Wish you all a very happy new year 2013

and welcome to Operations management-II

Aggregate Operations Planning

Class-1 , 2 and 3

Group Structure for OM-II

Grp No.
I

II

III

IV

VI

SR. NO. 12PGDM-BHU001 12PGDM-BHU005 12PGDM-BHU009 12PGDM-BHU013 12PGDM-BHU002 12PGDM-BHU006 12PGDM-BHU010 12PGDM-BHU014 12PGDM-BHU003 12PGDM-BHU007 12PGDM-BHU011 12PGDM-BHU015 12PGDM-BHU004 12PGDM-BHU008 12PGDM-BHU012 12PGDM-BHU016 12PGDM-BHU017 12PGDM-BHU022 12PGDM-BHU023 12PGDM-BHU020 12PGDM-BHU021 12PGDM-BHU018 12PGDM-BHU019 12PGDM-BHU025

NAM E Aastha Bansal Anant Ashesh Iliyas Ahmad Jillam Parida Aditya Anshuman Dash Apurv Chaturvedi Ishaan Rattanpal Jubin Joseph Ajay Pratap Singh Bibhu Prasad Rath Irshad Alam Kunder Dhiraj Sadhu Ajeet Singh Chauhan Dipanjan Bhattachrya Japkirat Singh Oberai Lovepreet Singh Megha Kulbhushan Suman Sekhar Pradhan Sujeet Singh Siladitya Sahoo Singamsetti Subba Rao Shiva Krishna Padhi Shivani Parashar Yashraj Behera

Aggregate Planning
Overview of Sales and Operations Planning Activities, The Aggregate Operations Plan, Aggregate Planning Techniques Production-Planning Hierarchy Aggregate Planning Master Production Scheduling Types of Production-Planning and Control Systems

Aggregate Planning
Attempts to match the supply of and demand for a product or service by determining the appropriate quantities and timing of inputs, transformation, and outputs. Decisions made on production, staffing, inventory and backorder levels.

 Long-range planning

Operations Planning Overview

Greater than one year planning horizon Usually with yearly increments

Intermediate-range planning

Six to eighteen months Usually with monthly or quarterly increments

Short-range planning

One day to less than six months Usually with weekly increments

Hierarchical Production Planning

Decision Level Corporate Decision Process
Allocates production among plants

Forecasts needed
Annual demand by item and by region

Plant manager

Determines seasonal plan by product type

Monthly demand for 15 months by product type

Shop superintendent

Determines monthly item production schedules

Monthly demand for 5 months by item

Production Planning Hierarchy

Long-Range Capacity Planning Aggregate Operations Planning Master Production Scheduling Production Planning and Control Systems Pond Draining Systems Push Systems Pull Systems Focusing on Bottlenecks

Production Planning Horizons

Long-Range Capacity Planning Aggregate Operations Planning Long-Range (years) Medium-Range (6-18 months) Short-Range (weeks)

Master Production Scheduling

Production Planning and Control Systems Pond Draining Systems Push Systems Pull Systems

Very-Short-Range (hours - days)

Focusing on Bottlenecks

Production Planning: Units of Measure

Long-Range Capacity Planning Aggregate Operations Planning Entire Product Line Product Family Specific Product Model

Master Production Scheduling

Production Planning and Control Systems Pond Draining Systems Push Systems Pull Systems

Labor, Materials, Machines

Focusing on Bottlenecks

Why Aggregate Planning Is Necessary

Fully load facilities and minimize overloading and under loading Make sure enough capacity available to satisfy expected demand Plan for the orderly and systematic change of production capacity to meet the peaks and valleys of expected customer demand Get the most output for the amount of resources available

Aggregate Planning
Goal: Specify the optimal combination of

production rate (units completed per unit of time) workforce level (number of workers) inventory on hand (inventory carried from previous period)

Required Inputs to the Aggregate Planning System

Competitors behavior External capacity Raw material availability Market demand Economic conditions

External to firm

Planning for production

Current physical capacity

Current workforce

Inventory levels

Activities required for production

Internal to firm

Outputs
A production plan: aggregate decisions for each period in the planning horizon about
workforce level inventory level production rate

Projected costs if the production plan was implemented

Medium-Term Capacity Adjustments

Workforce level
Hire or layoff full-time workers Hire or layoff part-time workers Hire or layoff contract workers

Utilization of the work force

Overtime Idle time (undertime) Reduce hours worked

. . . more

Medium-Term Capacity Adjustments

Inventory level
Finished goods inventory Backorders/lost sales

Subcontract

Key Aggregate Planning Strategies

Matching Demand (Chase Strategy) Level Capacity (Level Strategy)
Buffering with inventory Buffering with backlog Buffering with overtime or subcontracting

Combination of two

Matching Demand Strategy

Capacity (Production) in each time period is varied to exactly match the forecasted aggregate demand in that time period Capacity is varied by changing the workforce level Finished-goods inventories are minimal Labor and materials costs tend to be high due to the frequent changes

Developing and Evaluating the Matching Production Plan

Production rate is dictated by the forecasted aggregate demand Convert the forecasted aggregate demand into the required workforce level using production time information The primary costs of this strategy are the costs of changing workforce levels from period to period, i.e., hirings and layoffs

Level Capacity Strategy

Capacity (production rate) is held level (constant) over the planning horizon The difference between the constant production rate and the demand rate is made up (buffered) by inventory, backlog, overtime, part-time labor and/or subcontracting

Developing and Evaluating the Level Production Plan

Assume that the amount produced each period is constant, no hirings or layoffs The gap between the amount planned to be produced and the forecasted demand is filled with either inventory or backorders, i.e., no overtime, no idle time, no subcontracting . . . more

Balancing Aggregate Demand and Aggregate Production Capacity

Suppose the figure to the right represents forecast demand in units. Now suppose this lower figure represents the aggregate capacity of the company to meet demand. What we want to do is balance out the production rate, workforce levels, and inventory to make these figures match up.
10000 10000 8000 8000 6000 4000 5500 4500 7000 6000

2000
0 Jan Feb Mar 9000 8000 6000 Apr May Jun

10000 8000

6000
4000 2000 0

4500

4000

4000

Jan

Feb

Mar

Apr

May

Jun

Aggregate Planning Examples: Unit Demand and Cost Data

Suppose we have the following unit demand and cost information:
Demand/mo Jan 4500
Days/Month 22

Feb 5500
19

Mar 7000
21

Apr 10000
21

May 8000
22

Jun 6000
20

Materials Holding costs Marginal cost of stock out Hiring and training cost Layoff costs Labor hours required Straight time labor cost Beginning inventory Productive hours/worker/day Paid straight hrs/day Present Workforce strength

Rs.5/unit Rs.1/unit per mo. Rs.1.25/unit per mo. Rs.200/worker Rs.250/worker 0.15 hrs/unit Rs.8/hour 250 units 7.25 8 7

Determining Straight Labor Costs and Output

Given the demand and cost information below, what are the aggregate hours/worker/month, units/worker, and dollars/worker?
Demand/mo Jan 4500 Feb 5500 Mar 7000 Apr 10000 May 8000 Jun 6000

7.25x22

Productive hours/worker/day Paid straight hrs/day

22x8hrsxRs.8=Rs.1408
Jan Days/mo 22 Hrs/worker/mo 159.5 Units/worker 1063.33 Rs./worker 1,408 Feb 19 137.75 918.33 1,216

7.25 8 (7.25 x 22) / 0.15=1063.33

Mar 21 152.25 1015 1,344 Apr May 21 22 152.25 159.5 1015 1063.33 1,344 1,408 Jun 20 145 966.67 1,280

Chase Strategy (Hiring & Firing to meet demand)

Days/mo Hrs/worker/mo Units/worker Rs./worker Jan 22 159.5 1,063.33 Rs.1,408 Lets assume our current workforce is 7 workers.

First, calculate net requirements for production, or 4500-250=4250 units Then, calculate number of workers needed to produce the net requirements, or 4250/1063.33=3.997 or 4 workers

Demand Beg. inv. Net req. Req. workers Hired Fired Workforce Ending inventory

Jan 4,500 250 4,250 3.997 3 4 0

Finally, determine the number of workers to hire/fire. In this case we only need 4 workers, we have 7, so 3 can be fired.

Below are the complete calculations for the remaining months in the six month planning horizon.
Days/mo Hrs/worker/mo Units/worker Rs./worker

Jan 22 159.5 1,063 Rs.1,408

Feb 19 137.75 918 1,216

Mar 21 152.25 1,015 1,344

Apr 21 152.25 1,015 1,344

May 22 159.5 1,063 1,408

Jun 20 145 967 1,280

Demand Beg. inv. Net req. Req. workers Hired Fired Workforce Ending inventory

Jan 4,500 250 4,250 3.997 3 4 0

Feb 5,500

Mar 7,000

Apr 10,000

May 8,000

Jun 6,000

5,500 5.989 2
6 0

7,000 6.897 1
7 0

10,000 9.852 3
10 0

8,000 7.524
2 8 0

6,000 6.207
1 7 0

Below are the complete calculations for the remaining months in the six month planning horizon with the other costs included.
Demand Beg. inv. Net req. Req. workers Hired Fired Workforce Ending inventory Jan 4,500 250 4,250 3.997 3 4 0 Feb 5,500 5,500 5.989 2 6 0 Mar 7,000 7,000 6.897 1 7 0 Apr 10,000 10,000 9.852 3 10 0 May 8,000 8,000 7.524 2 8 0 Jun 6,000 6,000 6.207 1 7 0

Feb Costs Jan Mar Apr May Jun Material(Rs.) 21,250.00 27,500.00 35,000.00 50,000.00 40,000.00 30,000.00 203,750.00 5632 7,296 9408 13,440 11264 8960 56,000.00 Labor 400.00 200.00 600.00 1,200.00 Hiring cost 750.00 500.00 1,500.00 Firing cost 250.00
Rs. 262,450.00

Level Workforce Strategy (Surplus and Shortage Allowed)

Lets take the same problem as before but this time use the Level Workforce strategy. This time we will seek to use a workforce level of 6 workers.

Demand Beg. inv. Net req. W orkers P roduction Ending inventory Surplus Shortage

Jan 4,500 250 4,250 6 6,380 2,130 2,130

Below are the complete calculations for the remaining months in the six month planning horizon.
Demand Beg. inv. Net req. Workers Production Ending inventory Surplus Shortage Jan 4,500 250 4,250 6 6,380 2,130 2,130 Feb 5,500 2,130 3,370 6 5,510 2,140 2,140 Mar 7,000 2,140 4,860 6 6,090 1,230 1,230 Apr 10,000 1,230 8,770 6 6,090 -2,680 2,680 May 8,000 -2,680 10,680 6 6,380 -4,300 4,300 Jun 6,000 -4,300 10,300 6 5,800 -4,500 4,500

Assumption: Shortage of a month can be made off during the next month.

Below are the complete calculations for the remaining months in the six month planning horizon with the other costs included
Jan 4,500 250 4,250 6 6,380 2,130 2,130 Feb 5,500 2,130 3,370 6 5,510 2,140 2,140 Mar 7,000 10 4,860 6 6,090 1,230 1,230 Apr 10,000 1230 8,770 6 6,090 -2,680 2,680 Jan 8,448 31,900 2,130 Feb 7,296 27,550 2,140 Mar 8,064 30,450 1,230 Apr 8,064 30,450 3,350 May 8,000 -2680 10,680 6 6,380 -4,300 4,300 May 8,448 31,900 5,375 Jun 6,000 -4,300 10,300 6 5,800 -4,500 4,500 Jun 7,680 29,000 5,625
Rs.

Note, total costs under this strategy are less than Chase at Rs. 262,450/48,000.00 181,250.00 5,500.00 14,350.00
249,100.00 Labor Material Storage Stockout

Aggregate Plans for Services

For standardized services, aggregate planning may be simpler than in systems that produce products For customized services, there may be difficulty in specifying the nature and extent of services to be performed for each customer customer may be an integral part of the production system Absence of finished-goods inventories as a buffer between system capacity and customer demand

Preemptive Tactics
There may be ways to manage the extremes of demand:
Discount prices during the valleys.... have a sale Peak-load pricing during the highs .... electric utilities

Yield Management
It is the process of allocating the right type of capacity to right type of customer at the right price and time to maximize the revenue.

Yield Management
It is most effective under following situation. Demand can be segmented.
Fixed cost is high and variable cost is low. Inventory is perishable.

Product can be sold in advance

Demand is highly variable

Yield Management System

Key elements of an effective yield management system
Pricing structure
Handling variability in arrival Managing the service process Managing customers

Master Production Scheduling (MPS)

Objectives of MPS
Determine the quantity and timing of completion of end items over a short-range planning horizon. Schedule end items (finished goods and parts shipped as end items) to be completed promptly and when promised to the customer. Avoid overloading or underloading the production facility so that production capacity is efficiently utilized and low production costs result.

Time Fences

The rules for scheduling 2-4 weeks

+/- 5% Change

4-6 weeks
+/- 10%
Change

6+ weeks

1-2 weeks
No Change

+/- 20% Change

Frozen

Firm

Full
Open

Time Fences
The rules for scheduling:
Do not change orders in the frozen zone Do not exceed the agreed on percentage changes when modifying orders in the other zones Try to level load as much as possible Do not exceed the capacity of the system when promising orders. If an order must be pulled into level load, pull it into the earliest possible week without missing the promise.

Developing an MPS
Using input information
Customer orders (end items quantity, due dates) Forecasts (end items quantity, due dates) Inventory status (balances, planned receipts) Production capacity (output rates, planned downtime)

Schedulers place orders in the earliest available open slot of the MPS . . . more

Developing an MPS
Schedulers must:
estimate the total demand for products from all sources assign orders to production slots make delivery promises to customers, and make the detailed calculations for the MPS

Example: Master Production Scheduling

Arizona Instruments produces bar code scanners for consumers and other manufacturers on a produce-to-stock basis. The production planner is developing an MPS for scanners for the next 6 weeks. The minimum lot size is 1,500 scanners, and the safety stock level is 400 scanners. There are currently 1,120 scanners in inventory. The estimates of demand for scanners in the next 6 weeks are shown on the next slide.

Example: Master Production Scheduling

Demand Estimates
WEEK
1 2 3 4 5 6

CUSTOMERS MARKET RESEARCH

PRODUCTION RESEARCH

500 1000 500 200 700 1000

BRANCH WAREHOUSES 200 300 400 500 300 200

0 50 0 0 10 0

10

Example Master Production Scheduling

Computations
1 2

WEEK
3 4 5 6 500 1000 500 200 700 1000

CUSTOMERS MARKET RESEARCH

BRANCH WAREHOUSES 200 300 400 500 300 200

0 50 0 0 0 0 0 10 0 0 0 10 PRODUCTION RESEARCH

TOTAL DEMAND
REQUIRED PRODUCTION

710 1350 900 700 1010 1200

BEGINNING INVENTORY 1120 410 560 1160 460 950

0 1500 1500 0 1500 1500

ENDING INVENTORY

410 560 1160 460 950 1250

Example Master Production Scheduling

MPS for Bar Code Scanners
WEEK

1
SCANNER PRODUCTION 0

4
0

1500 1500

1500 1500

Rough-Cut Capacity Planning

As orders are slotted in the MPS, the effects on the production work centers are checked Rough cut capacity planning identifies underloading or overloading of capacity

Example: Rough-Cut Capacity Planning

Texprint Company makes a line of computer printers on a produce-to-stock basis for other computer manufacturers. Each printer requires an average of 24 labor-hours. The plant uses a backlog of orders to allow a level-capacity aggregate plan. This plan provides a weekly capacity of 5,000 labor-hours. Texprints rough-draft of an MPS for its printers is shown on the next slide. Does enough capacity exist to execute the MPS? If not, what changes do you recommend?

Example: Rough-Cut Capacity Planning

WEEK 1 PRODUCTION 2 3 4 5 TOTAL

100 200 200 250 280

1030

Example: Rough-Cut Capacity Planning

Rough-Cut Capacity Analysis
WEEK 1 PRODUCTION LOAD CAPACITY UNDER or OVER LOAD 2 3 4 5 TOTAL

100 200 200 250 280

1030

2400 4800 4800 6000 6720 24720

5000 5000 5000 5000 5000 25000

2600 200 200 1000 1720 280

Example: Rough-Cut Capacity Planning

Rough-Cut Capacity Analysis
The plant is underloaded in the first 3 weeks (primarily week 1) and it is overloaded in the last 2 weeks of the schedule. Some of the production scheduled for week 4 and 5 should be moved to week 1.

Demand Management
Review customer orders and promise shipment of orders as close to request date as possible Update MPS at least weekly.... work with Marketing to understand shifts in demand patterns Produce to order..... focus on incoming customer orders Produce to stock ..... focus on maintaining finished goods levels Planning horizon must be as long as the longest lead time item

Types of Production-Planning and Control Systems

Types of Production-Planning and Control Systems

Pond-Draining Systems Push Systems Pull Systems Focusing on Bottlenecks

Pond-Draining Systems
Emphasis on holding inventories (reservoirs) of materials to support production Little information passes through the system As the level of inventory is drawn down, orders are placed with the supplying operation to replenish inventory May lead to excessive inventories and is rather inflexible in its ability to respond to customer needs Suited for random demand, all types of production.

Push Systems
Use information about customers, suppliers, and production to manage material flows Flows of materials are planned and controlled by a series of production schedules that state when batches of each particular item should come out of each stage of production Can result in great reductions of raw-materials inventories and in greater worker and process utilization than pond-draining systems Best suited for job shop

Pull Systems
Look only at the next stage of production and determine what is needed there, and produce only that Raw materials and parts are pulled from the back of the system toward the front where they become finished goods Raw-material and in-process inventories approach zero Successful implementation requires much preparation Best suited for repetitive manufacturing

Focusing on Bottlenecks
Bottleneck Operations
Impede production because they have less capacity than upstream or downstream stages Work arrives faster than it can be completed Binding capacity constraints that control the capacity of the system

Optimized Production Technology (OPT) Synchronous Manufacturing

Synchronous Manufacturing
Operations performance measured by
throughput (the rate cash is generated by sales) inventory (money invested in inventory), and operating expenses (money spent in converting inventory into throughput)

. . . more

Synchronous Manufacturing
System of control based on:
drum (bottleneck establishes beat or pace for other operations) buffer (inventory kept before a bottleneck so it is never idle), and rope (information sent upstream of the bottleneck to prevent inventory buildup and to synchronize activities)

Case Bradford Manufacturing

Bradford Manufacturing Planning Plant Production

1,000 case units. Forecast Demand Ending Inventory Target 1st (1-13) 2,000 338 Quarter (Week Numbers) 2nd (14-26) 2,200 385 3rd (27-39) 2,500 408 4th (40-52) 2,650 338 1st (Next Year) 2,200

Planning Data Initial number of employees Emplyees per line Standard production rate (each line) Employee pay rate Overtime pay rate Standard hours per shift Maximum overtime per day Inventory carrying cost Stockout cost Employee hiring and training cost Employee layoff cost

Numbers 60 6 450 $20.00 $30.00 7.5 2 $1.00 $2.40 $5,000.00 $3,000.00

Units of measure employees Cases per hour per hour per hour hours hours per case (per year) per case per employee per employee

Bradford Manufacturing Planning Plant Production

Aggregate Plan Lines run Overtime hours per day Beginning Inventory Production Expected Demand Ending Inventory Deviation from Inventory Target Employees Cost of Plan Labor Regular Time Labor Overtime Hiring and Training Layoff Inventory Carry Cost Stockout Cost Quarter Budget 1st (1-13) 10 0 200.0 2,193.8 2,000.0 393.8 55.3 60 Quarter (Week Numbers) 2nd (14-26) 3rd (27-39) 10 11 0 1 393.8 2,193.8 2,200.0 387.5 2.9 60 387.5 2,734.9 2,500.0 622.4 214.7 66 4th (40-52) 11 0 622.4 2,413.1 2,650.0 385.5 47.0 66

$624,000 $0 $0 $0 $13,822 $0 $637,822

$624,000 $0 $0 $0 $721 $0 $624,721

$686,400 $128,700 $30,000 $0 $53,671 $0 $898,771

$686,400 $0 $0 $0 $11,760 $0 $698,160 $2,859,474

Total Cost of Plan

Class Assignment
Submission Deadline 11-1-2013, 3.30PM (Through Email) Full Marks 10 marks ( Weightage 2 marks )

Class Assignment
The central terminal at the Blue Dart Company receives air freight from aircraft arriving from all over India and redistributes it to aircraft for shipment to all Indian destinations. The company guarantees overnight shipment of all parcels, so enough personnel must be available to process all cargo as it arrives. The company now has 24 employees working in the terminal. The forecasted demand for warehouse workers for the next seven month is 24, 26, 30, 28, 24 and 24. It costs Rs.2000 to hire and Rs.3500 to layoff each worker. If overtime is used to supply labour beyond the present workforce straighttime capacity, it will cost the equivalent of Rs.2600 more for each additional worker needed. Should the company use a level capacity with overtime or a matching demand plan for the next six months ?

Thank You