Operations Management: Ch. 11

Intermediate Plans

Consists of: General levels of employment, output, finished-goods inventories, subcontracting, and back orders. Works within capacity constraints set by long-term plans and in turn establishes boundaries in which short-range capacity decisions must be mad

The business plan establishes guidelines for the organization, taking into account its:

strategies and policies; forecasts of demand for its products or services; economic, competitive, and political conditions

A key objective in business planning is to

coordinate the intermediate plans of various organization functions, such as marketing, operations, and finance. In manufacturing companies, this incudes engineering and materials management.

Aggregate planning decisions are

strategic decisions that define the framework for which operating decisions will be made. They are the starting point for scheduling and production control systems.

If the organization is involved in time-based competition:

It will be important to incorporate some flexibility in the aggregate plan to be able to handle changing requirements promptly

The aggregate plan will guide the more detailed planning that eventually leads to a

master schedule

A key issue in aggregate planning is how to handle

variations

Most organizations use rolling

3-,6-,9-, and 12-month, periodically updated, forecasts. This allows planners to take into account any changes in expected demand or expected supply and develop revised plans.

A rolling planning horizon means

the aggregate plan always covers the next 12-18 months.

The task of aggregate planners is to

achieve rough equality of demand and capacity over the entire planning horizon

Major inputs to aggregate planning:

Resources: workforce/production rates, facilities and equipment
Demand Forecast
Policies on workforce changes
Subcontracting
Overtime
Inventory levels/changes
Back orders
Costs: inventory carrying, back orders, hiring/firing, overtime, inventory, subcontr

Major outputs to aggregate planning:

Total cost of a plan
Projected levels of: inventory, output, employment, subcontracting, back ordering

Proactive strategies involve demand options:

They attempt to alter demand so that it matches capacity

Reactive strategies involve capacity options:

They attempt to alter capacity so that it matches demand

Mixed Strategies involve:

An element of both proactive and reactive strategies

Demand options include:

pricing, promotion, the use of back orders, and creating new demand

The more elasticity of a product or service:

the more effective pricing will be in influencing demand patterns

Supply options include:

hiring/laying off workers, overtime/slack time, part-time or temporary workers, inventories, and subcontractors

Aggregate Planning Strategies:

1. Maintain a level of workforce (pure)
2. Maintain a steady output rate (pure)
3. Match demand period by period (pure)
4. Use a combination of decision variables (mixed)

Level Capacity Strategy:

Maintaining a steady rate of regular-time output while meeting variations in demand by a combination of options

Chase Demand Strategy:

Matching capacity to demand; the planned output for a period is set at the expected demand for that period

A Chase Strategy works best when

inventory carrying costs are high and costs of changing capacity are low

Advantages of the Chase Strategy include:

Labor utilization is kept high
Investment in inventory is low

Disadvantages of the Chase Strategy include:

the cost of adjusting output rates and/or workforce levels

A Level Strategy works best when

inventory carrying costs and backlog costs are relatively low

Advantages of the Level Strategy:

Stable output rates and workforce levels

Disadvantages of the Level Strategy:

Greater inventory costs
Increased overtime and idle time
Resource utilization that varies over time

Number of workers in a period =

(Number of workers at end of previous period) + (Number of new workers at start of the period) - (Number of laid off workers at start of the period)

Inventory at the end of a period =

(Inventory at the end of the previous period) + (Production in the current period) - (Amount used to satisfy demand in the current period)

The average inventory for a period =

(Beginning inventory + Ending inventory) / 2

Cost for a period =

(Output cost: Red + OT + Subcontract) + (Hire/Layoff Cost) + (Inventory Cost) + (Back-order cost)

Regular Output Cost =

(Regular Cost per Unit) x (Quantity of Regular Output)

Overtime Output Cost =

(Overtime Cost per Unit) X (Overtime Quantity)

Subcontract Output Cost =

(Subcontract Cost per Unit) X (Subcontract quantity)

Hire Cost =

(Cost Per Hire) X (Number Hired)

Layoff Cost =

(Cost Per Layoff) X (Number laid off)

Inventory Cost =

(Carrying cost per unit) X (average inventory)

Back-order Cost =

(back-order cost per unit) X (number of back-order units)

With trial and error, you can never be completely sure you have identified the lowest-cost alternative unless every possible alternative is evaluated.

TRUE

Linear Programming

models are methods for obtaining optimal solutions to problems involving the allocation of scarce resources in terms of cost minimization or profit maximization. The goal is usually to minimize the sum of costs related to regular labor time, overtime, sub

Simulation Models

Computerized models that can be tested under different scenarios to identify acceptable solutions to problems

Characteristics of a Spreadsheet Technique (heuristic, trial and error)

Intuitively appealing, easy to understand; solution not necessarily optimal

Characteristics of Linear Programming Technique (optimizing)

Computerized; linear assumptions not always valid

Characteristics of Simulation Technique (heuristic, trial and error)

Computerized models can be examined under a variety of conditions

Aggregate planning for services takes into account

projected customer demands, equipment capabilities, and labor capabilities. The resulting plan is a time-based projection of staff requirements.

Examples of service organizations that use aggregate planning:

hospitals, airlines, restaurants, financial, transportaton, hospitality, recreational services

The main goal of aggregate planning in service organizations is to

accommodate peak demand and to find ways to effectively use labor resources during periods of low demand

In self-service systems, the

(customer) labor adjusts automatically to changes in demand

Yield Management

The application of pricing strategies to allocate capacity among various categories of demand (airlines, restaurants, theaters, hotels, resorts, cruise lines, parking lots)

to disaggregate the aggregate plan means

breaking down the aggregate plan into specific requirements in order to determine labor requirements (skills, size of workforce, materials, inventory requirements)

Master Production Schedule

this schedule indicates the quantity and timing of planned completed production, the "heart" of production planning and control

Aggregate Planning ---> Disaggregation --->

Master Schedule

The duties of the Master Scheduler include

1. Evaluating the impact of new orders
2. Providing delivery dates for orders
3. Dealing with problems that may occur

Rough-Cut Capacity Planning (RCCP)

Approximate balancing of capacity and demand to test the feasibility of a master schedule, or validation

Time Fences

Points in time that separate phases of a master schedule planning horizon (frozen, slushy, liquid)

The master schedule has three inputs:

beginning inventory, forecast, customer orders

The master schedule outputs include:

projected inventory, master production schedule, uncommitted inventory

Available-to-Promise Inventory (ATP)

Uncommitted inventory, can enable marketing to make realistic promises to customers about deliveries of new orders

Projected on-and inventory =

(inventory from previous week) - (current week's requirements)

ATP is only calculated for weeks in which

there is an MPS quantity