Chapter 11
MIS 373: Basic Operations Management
1

• After this lecture, students will be able to
1. Explain what aggregate planning is and how it is useful.
2. Identify the variables decision makers have to work with in aggregate planning.
3. Describe some of the graphical and quantitative techniques planners use.
4. Prepare aggregate plans and compute their costs.
5. Discuss aggregate planning in services.
MIS 373: Basic Operations Management 2

MOTIVATIONS

Long-term planning
Intermediate-term planning
Short-term detailed planning
4 MIS 373: Basic Operations Management

• avoid focusing on individual products or services
• focus on a group of similar products or services
• For purposes of aggregate planning, it is often convenient to think of capacity in terms of labor hours or machine hours per period, or output rates (barrels per period, units per period), without worrying about how much of a particular item will actually be involved.
MIS 373: Basic Operations Management 5

• The main idea behind aggregate planning:
Aggregate planning translates business plans into rough labor schedules and production plans
• Issues to consider for aggregate planning
• Production rate: “aggregate units” per worker per unit time
• Workforce level: available workforce in terms of hours
• Actual production: Production rate x Workforce level
• Inventory: Units carried over from previous periods
• Costs: production, changing workforce, inventory
MIS 373: Basic Operations Management 6

 What does aggregate planning do?
 Given an aggregate demand forecast , determine production levels, inventory levels, and workforce levels, in order to minimize total relevant costs over the planning horizon
 Why do organizations need to do aggregate planning?
 It takes time to implement plans (e.g. hiring).
 It is not possible to predict with accuracy the timing and volume of demand for individual items.
 Planning is connected to the budgeting process which is usually done annually on an aggregate (e.g., departmental) level.
 It can help synchronize flow throughout the supply chain; it affects costs, equipment utilization; employment levels; and customer satisfaction
MIS 373: Basic Operations Management 7

• Alter demand to match supply (capacity)
• Among other approaches, we can alter demand by simply changing the price.
• Alter supply (capacity) to match demand
• Through capacity planning and aggregate planning
• Some of each
MIS 373: Basic Operations Management 8

• Pricing
• Used to shift demand from peak to off-peak periods
• Price elasticity is important
• Promotion
• Advertising and other forms of promotion
• Issue: response rate and response patterns. Less control over timing of demand (may worsen the problem by bringing demand at the wrong time).
• Back orders (delaying order filling)
• Orders are taken in one period and deliveries promised for a later period
• Possible loss of sales, increased record keeping, lowered customer service level
• New demand
• Offer different products/services during off-peak periods.
• Yield (Revenue) Management
• Maximizing revenue by using a variable pricing strategy. Prices are set relative to capacity availability.
MIS 373: Basic Operations Management 9

• Hire and layoff workers
• May have upper or lower limit
• Unions/internal policies may prohibit layoffs
• Skill levels
• Associated costs (e.g., recruiting, training, severance-pay, morale)
• Overtime
• Overtime may result in lower productivity, poorer quality, more accidents, increased payroll costs
• Part-time workers
• Usually low-to-moderate job skills
• Independent-contractors
• Inventories
• Produce in one period and sell in another
• Costs: holding and carrying cost, money tied up in inventory, insurance, obsolescence, deterioration, spoilage, breakage etc.
• Subcontracting
• Less control over output. Quality problems.
• Higher costs
MIS 373: Basic Operations Management 10

• Maintaining a steady rate of regular-time output; variations in demand are met by using inventories or other options such as overtime, part-time workers, subcontracting, and backorders
• Matching capacity to demand; the planned output for a period is set at the expected demand for that period.
MIS 373: Basic Operations Management 11

• Advantages
• Stable output rates and workforce
• Disadvantages
• Greater inventory (or other) costs
MIS 373: Basic Operations Management 12

• Advantages
• Investment in inventory is low
• Labor utilization in high
• Disadvantages
• The cost of adjusting output rates and/or workforce levels
MIS 373: Basic Operations Management 13

• Company policy
• Constraints on the available options
• e.g., discourage layoffs, no subcontracting to protects secrets, union policies regarding over time
• Flexibility
• Chase flexibility may not be present for companies designed for high steady output (e.g., refineries, auto assembly)
• Cost
• Alternatives are evaluated in term of cost (while matching demand within the constraints).
MIS 373: Basic Operations Management 14

• Beginning Inventory: 0 units
• Beginning Workforce: 5 workers
• Production Rate: 10 units/worker/period
• Regular Production Costs: $10/unit
• Inventory Costs: $5/unit/period
• Hiring Cost: $200/worker
• Firing Cost: $100/worker
Period
Demand
1
40
2
30
3
20
4
50
5
60
MIS 373: Basic Operations Management 15

Beginning Inventory
Demand
0 1
40
Production
End
Inventory
# Hired
# Fired
EXAMPLE #1: CHASE DEMAND
Time Periods
2
30
3
20
4
50
5
60
Total
200
# Hired in the beginning of a period
# Fired in the beginning of a period
MIS 373: Basic Operations Management
Beginning Inventory: 0 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory Costs: $5/unit/period
Hiring Cost: $200/worker
Firing Cost: $100/worker 16

EXAMPLE #1: CHASE DEMAND
0 1
Demand 40
Production
40
End
Inventory
# Hired
# Fired
2
30
30
3
20
20
Recall the chase strategy:
Capacities are adjusted to match demand requirements over the planning horizon
MIS 373: Basic Operations Management
4
50
50
5
60
60
Total
200
200
Beginning Inventory: 0 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory Costs: $5/unit/period
Hiring Cost: $200/worker
Firing Cost: $100/worker 17

EXAMPLE #1: CHASE DEMAND
0 1
Demand 40
Production
40
0
End
Inventory
# Hired
0
# Fired
1
2
30
30
3
20
20
4
50
50
5
60
60
Total
200
200
MIS 373: Basic Operations Management
Beginning Inventory: 0 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory Costs: $5/unit/period
Hiring Cost: $200/worker
Firing Cost: $100/worker 18

EXAMPLE #1: CHASE DEMAND
0 1
Demand 40
Production
40
0
End
Inventory
# Hired
0
# Fired
1
2
30
30
0
0
1
3
20
20
4
50
50
5
60
60
Total
200
200
MIS 373: Basic Operations Management
Beginning Inventory: 0 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory Costs: $5/unit/period
Hiring Cost: $200/worker
Firing Cost: $100/worker 19

EXAMPLE #1: CHASE DEMAND
0 1
Demand 40
Production
40
0
End
Inventory
# Hired
0
# Fired
1
2
30
30
0
0
1
3
20
20
0
0
1
4
50
50
5
60
60
Total
200
200
MIS 373: Basic Operations Management
Beginning Inventory: 0 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory Costs: $5/unit/period
Hiring Cost: $200/worker
Firing Cost: $100/worker 20

EXAMPLE #1: CHASE DEMAND
0 1
Demand 40
Production
40
0
End
Inventory
# Hired
0
# Fired
1
MIS 373: Basic Operations Management
2
30
30
0
0
1
3
20
20
0
0
1
4
50
50
0
3
0
5
60
60
Total
200
200
Beginning Inventory: 0 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory Costs: $5/unit/period
Hiring Cost: $200/worker
Firing Cost: $100/worker 21

EXAMPLE #1: CHASE DEMAND
0 1
Demand 40
Production
40
0
End
Inventory
# Hired
0
# Fired
1
MIS 373: Basic Operations Management
2
30
30
0
0
1
3
20
20
0
0
1
4
50
50
0
3
0
5
60
60
0
1
0
Total
200
200
Beginning Inventory: 0 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory Costs: $5/unit/period
Hiring Cost: $200/worker
Firing Cost: $100/worker 22

EXAMPLE #1: CHASE DEMAND
0 1
Demand 40
Production
40
0
End
Inventory
# Hired
0
# Fired
1
MIS 373: Basic Operations Management
2
30
30
0
0
1
3
20
20
0
0
1
4
50
50
0
3
0
5
60
60
0
1
0
Total
200
200
0
4
3
Beginning Inventory: 0 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory Costs: $5/unit/period
Hiring Cost: $200/worker
Firing Cost: $100/worker 23

EXAMPLE #1: CHASE DEMAND
0 1
Demand 40
Production
40
0
End
Inventory
# Hired
0
# Fired
1
2
30
30
0
0
1
3
20
20
0
0
1
4
50
50
0
3
0
5
60
60
0
1
0
Total
200
200
0
4
3
One defining characteristics of the chase strategy is that we don’t have end inventory.
 All we produced are/were sold.
 No holding cost
MIS 373: Basic Operations Management
Beginning Inventory: 0 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory Costs: $5/unit/period
Hiring Cost: $200/worker
Firing Cost: $100/worker 24

EXAMPLE #1: CHASE DEMAND
0 1
Demand 40
Production
40
0
End
Inventory
# Hired
0
# Fired
1
2
30
30
0
0
1
3
20
20
0
0
1
4
50
50
0
3
0
5
60
60
0
1
0
Total
200
200
0
4
3
TC=Production + Holding + Hiring + Firing
= 200*10 + 0 + 4*200 + 3*100 = $3,100
MIS 373: Basic Operations Management
Beginning Inventory: 0 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory Costs: $5/unit/period
Hiring Cost: $200/worker
Firing Cost: $100/worker 25

EXERCISE PROBLEM
• Perform aggregate planning using the chase strategy:
• Beginning Inventory: 10 units
• Beginning Workforce: 5 workers
• Production Rate: 10 units/worker/period
• Regular Production Costs: $10/unit
• Inventory Costs: $10/unit/period
• Hiring Cost: $100/worker
• Firing Cost: $200/worker
Period
Demand
1
50
2
40
3
30
4
30
5
40

SOLUTION: CHASE STRATEGY
Beginning Inventory
10 1 2 3 4 5 Total
Demand
50 40 30 30 40
190
Production
End
Inventory
# Hired
# Fired
Beginning Inventory: 10 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory Costs: $10/unit/period
Hiring Cost: $100/worker
Firing Cost: $200/worker

SOLUTION: CHASE STRATEGY
Beginning Inventory
10 1 2 3 4 5 Total
Demand
50
Production
40
40
40
30
30
30
30
40
40
190
180
End
Inventory
# Hired
# Fired
We only produce 40 units because there are 10 units beginning inventory that we can use.
So, we can still meet the demand of
50 units.
Beginning Inventory: 10 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory Costs: $10/unit/period
Hiring Cost: $100/worker
Firing Cost: $200/worker

SOLUTION: CHASE STRATEGY
Beginning Inventory
10 1 2 3 4 5 Total
Demand
50
Production
40
0
End
Inventory
# Hired
# Fired
0
1
40
40
30
30
30
30
40
40
190
180
Beginning Inventory: 10 units
The beginning workforce is 5 workers.
Beginning Workforce: 5 workers
Since we only produce 40 units in this period Production Rate: 10 units/worker/period and each worker can handle 10 units in a period,
Regular Production Costs: $10/unit we only need 4 works here.
 We hence fire 1 at the beginning of this period.
Inventory Costs: $10/unit/period
Hiring Cost: $100/worker
Firing Cost: $200/worker

SOLUTION: CHASE STRATEGY
10 1
Demand
50
Production
40
0
End
Inventory
# Hired
# Fired
0
1
2
40
40
0
0
0
3
30
30
4
30
30
5
40
40
Total
190
180
Beginning Inventory: 10 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory Costs: $10/unit/period
Hiring Cost: $100/worker
Firing Cost: $200/worker

SOLUTION: CHASE STRATEGY
10 1
Demand
50
Production
40
0
End
Inventory
# Hired
# Fired
0
1
2
40
40
0
0
0
3
30
30
0
0
1
4
30
30
5
40
40
Total
190
180
Beginning Inventory: 10 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory Costs: $10/unit/period
Hiring Cost: $100/worker
Firing Cost: $200/worker

SOLUTION: CHASE STRATEGY
10 1
Demand
50
Production
40
0
End
Inventory
# Hired
# Fired
0
1
2
40
40
0
0
0
3
30
30
0
0
1
4
30
30
0
0
0
5
40
40
Total
190
180
Beginning Inventory: 10 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory Costs: $10/unit/period
Hiring Cost: $100/worker
Firing Cost: $200/worker

SOLUTION: CHASE STRATEGY
10 1
Demand
50
Production
40
0
End
Inventory
# Hired
# Fired
0
1
2
40
40
0
0
0
3
30
30
0
0
1
4
30
30
0
0
0
5
40
40
0
1
0
Total
190
180
0
1
2
Beginning Inventory: 10 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory Costs: $10/unit/period
Hiring Cost: $100/worker
Firing Cost: $200/worker

SOLUTION: CHASE STRATEGY
10 1
Demand
50
Production
40
0
End
Inventory
# Hired
# Fired
0
1
2
40
40
0
0
0
3
30
30
0
0
1
4
30
30
0
0
0
5
40
40
0
1
0
Total
190
180
0
1
2
TC=Production + Holding + Hiring + Firing
= 180*10 + 5*10 + 1*100 + 2*200
Beginning Inventory: 10 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory Costs: $10/unit/period
Hiring Cost: $100/worker
Firing Cost: $200/worker

EXAMPLE #2: LEVEL CAPACITY
Demand
Production
0
End
Inventory
# Hired
# Fired
1
40
2
30
3
20
4
50
5
60
Total
200
MIS 373: Basic Operations Management
Beginning Inventory: 0 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory Holding Costs: $5/unit/period
Hiring Cost: $200/worker
Firing Cost: $100/worker
35

EXAMPLE #2: LEVEL CAPACITY
Demand
Production
0 1
40
40
2
30
40
End
Inventory
# Hired
# Fired
Recall the level strategy:
Capacities are kept constant over the planning horizon. So,
Total demand=40+30+20+50+60=200
Production per period=200/5=40
MIS 373: Basic Operations Management
3
20
40
4
50
40
5
60
40
Total
200
200
Beginning Inventory: 0 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory Holding Costs: $5/unit/period
Hiring Cost: $200/worker
Firing Cost: $100/worker
36

EXAMPLE #2: LEVEL CAPACITY
Demand
Production
0
End
Inventory
# Hired
# Fired
1
40
40
0
0
1
2
30
40
3
20
40
4
50
40
5
60
40
Total
200
200
MIS 373: Basic Operations Management
Beginning Inventory: 0 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory Holding Costs: $5/unit/period
Hiring Cost: $200/worker
Firing Cost: $100/worker
37

EXAMPLE #2: LEVEL CAPACITY
Demand
Production
0
End
Inventory
# Hired
# Fired
1
40
40
0
0
1
Fire 1 worker in this period because 4 workers are sufficient to produce 40 units in a period.
MIS 373: Basic Operations Management
2
30
40
3
20
40
4
50
40
5
60
40
Total
200
200
Beginning Inventory: 0 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory Holding Costs: $5/unit/period
Hiring Cost: $200/worker
Firing Cost: $100/worker
38

EXAMPLE #2: LEVEL CAPACITY
Demand
Production
0
End
Inventory
# Hired
# Fired
1
40
40
0
0
1
2
30
40
10
0
0
3
20
40
4
50
40
5
60
40
Total
200
200
MIS 373: Basic Operations Management
Beginning Inventory: 0 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory Holding Costs: $5/unit/period
Hiring Cost: $200/worker
Firing Cost: $100/worker
39

EXAMPLE #2: LEVEL CAPACITY
Demand
Production
0
End
Inventory
# Hired
# Fired
1
40
40
0
0
1
2
30
40
10
0
0
3
20
40
30
0
0
4
50
40
5
60
40
Total
200
200
MIS 373: Basic Operations Management
Beginning Inventory: 0 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory Holding Costs: $5/unit/period
Hiring Cost: $200/worker
Firing Cost: $100/worker
40

EXAMPLE #2: LEVEL CAPACITY
Demand
Production
0
End
Inventory
# Hired
# Fired
1
40
40
0
0
1
MIS 373: Basic Operations Management
2
30
40
10
0
0
3
20
40
30
0
0
4
50
40
20
0
0
5
60
40
Total
200
200
Beginning Inventory: 0 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory Holding Costs: $5/unit/period
Hiring Cost: $200/worker
Firing Cost: $100/worker
41

EXAMPLE #2: LEVEL CAPACITY
Demand
Production
0
End
Inventory
# Hired
# Fired
1
40
40
0
0
1
MIS 373: Basic Operations Management
2
30
40
10
0
0
3
20
40
30
0
0
4
50
40
20
0
0
5
60
40
0
0
0
Total
200
200
Beginning Inventory: 0 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory Holding Costs: $5/unit/period
Hiring Cost: $200/worker
Firing Cost: $100/worker
42

EXAMPLE #2: LEVEL CAPACITY
Demand
Production
0
End
Inventory
# Hired
# Fired
1
40
40
0
0
1
MIS 373: Basic Operations Management
2
30
40
10
0
0
3
20
40
30
0
0
4
50
40
20
0
0
5
60
40
0
0
0
Total
200
200
60
0
1
Beginning Inventory: 0 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory Holding Costs: $5/unit/period
Hiring Cost: $200/worker
Firing Cost: $100/worker
43

EXAMPLE #2: LEVEL CAPACITY
Demand
Production
End
Inventory
# Hired
# Fired
0 1
40
40
0
0
1
2
30
40
10
0
0
One defining characteristics of the level strategy is that we don’t need to adjust capacity (here, labor force), except for the initial period.
MIS 373: Basic Operations Management
3
20
40
30
0
0
4
50
40
20
0
0
5
60
40
0
0
0
Total
200
200
60
0
1
Beginning Inventory: 0 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory Holding Costs: $5/unit/period
Hiring Cost: $200/worker
Firing Cost: $100/worker
44

EXAMPLE #2: LEVEL CAPACITY
Demand
Production
0
End
Inventory
# Hired
# Fired
1
40
40
0
0
1
2
30
40
10
0
0
3
20
40
30
0
0
4
50
40
20
0
0
5
60
40
0
0
0
Total
200
200
60
0
1
TC=Production + Holding + Hiring + Firing
But, how to calculate the holding cost?
 Average inventory in a period
MIS 373: Basic Operations Management
Beginning Inventory: 0 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory Holding Costs: $5/unit/period
Hiring Cost: $200/worker
Firing Cost: $100/worker
45

Demand
0 1
40
Production 40
0 End
Inventory
Average
Inventory
# Hired
0
0
# Fired 1
EXAMPLE #2: LEVEL CAPACITY
2
30
40
10
3
20
40
30
4
50
40
20
5
60
40
0
10
Total
200
200
60
60
Regular Production
Costs: $10/unit
Inventory Holding
Costs:
$5/unit/period
Hiring Cost:
$200/worker
Firing Cost:
$100/worker
5 20
=( 0 + 10 )/2 =( 10 + 30 )/2
0 0
0 0
25
0
0
0
0
0
1
We can estimate the holding cost by considering the average inventory in each period.
MIS 373: Basic Operations Management 46

Demand
0 1
40
Production 40
0 End
Inventory
Average
Inventory
# Hired
0
0
# Fired 1
EXAMPLE #2: LEVEL CAPACITY
2
30
40
10
3
20
40
30
5 20
=( 0 + 10 )/2 =( 10 + 30 )/2
0 0
0 0
25
0
0
4
50
40
20
10
0
0
5
60
40
0
TC=Production + Holding + Hiring + Firing
TC= 200*10 + 60*5 + 0*200 + 1*100 = $2,400
Total
200
200
60
60
0
1
Regular Production
Costs: $10/unit
Inventory Holding
Costs:
$5/unit/period
Hiring Cost:
$200/worker
Firing Cost:
$100/worker
MIS 373: Basic Operations Management 47

Demand
0 1
40
Production 40
0 End
Inventory
Average
Inventory
# Hired
0
0
# Fired 1
EXAMPLE #2: LEVEL CAPACITY
2
30
40
10
3
20
40
30
5 20
=( 0 + 10 )/2 =( 10 + 30 )/2
0 0
0 0
25
0
0
4
50
40
20
10
0
0
5
60
40
0
TC=Production + Holding + Hiring + Firing
TC= 200*10 + 60*5 + 0*200 + 1*100 = $2,400
Total
200
200
60
60
0
1
Regular Production
Costs: $10/unit
Inventory Holding
Costs:
$5/unit/period
Hiring Cost:
$200/worker
Firing Cost:
$100/worker
MIS 373: Basic Operations Management 48

EXERCISE PROBLEM
• Perform aggregate planning using the level strategy:
• Beginning Inventory: 10 units
• Beginning Workforce: 5 workers
• Production Rate: 10 units/worker/period
• Regular Production Costs: $10/unit
• Inventory Costs: $10/unit/period
• Hiring Cost: $100/worker
• Firing Cost: $200/worker
Period
Demand
1
50
2
40
3
30
4
30
5
40
Two additional assumptions:
1. Unmet demands in a period can be held and fulfilled in a future period.
2. There is no cost associated with unmet demands.

SOLUTION: CHASE STRATEGY
Beginning Inventory
10 Total 1
50
2
40
3
30
4
30
5
40
190 Demand
Production
End Inventory
Avg. Inventory
# Hired
# Fired
Beginning Inventory: 10 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory Costs: $10/unit/period
Hiring Cost: $100/worker
Firing Cost: $200/worker

SOLUTION: CHASE STRATEGY
Beginning Inventory
10 Total 1
50
36
2
40
36
3
30
36
4
30
36
5
40
36
190
180
Demand
Production
End Inventory
Avg. Inventory
# Hired
# Fired
Total demand=190
Total demand=190 – 10 = 180
Production per period=180/5=36
Beginning Inventory: 10 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory Costs: $10/unit/period
Hiring Cost: $100/worker
Firing Cost: $200/worker

SOLUTION: CHASE STRATEGY
Beginning Inventory
10 Total
Demand
Production
End Inventory
Avg. Inventory
# Hired
# Fired
1
50
36
-4
3
0
1
2
40
36
3
30
36
4
30
36
5
40
36
190
180
By assumption #1, unmet demands in a period can be held and fulfilled in a future period. So, we keep track on the unmet demands, and try to fulfill them in a future period.
Beginning Inventory: 10 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory Costs: $10/unit/period
Hiring Cost: $100/worker
Firing Cost: $200/worker

SOLUTION: CHASE STRATEGY
Beginning Inventory
10 Total
Demand
Production
End Inventory
Avg. Inventory
# Hired
# Fired
1
50
36
-4
3
0
1
2
40
36
3
30
36
4
30
36
5
40
36
190
180
Avg. inventory = [10 + (-4)]/2 = 3
Beginning Inventory: 10 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory Costs: $10/unit/period
Hiring Cost: $100/worker
Firing Cost: $200/worker

SOLUTION: CHASE STRATEGY
Beginning Inventory
10 Total
Demand
Production
End Inventory
Avg. Inventory
# Hired
# Fired
1
50
36
-4
3
0
1
2
0
0
40
36
-8
-6
3
30
36
4
30
36
5
40
36
190
180
-8 = (-4) + (-4)
Unmet demand from period #1 and from period #2
Beginning Inventory: 10 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory Costs: $10/unit/period
Hiring Cost: $100/worker
Firing Cost: $200/worker

SOLUTION: CHASE STRATEGY
Beginning Inventory
10 Total
Demand
Production
End Inventory
Avg. Inventory
# Hired
# Fired
1
50
36
-4
3
0
1
2
0
0
40
36
-8
-6
3
0
0
30
36
-2
-5
4
30
36
5
40
36
190
180
Beginning Inventory: 10 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory Costs: $10/unit/period
Hiring Cost: $100/worker
Firing Cost: $200/worker

SOLUTION: CHASE STRATEGY
Beginning Inventory
10 Total
Demand
Production
End Inventory
Avg. Inventory
# Hired
# Fired
1
50
36
-4
3
0
1
2
0
0
40
36
-8
-6
3
0
0
30
36
-2
-5
4
30
36
4
1
0
0
5
40
36
190
180
Beginning Inventory: 10 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory Costs: $10/unit/period
Hiring Cost: $100/worker
Firing Cost: $200/worker

SOLUTION: CHASE STRATEGY
Beginning Inventory
10 Total
Demand
Production
End Inventory
Avg. Inventory
# Hired
# Fired
1
50
36
-4
3
0
1
2
0
0
40
36
-8
-6
3
0
0
30
36
-2
-5
4
30
36
4
1
0
0
5
40
36
0
2
0
0
190
180
0
1
Beginning Inventory: 10 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory Costs: $10/unit/period
Hiring Cost: $100/worker
Firing Cost: $200/worker

SOLUTION: CHASE STRATEGY
Beginning Inventory
10 Total
Demand
Production
End Inventory
Avg. Inventory
# Hired
# Fired
1
50
36
-4
3
0
1
2
0
0
40
36
-8
-6
3
0
0
30
36
-2
-5
4
30
36
4
1
0
0
5
40
36
0
2
0
0
190
180
0
1
By assumption #2, there is no cost associated with unmet demand (i.e., negative inventory has no costs).
TC=Production + Holding + Hiring + Firing
= 180*10 + 10*(3+1+2) + 0 + 1*200 = $2,030
Beginning Inventory: 10 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory Costs: $10/unit/period
Hiring Cost: $100/worker
Firing Cost: $200/worker

SOLUTION: CHASE STRATEGY
Demand
Production
End Inventory
Avg. Inventory
# Hired
# Fired
10 1
50
36
2
40
36
3
30
36
4
30
36
5
40
36
Total
190
180
Tim suggested another way to solve this problem.
 Pushing unmet demands to its next period
Beginning Inventory: 10 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory Costs: $10/unit/period
Hiring Cost: $100/worker
Firing Cost: $200/worker

SOLUTION: CHASE STRATEGY
Demand
Production
End Inventory
Avg. Inventory
# Hired
# Fired
10 1
0
1
0
5
50
36
2
40 44
36
3
30
36
4
30
36
5
40
36
Total
190
180
Tim suggested another way to solve this problem.
 Pushing unmet demands to its next period
 Instead of -4 end inventory, here we have 0.
 See that the demand for period #2 increase from 40 to 44.
Beginning Inventory: 10 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory Costs: $10/unit/period
Hiring Cost: $100/worker
Firing Cost: $200/worker

SOLUTION: CHASE STRATEGY
Demand
Production
End Inventory
Avg. Inventory
# Hired
# Fired
10 1
0
1
0
5
50
36
2 3
40 44 30 38
36 36
0
0
0
0
4
30
36
5
40
36
Total
190
180
Beginning Inventory: 10 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory Costs: $10/unit/period
Hiring Cost: $100/worker
Firing Cost: $200/worker

SOLUTION: CHASE STRATEGY
Demand
Production
End Inventory
Avg. Inventory
# Hired
# Fired
10 1
0
1
0
5
50
36
2 3 4
40 44 30 38 30 32
36 36 36
0
0
0
0
0
0
0
0
5
40
36
Total
190
180
Beginning Inventory: 10 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory Costs: $10/unit/period
Hiring Cost: $100/worker
Firing Cost: $200/worker

SOLUTION: CHASE STRATEGY
Demand
Production
End Inventory
Avg. Inventory
# Hired
# Fired
10 1
0
1
0
5
50
36
2 3 4
40 44 30 38 30 32
36 36 36
0
0
0
0
0
0
0
0
0
0
4
2
5
40
36
Total
190
180
Beginning Inventory: 10 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory Costs: $10/unit/period
Hiring Cost: $100/worker
Firing Cost: $200/worker

SOLUTION: CHASE STRATEGY
Demand
Production
End Inventory
Avg. Inventory
# Hired
# Fired
10 1
0
1
0
5
50
36
2 3 4
40 44 30 38 30 32
36 36 36
0
0
0
0
0
0
0
0
0
0
4
2
5
40
36
0
0
0
2
Total
190
180
0
1
4
9
Beginning Inventory: 10 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory Costs: $10/unit/period
Hiring Cost: $100/worker
Firing Cost: $200/worker

SOLUTION: CHASE STRATEGY
Demand
Production
End Inventory
Avg. Inventory
# Hired
# Fired
10 1
0
1
0
5
50
36
2 3 4
40 44 30 38 30 32
36 36 36
0
0
0
0
0
0
0
0
0
0
4
2
5
40
36
0
0
0
2
Total
190
180
0
1
4
9
TC=Production + Holding + Hiring + Firing
= 180*10 + 10*9 + 0 + 1*200 = $2,090
While the TC number is different, this approach seems more intuitive than the previous approach, especially on the parts about inventory.
Beginning Inventory: 10 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory Costs: $10/unit/period
Hiring Cost: $100/worker
Firing Cost: $200/worker

• The aggregate planning process is different for services in the following ways:
• Most services cannot be inventoried
• Demand for services is difficult to predict
• Capacity is also difficult to predict
• Service capacity must be provided at the appropriate place and time
• Labor is usually the most constraining resource for services
MIS 373: Basic Operations Management 66

• Hospitals:
• allocate funds, staff, and supplies to meet the demands of patients for their medical services
• Restaurants:
• smoothing the service rate, determining workforce size, and managing demand to match a fixed capacity
• Perishable inventory
• Airlines:
• complex due to the large number of factors involved (planes, flight & group personnel, multiple routes, airports etc.)
• Capacity decisions must also take into account the percentage of seats to be allocated to various fare classes in order to maximize profit or yield (Revenue Management)
MIS 373: Basic Operations Management 67

• An aggregate plan is an intermediate-range plan for a collection of similar products or services that sets the stage for shorter-range plans.
• Two aggregate planning supply strategies are 1) chase demand strategy and 2) level capacity strategy.
MIS 373: Basic Operations Management 68