CHAPTER
16 Aggregate Sales and Operations Planning
1. A
capacity plan is necessary to meet demand.
2. Business
plan influences capacity planning.
3. Variation
of product (or service) offering makes capacity planning more difficult.
4. Both
demand forecasts and capacity plans are necessary to produce the M.P.S.
5. Revisions
may be required before the MPS is finalized.
Shut down Point: At this level of operations production cannot
be economically justified. (MR = MC
below AVC—cost more to produce than not to produce at all. This is the Shut down point)
Key: adjust capacity or demand or both to balance. Shift demand--create new demand.
Basically, we attempt to do:
1.
adjust capacity (Reactive)
2.
alter demand pattern (Aggressive)
3.
some of both
If you don't plan
for changes in adjustable capacity in advance they cannot be changed--at
least not efficiently.
Aggregate Planning--the process of
looking at demand forecast for the intermediate horizon (MR planning) and
establishing general plans about how the firm will utilize available resources
within that time frame.
We are bound by Fixed
Capacity which refers to those factor inputs that cannot be changed
economically in the intermediate horizon. Fixed capacity thus limits our options.
Capacity--Influences
Price/Quality/availability and thus our ability to compete. The highest sustainable level of output which
can be achieved with current product specifications, product mix, worker
effort, plant and equipment. (It then
must be an average.)
(Major
Constraints--manpower, facility (plant), equipment, financing)
We wish to develop
a plan that balances our capacity with demand. We desire a plan that is:
1. Feasible--it is a planned level of
resource use that does not exceed our capacity.
2. Optimal--best we can hope to do given
our constraints and our goals. Efficient
and effective.
Purpose Best (feasible &
optimal) prod. plan that balances expected demand and supply.
The time frame for
aggregate planning is usually 3 to 18 months. It is a continuous process—updated monthly,
weekly, quarterly.
18 months
1 Aggregate
plan 18
2 Revised A.P. 19
3 Revised A.P. 20
The time frame must
be long enough to allow elements of the aggregate plan to be changed.
Ex. a. labor
b. inventory
levels
c. plans
for subcontracting
d.
lead time to produce outputs
e. backorders
Alternative strategies for meeting seasonal demand
Pure Strategy--company plans to
change only one variable to adjust to changes in demand. (Labor, Inventories, Subcontracting,
Production rate)
Mixed Strategy--changing a
combination of variables. (Hybrid)
Inputs
1. Hours worked per week
2. size of work force
3. number of shifts
4. extent of subcontracting
5. inventory policies
6. demand shifting strategies
7. back order policies
**The capacity plan
places an upward bounds on the M.P.S.
(can't produce
level of output that exceeds capacity)
**NOTE: The plan does not always = Demand for a
period(s).
We would like to
have adequate capacity to meet demand--not too much because idle resources cost
money; and not to little because if we cannot meet customer demand they may go
elsewhere.
Question: How much capacity do we need? Aggregate planning (adjustable capacity
planning--effective capacity is set by aggregate plan) helps us to answer that
question.
Approaches to
Aggregate Planning
(Resource
Requirements Planning or Rough-cut capacity planning)
1. Bottom-up--you generally use a MRP
system to develop plans for major products, or product families; then you
consolidate those plans into one plan and evaluate the impact on company
capacity.
We evaluate the
resulting plan as follows:
a. Is it feasible? yes
then ask
b. Is it optimal?
Yes
Then: DO IT!
Else: If it is not feasible--revise plans and redo.
Else if: If it is
not optimal--revise plans and return to question 1 again.
2. Top-down--develop an overall or
aggregate rate of production (capacity). (Often makes use of a pseudo product).
Then you
disaggregate.
Assumption: If total capacity is adequate then the right
amount of capacity for all of the parts is available.
Trial & Error
Approach is most common way of evaluating alternative courses of action
relating to meeting market demand with capacity. (Cost is normally an important factor in our
choice.)
Aggregate (Capacity) Planning
1. Bottom up
Used with MRP
System
Developed tentative
MPS for future periods based on families of products
Use rough cut
capacity planning to evaluate load in relation to capacity and make adjustments
as necessary to come up with capacity plan that is:
Feasible--objective
Optimal--subjective
(Fast Growing)
2. Top down
Develop overall or
aggregate rate of production using Pseudo product.
*Assumption: capacity adequate for whole => capacity adequate
for the parts.
a. Subjective evaluation of goodness of
plan.
Trial & Error --evaluates
alternative ways of using resources to provide capacity necessary to meet
demand.
(Cost often major
selection criteria)
b. Objective
evaluation of
goodness of plan
Quantitative tools
to determine optimal solution.
1. Linear programming
2. Linear Decision Rule (LDR)
3. Search Decision Rule
(Computerized
trial and error approach)
SERVICES
Aggregate planning
for services is not much different, except for that there is not inventory for
adjustment and backordering may not be practical as they will just use a
competitor.
Yield Management—process of allocating the right type of
capacity to the right type of customer at the right price and time to maximize
revenue or yield.
Conditions for Effective use of Yield
Management:
1.
Demand
can be segmented by customer
2.
Fixed
Costs are high and Variable Costs are low
3.
Inventory
is perishable (service cannot be stored)
4.
Product
can be sold in advance
5.
Demand
is highly variable
Essence of Yield
Management in managing Demand through control of pricing and duration of
service. See Model p. 578.
Ex. Price—lower
price for flying certain times.
Ex.
Duration—Special conference rates at hotel apply only to conference period of 4
days.