Chapter 11
Aggregate Planning
Production Planning in Manufacturing
Aggregate Demand Example
Aggregate Planning
How many workers are needed each quarter?
(each worker works 520 hours per quarter)
Labor
Standard
Quarter
# units
6 hrs Printers
1
2
3
4
8,000
12,000
10,000
6,000
2 hrs CD drives
20,000
16,000
16,000
12,000
3 hrs DVD drives
15,000
20,000
12,000
15,000
Labor hrs needed:
# workers needed:
Aggregate Planning
2 basic strategies:
Matching Demand
– matching capacity with aggregate demand
– carry little inventory
– change work force size
Level Capacity
– stable work force size
– use inventory or backlog as buffer
Level Capacity:
Produce-to-Stock
Level Capacity:
Produce-to-Order
Level Capacity: Produce-to-stock
For each period,
Beg.Inv. + Production = Demand + End.Inv.
Given: beg. inv. in Qtr. 1 = 24; CC = $15 per unit per qtr.
Quarter Demand Produce Beg.Inv. End.Inv.
1
88
24
2
3
4
62
45
77
Level Capacity: Produce-to-order
For each period,
Production - Demand = Beg.Backlog - End.Backlog
Given: beg. BL in Qtr. 1 = 31
Quarter Demand Produce
1
42
2
3
4
78
84
63
Beg.BL
31
End.BL
Quarterly demands for the coming year are 145, 150, 226, and 95 for a
make-to-stock product. The company uses a level capacity plan. In
any quarter that demand cannot be met by production and inventory
on hand, a costly stockout will occur. What is the least amount of
beginning inventory for the first quarter that can be used without
having any stockout during the year? Show what the ending
inventory level for each quarter would be.
Quarter Demand Produce Beg.Inv. End.Inv. Beg.Inv. End.Inv.
1
145
2
150
3
226
4
95
Level Capacity Plan or Matching Demand Plan
Quarterly demand forecasts: 85, 107, 136, 124
Carrying cost rate: $68 per unit left at end of each qtr.
Hiring/training cost rate: $125 per new person
Layoff cost rate: $50 per person
Initial inventory = 0
Currently 57 employees prior to Quarter 1
Labor standard = 250 hours per unit
Each employee works 520 hours per quarter
Which costs less, a level capacity plan or a matching
demand plan?
Level Capacity Plan
Quarter
Demand
1
85
2
107
3
136
4
124
Produce
Beg.Inv.
0
End.Inv.
Matching Demand Plan
Quarter
Lab.Hrs.
Demand Produce Needed
1
85
2
107
3
136
4
124
# of
Employ
# Hired
#
Layoffs
Rough-Cut Capacity Planning
Labor standard = 24 hours per unit
Weekly capacity = 5000 labor hours
Week
Gross # units
Requirements
Load (hrs)
Capacity (hrs)
Underload
Overload
1
2
3
4
5
100
200
200
250
280
Total
Shifting Production Earlier
Week
3
4
1
2
Gross Req. (units)
60
125
80
Capacity (units)
90
100
120
Produce:
5
6
100
140
90
110
100
140
Straight-time vs. Overtime vs. Outsourcing
Straight-time cost rate = $10 per hour
Straight-time capacity = 20,000 hours per quarter
Labor standard = 4 hours per unit
Overtime cost rate = time-and-a-half
Overtime capacity = 20% of straight-time capacity
Outsourcing capacity = 1,000 units
Outsourcing cost = $70 per unit (plus materials)
Forecasted demand next quarter = 6,700 units
Develop a production plan that minimizes total cost.
Straight-time vs. Overtime vs. Outsourcing
Straight-time
Unit cost ($)
Capacity (units)
Produce (units)
Total cost ($)
Overtime
Outsourcing