units of production and how can these be defined?

Answer 20

fictional items that are made up of a group of products from the same family (similar characteristics)

for example, can define based on: sales price, volume sold, amount of required to make

Question 21

Advantages and Disadvantages of Chase Strategy

Answer 21

Advantages

• reduced holding costs of inventory (warehousing, insurance, obsolescence)
  –> also greater cashflow

*high service levels as works to avoid stockouts as produce to meet demand

Disadvantages
* no buffer stock, vulnerable to uncertainties, greater chance of stock-outs
–> penalty costs

• low employee morale due to low job security

*difficulties in hiring and firing workers

*success depends heavily on demand forecasting

• higher production costs per unit during periods of low demand

Question 22

Advantages and Disadvantages of minimum constant workforce plan

Answer 22

Advantages
* buffer stock, less vulnerable to uncertainties

• workforce stability
  –> lower turnover, greater skill development
• reduced hiring and firing costs
  –> recruitment , training, severance package

*simpler as just focus on inventory
–> allows for easier communication and co-ordination across departments

Disadvantages

*higher holding costs for inventory

*potential for back orders and lost sales
–> as peak demand don’t have enough inventory

*fixed workforce under-utilised during periods of low demand

Question 23

assumptions of MRP

Answer 23

*demand is known (deterministic)

*lead times are known, constant and independent of the production lot size (size of order)

*no back-ordering (must meet demand when it arises)

*no capacity constraints

• static plan over a planning horizon

Question 24

Inputs of MRP

Answer 24

• product structure diagram (BoM & lead time)

*MPS

• inventory records

*capacity planning techniques

Question 25

Explain the steps of the MRP explosion calculus

Answer 25

Step 1
*Convert Gross Requirements into Net Requirements
–> done by deducting on-hand inventory and scheduled receipts (orders expected to come)

Step 2
*Convert Net Requirements into Time Phased Net Requirements
–> done by accounting for lead time
–> may shift requirements earlier in time if longer lead times

Step 3
*Convert Time Phased Net Requirements into Planned Order Release
& calculate ending inventory
–> apply intelligence such as Lot Sizing Procedures (if none it is called Lot for Lot (L4L)

Planned Order Release acts as starting point for Gross Requirements at the next level down (if any)
–> potentially multiplied by gozinto factor

Question 26

Define lot sizing

What is the purpose of lot sizing in MRP

Answer 26

lot sizing determines the quantity of items to be ordered or produced at a given time

• determines the planned order release
• determines the ending inventory of each period

*optimises cost
–> reduces frequency of orders, maintain smooth production flow
–> no backordering

Question 27

general idea of lot sizing

Answer 27

*considers a trade off between fixed cost (production) or holding cost

Question 28

Two different types of lot sizing

Answer 28

1. lot for lot sizing (L4L)
2. lot sizing = EOQ if inventory is < demand, if it is greater, then Lot sizing= 0

Question 29

Why is EOQ typically not a good choice for lot sizing

Answer 29

• EOQ assumes demand is constant, it is typically variable so other procedures may outperform it
• also other procedures don’t usually end with an ending inventory

Question 30

How to account for capacity constraints

Answer 30

*feasibility check

*lot shifting technique

Question 31

Describe how to perform the feasibility check

Answer 31

• if capacity is considered
• then planned order release < capacity available
• if not, then need to move things back in schedule
• however, you must check if you can do that (feasibility check)

–> this is where compare cumulative capacity with cumulative demand

Question 32

Describe how to perform the lot shifting technique

Answer 32

n What is the MPS (Master Production Schedule) and where is it used in MRP based planning?