Chapter 14
Sales and Operational
Planning
Operations Management
Roberta Russell & Bernard W. Taylor, III
Copyright 2006 John Wiley & Sons, Inc.
Beni Asllani
University of Tennessee at Chattanooga
Lecture Outline




Aggregate Planning Process
Strategies for Adjusting Capacity
Strategies for Managing Demand
Quantitative Techniques for Aggregate
Production Planning
 Hierarchical Nature of Planning
 Aggregate Planning for Services
Copyright 2006 John Wiley & Sons, Inc.
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Aggregate Planning
 Determine the resource capacity needed to
meet demand over an intermediate time
horizon


Aggregate refers to product lines or families
Aggregate planning matches supply and demand
 Objectives


Establish a company wide game plan for allocating
resources
Develop an economic strategy for meeting
demand
Copyright 2006 John Wiley & Sons, Inc.
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Aggregate Planning
Marketplace
and
demand
Demand
forecasts,
orders
Product
decisions
Research
and
technology
Process
planning and
capacity
decisions
Workforce
Aggregate
plan for
production
Master
production
schedule and
MRP
systems
Detailed
work
schedules
Raw
materials
available
External
capacity
(subcontractors)
Inventory
on
hand
Figure 14.2
Meeting Demand Strategies
 Adjusting capacity


Resources necessary to meet demand
are acquired and maintained over the
time horizon of the plan
Minor variations in demand are handled
with overtime or under-time
 Managing demand

Proactive demand management
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Strategies for Adjusting Capacity
 Level production
 Overtime and under-time
Producing at a constant rate
 Increasing or decreasing
and using inventory to
working hours
absorb fluctuations in
 Subcontracting
demand
 Let outside companies
 Chase demand
complete the work
 Hiring and firing workers to
 Part-time workers
match demand
 Hiring part time workers to
 Peak demand
complete the work
 Maintaining resources for
 Backordering
high-demand levels
 Providing the service or
product at a later time period

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Strategies for Managing Demand
 Shifting demand into
other time periods



Incentives
Sales promotions
Advertising campaigns
 Offering products or
services with countercyclical demand patterns
 Partnering with suppliers
to reduce information
distortion along the
supply chain
Copyright 2006 John Wiley & Sons, Inc.
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Quantitative Techniques For APP





Pure Strategies
Mixed Strategies
Linear Programming
Transportation Method
Other Quantitative
Techniques
Copyright 2006 John Wiley & Sons, Inc.
14-8
Transportation Method
QUARTER
EXPECTED
DEMAND
REGULAR
CAPACITY
OVERTIME
CAPACITY
SUBCONTRACT
CAPACITY
1
2
3
4
900
1500
1600
3000
1000
1200
1300
1300
100
150
200
200
500
500
500
500
Regular production cost per unit
Overtime production cost per unit
Subcontracting cost per unit
Inventory holding cost per unit per period
Beginning inventory
Copyright 2006 John Wiley & Sons, Inc.
$20
$25
$28
$3
300 units
14-9
Transportation Tableau
PERIOD OF USE
PERIOD OF PRODUCTION
1
Beginning
1
2
2
0
Inventory
300
Regular
600
3
—
20
300
6
—
23
100
29
1000
100
34
100
37
500
Subcontract
28
31
34
Subcontract
Regular
23
—
26
1200
25
28
150
31
150
28
31
—
1300
Overtime
200
Regular
250
—
23
25
—
28
500
1300
Overtime
200
Subcontract
500
Demand
900
1500
1600
34
20
28
Subcontract
4
—
31
20
300
26
28
1200
Capacity
9
—
25
Regular
Unused
Capacity
4
Overtime
Overtime
3
3
3000
250
500
1300
200
31
500
20
1300
25
200
28
500
250
10
Other Quantitative Techniques
 Linear decision rule (LDR)
 Search decision rule (SDR)
 Management coefficients model
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Hierarchical Nature of Planning
Production
Planning
Capacity
Planning
Resource
Level
Product lines
or families
Aggregate
production
plan
Resource
requirements
plan
Plants
Individual
products
Master
production
schedule
Rough-cut
capacity
plan
Critical
work
centers
Components
Material
requirements
plan
Capacity
requirements
plan
All
work
centers
Manufacturing
operations
Shop
floor
schedule
Input/
output
control
Individual
machines
Items
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Aggregate Planning for Services
Most services can’t 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
5. Labor is usually the most constraining
resource for services
1.
2.
3.
4.
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