18ME56-OM_ Module 4-Aggregate Planning.pdf

Operations Management course develops, among the students, a knowledge and a set of skills to manage operations of a unit, section or an organization in an efficient way. The students will learn how to optimize the resource utilization for the maximum output.

2. Dept. of ME, JSSATE, Bengaluru
2
Production Planning &
Control
Actual Customer
Demand
Forecast
Demand
Aggregate Planning
Master Production
Schedule
MRP:
Are
materials
sufficient
?
CRP:
Is
capacity
sufficient
?
Production Activity Control or Shop
Floor Control –
Order release; Order scheduling;
Order progress
Yes Yes
No
No
Revise the schedule Revise the schedule

3. Module –4:
•Aggregate Planning
•Natureandscopeofaggregateplanning,
strategiesofaggregateplanning,techniquesfor
aggregateplanning–graphicalandcharting
techniques,mathematicaltechniques.
•MasterScheduling
•Themasterproductionschedule,Master
schedulingprocess,Masterschedulingmethods.
(8 hours)
3Dept. of ME, JSSATE, Bengaluru

4. Module Outcome:
At the end of this module, you will be able to:
CO# Course Outcome
Bloom’s
Level
4
Analysetheaggregateplanandmasterproduction
scheduleforanorganization,givenitsperiodic
demand.
4
4Dept. of ME, JSSATE, Bengaluru
Forecasting
Learning Objectives:
After completing this module, you should be able to:

5. 5Dept. of ME, JSSATE, Bengaluru
•Aggregatereferstosalesandoperationsplanningfor
productlinesorfamilies.
•APdeterminesthequantityandtimingofproduction
oftheentireproductfamilyofanorganizationfor
theintermediatefuture(generally6-18months);
calledthe“planninghorizon.”
•Amanagerialstatementoftime-phased:
–productionrates,
–work-forcelevels,and
–inventoryinvestment,
•Thestatementalsotakesintoaccountthecustomer
requirementsandcapacitylimitations.
Aggregate Planning -Introduction

6. 6Dept. of ME, JSSATE, Bengaluru
•Costs are important but so are:
–Customer service
–Operational effectiveness
–(practices employed to maximize the use of resources by producing products and
services faster than the competitor without sacrificing quality).
–Workforce morale
–(attitude, passion for work, ethics, honesty, satisfaction, motivation, ….).
Aggregate Planning -Factors

7. 7Dept. of ME, JSSATE, Bengaluru
•Achievingfinancialgoalsbyreducingoverall
variablecostandimprovingthebottomline.
•Maximumutilizationoftheavailable
productionfacility.
•Providecustomerdelightbymatching
demandandreducingwaittimefor
customers.
•Reduceinvestmentininventorystocking.
•Abletomeetschedulinggoalsthereby
creatingahappyandsatisfiedworkforce.
Aggregate Planning -Importance

8. 8Dept. of ME, JSSATE, Bengaluru
•OneofthemainobjectivesofAP:
•Todevelopaneconomicstrategyformeetingdemand
through:
•Adjustingcapacity
–Producing at a constant rate and using inventory to absorb
fluctuations in demand (level production)
–Hiring and firing workers to match demand (chase demand)
–Maintaining resources for high-demand levels
–Increasing or decreasing working hours (overtime and
undertime)
–Subcontracting work to other firms
–Using part-time workers
–Providing the service or product at a later time period
(backordering)
Aggregate Planning -Strategies

9. 9Dept. of ME, JSSATE, Bengaluru
•Productionatafixedrate
(usuallytomeetaverage
demand)andinventoryisused
toabsorbvariationsin
demand.
•Duringperiodsoflow
demand,overproductionis
storedasinventory,whichis
depletedinperiodsofhigh
demand.
•Thecostofthisstrategyisthe
costofholdinginventory,
includingthecostofobsolete
orperishableitemsthatmay
havetobediscarded.
AP Strategy - Level Production
Source: OM by Russel & Taylor

10. 10Dept. of ME, JSSATE, Bengaluru
•Theproductionplanis
matchedtothedemand
pattern.
•Variationsindemandare
absorbedby‘hiringandfiring’
ofworkers&otherstrategies.
•Duringperiodsoflowdemand,
productioniscutbackand
workersarelaidoff.During
periodsofhighdemand,
productionisincreasedand
additionalworkersarehired.
•Thecostofthisstrategyisthe
costofhiringandfiring
workers.
AP Strategy – Chase Demand
Source: OM by Russel & Taylor

11. 11Dept. of ME, JSSATE, Bengaluru
•Maintainingenoughresourcesformeetingpeak
demandlevelsensureshighlevelsofcustomerservice.
•Itiscostlyintermsoftheinvestmentinextraworkers
andmachinesthatremainidleduringlow-demand
periods.
•Usedwhensuperiorcustomerserviceisimportantor
whencustomersarewillingtopayextraforthe
availabilityofcriticalstafforequipment.
•Examples:Specialprofessionalservices,Defence
services,Hospitalservices,etc.
AP Strategy –Resources for High
Demand Level
Source: OM by Russel & Taylor

12. 12Dept. of ME, JSSATE, Bengaluru
•Acommonstrategyusedwhendemandfluctuations
arenotextreme.
•Acompetentworkforceismaintained,hiringandfiring
costsareavoided,anddemandismettemporarily
withoutinvestinginpermanentresources.
•Disadvantages:Extrawagespaidforovertimework,a
tiredandpotentiallylessefficientworkforce,andthe
possibilitythatovertimealonemaybeinsufficientto
meetpeakdemandperiods.
•Undertimecanbeachievedbyworkingfewerhours
duringthedayorfewerdaysperweek.
AP Strategy –Overtime & Undertime
Source: OM by Russel & Taylor

13. 13Dept. of ME, JSSATE, Bengaluru
•Subcontractingletsoutsidecompaniescompletethe
work.
•Itisafeasiblealternativeifasuppliercanreliablymeet
qualityandtimerequirements.
•Itisacommonsolutionforcomponentpartswhen
demandexceedsexpectationsforthefinalproduct.
•Requiresmaintainingstrongtieswithpossible
subcontractorsandfirst-handknowledgeoftheirwork.
•Disadvantages:reducedprofits,lossofcontrolover
production,longleadtimes,andthepotentialthatthe
subcontractormaybecomeafuturecompetitor.
AP Strategy – Subcontracting
Source: OM by Russel & Taylor

14. 14Dept. of ME, JSSATE, Bengaluru
•Itisfeasibleforunskilledjobsorinareaswithlarge
temporarylaborpools(suchasstudents,homemakers,
orretirees).
•Part-timeworkersarelesscostlythanfull-time
workers—theyreceivenohealth-careorretirement
benefits—andaremoreflexible—theirhoursusually
varyconsiderably.
•Part-timeworkershavebeenthemainstayofretail,
fast-food,andotherservicesforsometimeandare
becomingmoreacceptedinmanufacturingaswellas
serviceandgovernmentjobs.
AP Strategy – Part-time workers
Source: OM by Russel & Taylor

15. 15Dept. of ME, JSSATE, Bengaluru
•Abackorderisanorderforagoodorservicethat
cannotbefilledatthecurrenttimeduetoalackof
availablesupply.
•Theitemmaynotbeheldinthecompany'savailable
inventorybutcouldstillbeinproduction,orthe
companymayneedtostillmanufacturemoreofthe
product.
•Allowingtobackordermeansgivingyourcustomersan
optiontostillpurchaseyourproductsevenwhenyou
don'thaveenoughinstock.
•If the customer is unwilling to wait for the backordered
item, the sale will be lost.
AP Strategy –Backordering, Backlogs

16. 16Dept. of ME, JSSATE, Bengaluru
•Companiesthatoffercustomizedproductsandservices
acceptcustomerordersandfillthematalaterdate.
•Theaccumulationoftheseorderscreatesabacklog
thatgrowsduringperiodsofhighdemandandis
depletedduringperiodsoflowdemand.
AP Strategy –Backordering, Backlogs
Source: OM by Russel & Taylor

17. 17Dept. of ME, JSSATE, Bengaluru
•Procedure for Aggregate Planning (Steps in AP):
•Determine demand for each period.
•Determine capacities (regular time, overtime, subcontracting) for
each period.
•Identify company or departmental policies that are pertinent
(e.g., maintain a safety stock of 5 percent of demand, maintain a
reasonably stable workforce).
•Determine unit costs for regular time, overtime, subcontracting,
holding inventories, back orders, layoffs, and other relevant
costs.
•Develop alternative plans and compute the cost for each.
•If satisfactory plans emerge, select the one that best satisfies
objectives. Otherwise, return to step 5.
Working out Aggregate Plans
Source: OM by W J Stevenson

18. 18Dept. of ME, JSSATE, Bengaluru
•Problem1:
•Acompanyhasdevelopedforecastforagroupofitems
thathasthefollowingdemandpattern:
•Plotthedemandashistogram.Determinethe
productionraterequiredtomeettheaveragedemand
andplottheaveragedemandforecastonthegraph.
•Plottheactualcumulativeforecastdemandovertime
andcomparethemwiththeaverageforecast
requirements.
Working out Aggregate Plans
Source: OM by Panneerselvam
Quarter 1 2 3 4 5 6 7 8
Demand 270 220 470 670 450 270 200 370
Cumulative
demand
270 490 960 1630 2080 235025502920

19. 19Dept. of ME, JSSATE, Bengaluru
•Solution1:Theproductionrate=2920/8=365units
Working out Aggregate Plans
Source: OM by Panneerselvam

20. 20Dept. of ME, JSSATE, Bengaluru
Working out Aggregate Plans
Source: OM by Panneerselvam

21. 21Dept. of ME, JSSATE, Bengaluru
•Problem2:
•Giventhefollowingcostsandquarterlysalesforecasts,
determinewhether(a)levelproduction,or(b)chase
demandwouldmoreeconomicallymeetthedemand:
Working out Aggregate Plans
Source: OM by Russel & Taylor
QuarterForecast Demand
(Pounds)
I 80,000
II 50,000
III 120,000
IV 150,000
Cost element Cost, $
Hiring 100 / worker
Firing 500 / worker
Inventorycarrying0.50 /pound /quarter
Regular production 2 / pound
Production per employee = 1000 pounds
per quarter
Beginning workforce = 100 workers

22. 22Dept. of ME, JSSATE, Bengaluru
•Solution:
•Determinetheaverageproductionquantity/quarter
•=(80,000+50,000+120,000+150,000)/4
•=400,000/4=100,000poundsperquarter.
•Thisistheplannedproductionperquarter.
•Each worker can produce 1000 pounds a quarter (given)
•Hence, 100 workers will be needed each quarter to
meet the production requirements of 100,000 pounds.
•Production in excess of demand is stored in inventory,
where it remains until it is used to meet demand in a
later period.
Working out Aggregate Plans
Source: OM by Russel & Taylor

23. 23Dept. of ME, JSSATE, Bengaluru
•ProductionPlan(LevelProductionStrategy):
Working out Aggregate Plans
Source: OM by Russel & Taylor
QuarterForecast
Demand
Regular
Production
Inventory, pounds
I 80,000100,000100,000 -80,000 = 20,000
Cost of Level Production Strategy
= 400,000 * $2 + 140,000 * $.5 = $870,000
II 50,000100,00020,000 + 100,000 -50,000 = 70,000
III120,000100,00070,000 +100,000 -120,000 = 50,000
IV 150,000100,00050,000 + 100,000 -150,000 = 0
Total400,000400,000 140,000

24. 24Dept. of ME, JSSATE, Bengaluru
•ProductionPlan(Chasestrategy):
Working out Aggregate Plans
Source: OM by Russel & Taylor
Quarter
I
II
III
IV
Total
Forecast
Demand
80,000
50,000
120,000
150,000
400,000
Regular
Production
80,000
50,000
120,000
150,000
400,000
Workers
needed
80,000/1000
= 80
50,000/1000
= 50
120,000/1000
= 120
150,000/1000
= 150
Workers Hired
--
--
70
30
100
Workers
Fired
20
30
--
--
50
Cost of Chase Strategy = 400,000 * $2 + 100 * $100 + 50 * $500 =
$835,000

25. 25Dept. of ME, JSSATE, Bengaluru
•Problem3:
•Asmallmanufacturingcompanyproducesumbrellas.
Thecompanypresentlyisproducingexecutivetypeof
umbrellas.Thedemandandotherdetailsareshown
below:
Working out Aggregate Plans
Month Forecast Demand
(units)
No. of working days
Jan 4500 22
Feb 5500 19
March 7000 21
April 10000 21
May 8000 22
June 6000 20

26. 26Dept. of ME, JSSATE, Bengaluru
•Problem3:Thecostdetails
Working out Aggregate Plans
Cost & Other Information Values
Materials cost $5 / unit
Holding cost $1 / unit / month
Hiring & Training cost $200 / worker
Layoffcost $250 / worker
Straight time labourcost $8 / hour
Labourhours required 0.15 hours / unit
Productivehours 7.25 hours /worker/day
Paid straight hours 8 hours/day
Beginning inventory 250 units
Beginning number of workers7
Stock out cost $1.25/unit/month

27. 27Dept. of ME, JSSATE, Bengaluru
•Solution: LevelStrategy
Working out Aggregate Plans
MonthForecast Demand
(units)
Regular
production units
Inventory
Jan 4500 6833.33 ≅6834 6834 –4500 = 2334
Feb 5500 6833.33 ≅68342334 + 6834 – 5500 = 3668
March 7000 6833.33 ≅68343668 + 6834 – 7000 = 3502
April 10000 6833.33 ≅68343502 + 6834 – 10000 = 336
May 8000 6833.33 ≅6834336 + 6834 –8000 = -830
June 6000 6833.33 ≅6834 -830 + 6834–6000 = 4
Total = 41000 41000 ≅41004 9844
Average Production / month = 6833.33 or 6834 units

28. 28Dept. of ME, JSSATE, Bengaluru
•Solution: LevelStrategy
Working out Aggregate Plans
Total material cost = 41004*$5/unit = $205,020
Total inventory carrying cost = 9844*$1/unit/month = $9844
Total stockout cost = 830*$1.25/unit/month = $1037.5
Total labour cost = $56,000
MonthNo. of daysLabourcost, $
Jan 22 $8 /hr * 8 * 22 * 7 = 9856
Feb 19 $8 /hr * 8 * 19 * 7 = 8512
March 21 $8 /hr * 8 * 21 * 7 = 9408
April 21 $8 /hr * 8 * 21 * 7 = 9408
May 22 $8 /hr * 8 * 22 * 7 = 9856
June 20 $8 /hr * 8 * 20 * 7 = 8960
Labour Cost:
Grand total cost of level production strategy = $(205020+9844+1037+56000) = $271901

29. 29Dept. of ME, JSSATE, Bengaluru
•Solution: ChaseStrategy( Adjustworkforcelevel)
•CalculationsforthemonthofJanuary:Unitsrequired=4500
•Houravailable/worker=159.5(22days*7.25hours/day)
•Labour hours required / worker /unit = 0.15
•Hence, number of units produced by each worker = 159.5 / 0.15 =
1063.33
•Initial number of units available in inventory = 250
•Net units required = 4500 - 250 = 4250
•Number of workers required to meet demand = 4250/1063.33 =
3.99 ≅4
•No. of workers fired = 3; Cost of firing = $250 / worker * 3 = $750
•Material cost = $5/unit * 4250 = $21250
•Total labour cost = $8*8*22*4 = $5632
•GrandTotalcost=$27632
Working out Aggregate Plans

30. 30Dept. of ME, JSSATE, Bengaluru
•CalculationsforthemonthofFebruary:
•Unitsrequired=5500
•Houravailable/worker=137.75(19days*7.25hours/day)
•Labour hours required / worker /unit = 0.15
•Hence, number of units produced by each worker = 137.75 / 0.15 =
918.33
•Initial number of units available in inventory = 0
•Number of workers required to meet demand = 5500/918.33 =
5.989 ≅6
•No. of workers to be hired = 2; Cost of hiring = $200 / worker * 2 =
$400
•Material cost = $5/unit * 5500 = $27500
•Labour cost = $8*8*19*6 = $7296
•Total cost in February = $(27500+7296+400) = $35196
Working out Aggregate Plans

31. 31Dept. of ME, JSSATE, Bengaluru
•CalculationsforthemonthofMarch:
•Unitsrequired=7000
•Houravailable/worker=152.25(21days*7.25hours/day)
•Labour hours required / worker /unit = 0.15
•Hence, number of units produced by each worker = 152.25 / 0.15 =
1015
•Initial number of units available in inventory = 0
•Number of workers required to meet demand = 7000/1015 = 6.89
≅7
•No. of workers to be hired = 1; Cost of hiring = $200 / worker * 1 =
$200
•Material cost = $5/unit * 7000 = $35000
•Labour cost = $8*8*21*7 = $9408
•Total cost in March = $(35000+9408+200) = $44608
Working out Aggregate Plans

32. 32Dept. of ME, JSSATE, Bengaluru
•CalculationsforthemonthofApril:
•Unitsrequired=10000
•Houravailable/worker=152.25(21days*7.25hours/day)
•Labour hours required / worker /unit = 0.15
•Hence, number of units produced by each worker = 152.25 / 0.15 =
1015
•Initial number of units available in inventory = 0
•Number of workers required to meet demand = 10000/1015 = 9.85
≅10
•No. of workers to be hired = 3; Cost of hiring = $200 / worker * 3 =
$600
•Material cost = $5/unit * 10000 = $50000
•Labour cost = $8*8*21*10 = $13440
•Total cost in April = $(50000+13440+600) = $64040
Working out Aggregate Plans

33. 33Dept. of ME, JSSATE, Bengaluru
•CalculationsforthemonthofMay:
•Unitsrequired=8000
•Houravailable/worker=159.5(22days*7.25hours/day)
•Labour hours required / worker /unit = 0.15
•Hence, number of units produced by each worker = 159.5 / 0.15 =
1063.33
•Initial number of units available in inventory = 0
•Number of workers required to meet demand = 8000/1063.33 =
7.52 ≅8
•No. of workers to be fired = 2; Cost of firing = $250 / worker * 2 =
$500
•Material cost = $5/unit * 8000 = $40000
•Labour cost = $8*8*22*8 = $11264
•Total cost in May = $(40000+11264+500) = $51764
Working out Aggregate Plans

34. 34Dept. of ME, JSSATE, Bengaluru
•CalculationsforthemonthofJune:
•Unitsrequired=6000
•Houravailable/worker=145(20days*7.25hours/day)
•Labour hours required / worker /unit = 0.15
•Hence, number of units produced by each worker = 145 / 0.15 =
966.67
•Initial number of units available in inventory = 0
•Number of workers required to meet demand = 6000/966.67 =
6.20 ≅6
•No. of workers to be fired = 2; Cost of firing = $250 / worker * 2 =
$500
•Material cost = $5/unit * 6000 = $30000
•Labour cost = $8*8*20*6 = $7680
•Total cost in June = $(30000+7680+500) = $38180
Working out Aggregate Plans

35. 35Dept. of ME, JSSATE, Bengaluru
•Total cost of Chase Strategy
•= $(27362 +35196 +44608+64040 +51764+38180) = $261,420
Working out Aggregate Plans
JanFeb Mar AprilMay June
Demand 4500550070001000080006000
Beginning inv. 250 0 0 0 0 0
Net reqt. 4250550070001000080006000
Beginning # workers7 4 6 7 10 8
Required workers 4 6 7 10 8 6
Workers hired/fired-3 2 1 3 -2 -2
Prodn.Qty. 4250550070001000080006000
Ending inventory 0 0 0 0 0 0

36. 36Dept. of ME, JSSATE, Bengaluru
•Total cost of Chase Strategy
•= $(27362 +35196 +44608+64040 +51764+38180) = $261,420
Working out Aggregate Plans
Jan Feb Mar AprilMay June
Material cost, $
2125027500
Labourcost, $5632 7296
Hiring cost, $ - 400
Firing cost, $750 -
Total cost, $276323519644608640405176438180

37. 37Dept. of ME, JSSATE, Bengaluru
•Problem 4:
•Acompanyhasdevelopedforecastforagroupofitemsthat
hasthefollowingdemandpattern:
•ThecompanyhasestimatedthatitcostsRs.150/unitto
increasetheproductionrate,Rs.200/unittodecreasethe
productionrate,Rs.50/unit/quartertocarrytheinventory
andRs.100/unitifsubcontracted(Considerregular
productioncapacityas200units/quarter).Comparethetotal
costsofpurestrategies.Shortagesarenotallowed.
Working out Aggregate Plans
Quarter 1 2 3 4 5 6 7 8
Demand 270220470670450270200370

38. 38Dept. of ME, JSSATE, Bengaluru
•Solution: (Chase Strategy)
Working out Aggregate Plans
QuarterForecast
Demand,
units
Cost of
increasing the
production, Rs.
Cost of decreasing
the production,
Rs.
1 270 -- --
2 220 -- 10,000
3 470 37,500 --
4 670 30,000 --
5 450 -- 44,000
6 270 -- 36,000
7 200 -- 14, 000
8 370 25,500 --
Total cost = Rs. 197,000

39. 39Dept. of ME, JSSATE, Bengaluru
•Solution: (Inventory or Level Production Strategy)
Working out Aggregate Plans
QuarterForecast
Demand, units
Regular
production
Inventory
1 270 365 365-270 = 95
2 220 365 95+365-220 = 240
3 470 365 240+365-470 = 135
4 670 365 135+365-670 = -170
5 450 365 -170+365-450 = -255
6 270 365 -255+365-270 = -160
7 200 365 -160+365-200 = 5
8 370 365 5+365-370 = 0
Ave. Production rate = 2920/8 = 365

40. 40Dept. of ME, JSSATE, Bengaluru
•No shortages are allowed
Working out Aggregate Plans
QuarterForecast
Demand, units
Regular
production
1 270 365
2 220 365
3 470 365
4 670 365
5 450 365
6 270 365
7 200 365
8 370 365
Ave. Production rate = 2920/8 = 365
Inventory
95
240
135
-170
-255
-160
5
0
Adjusted
Inventory with
255 at the
beginning period
95 + 255 =
350
495
390
85
0
95
260
255

41. 41Dept. of ME, JSSATE, Bengaluru
•No shortages are allowed
Working out Aggregate Plans
Adjusted Inventory
with 255 at the
beginning period
Cost of holding the
inventory @ Rs.
50/unit/quarter
95 + 255 = 350350*50 = 17500
495 495*50 = 24,750
390 390*50 = 19,500
85 85*50 = 4250
0 0
95 95*50 = 4750
260 260*50= 13,000
255 255*50 = 12,750
Total cost of the strategy
= Rs. 96,500

42. 42Dept. of ME, JSSATE, Bengaluru
•Subcontracting @ Rs. 100 / Unit; Assume regular production as
200 units
Working out Aggregate Plans
Total cost of the strategy = Rs. 132,000

43. 43Dept. of ME, JSSATE, Bengaluru
•Problem 5:
•The following information is available regarding a product:
•Regulartimeproductioncapacity=2500units/month
•Overtime(OT)capacity=600units/months
•Overtime(OT)productioncost=Rs.10/unit
•Inventorycarryingcost=Rs.3/unit/month
•Backlogcost=Rs.5/unit/month
•Beginninginventory=400Units;
•Demandinunitsforfourmonthsis4000, 3500,2500,&2800
respectively.Developaleveloutputplanthatyieldszero
inventoryattheendof4
th
month.Computealsothetotal
costofthisplan.
Working out Aggregate Plans

44. 44Dept. of ME, JSSATE, Bengaluru
•Solution 5:
Working out Aggregate Plans
MonthForecast
demand
Average
prodn.
rate
Regular
prodn. units
Ending
inventory
Overtime
units
0 -- -- -- 400 --
1 4000 3100 2500 -500 600
2 3500 3100 2500 -900 600
3 2500 3100 2500 -300 600
4 2800 3100 2500 0 600
Total forecast demand = 12,800 units; Beginning inv. = 400 units
Average production output required considering beginning
inventory of 400 units = (12,800 –400)/4 = 3100 units.

45. 45Dept. of ME, JSSATE, Bengaluru
•Solution 5:
Working out Aggregate Plans
Total forecast demand = 12,800 units; Beginning inv. = 400 units
Average production output required considering beginning
inventory of 400 units = (12,800 –400)/4 = 3100 units.
Total cost (other than RT Cost), in Rs.
= OT cost + IC cost + Backlog cost
= (600 *4*10) + Nil + [(500*1) + (900*1) + (300*1)] * 5
= 24000 + (1700*5)
= Rs. 32,500

46. 46Dept. of ME, JSSATE, Bengaluru
•Problem 6:
•The following information is available regarding a product:
•Regulartimeproductioncapacity=50units/month
•Regulartimeproductioncost=Rs.20/unit
•Overtime(OT)capacity=10units/months
•Overtime(OT)productioncost=Rs.26/unit
•Inventorycarryingcost=Rs.3/unit/month
•Subcontractcost=Rs.29/unit
•Developaneconomicproductionplanforthefollowingdemand
Working out Aggregate Plans
Month 123456789101112
Demand,
Units
101215401302001004030204010

47. 47Dept. of ME, JSSATE, Bengaluru
Working out Aggregate Plans
MonthForecast demandRT ProductionOT ProductionSC Production
1 10 10 -- --
2 12 12
3 15 15
4 40 40
5 130 50 10 70
6 200 50 10 140
7 100 50 10 40
8 40 40
9 30 30
10 40 40
11 20 20
12 10 10
Total 647 367 30 250

48. •Total cost of the Plan:
•Total products produced in RT = 367
•Total RT cost = Rs. (367*20) = Rs. 7340
•Total products produced in OT = 30
•Total OT cost = Rs. (30*26) = Rs. 780
•Total products produced in SC = 250
•Total SC cost = Rs. (250*29) = Rs. 7250
•TOTAL COST = Rs. (7340+780+7250) = Rs.15,370
•Is it optimum (minimum) cost ?
•If not, what is it? How to find it?
Dept. of ME, JSSATE, Bengaluru 48
Working out Aggregate Plans

49. 49Dept. of ME, JSSATE, Bengaluru
Working out Aggregate Plans
MonthForecast demandRT ProductionOT ProductionSC Production
1 10 10 -- --
2 12 12 (2), 35 (5), 3
(6)
3 15 15(3), 35 (5)
4 40 40(4), 10 (5)
5 130 50 10 (6)
6 200 50 10 127
7 100 50 10 40
8 40 40
9 30 30
10 40 40
11 20 20
12 10 10

50. Dept. of ME, JSSATE, Bengaluru 50
Working out Aggregate Plans
•Total cost (optimum) of the Plan:
•Total products produced in RT = 367
•Total RT cost = Rs. (367*20) = Rs. 7340
•Total products produced in OT = 20
•Total OT cost = Rs. (20*26) = Rs. 520
•Total products produced in SC = 167
•Total SC cost = Rs. (167*29) = Rs. 4843
•Products produced in RT & OT and carried to next months:
•35 for 3 months; 3 for 4 months; 35 for 2 months; 10 for 1
month; 10 in OT for 1 month
•= (35*20 + 35*3*3) + (3*20 + 3*3*4) + (35*20 + 35*3*2) +
(10*20 + 10*3*1) + (10*26 + 10*3*1) = Rs. 2328
•TOTAL COST = Rs. (7340+520+2328 + 4843) = Rs.15,244/-

51. 51Dept. of ME, JSSATE, Bengaluru
•Problem7:Acompanyhasforecasteddemandforoneofits
productsforthenextsixmonths.Thecompanyworkson
singleshiftof8hours.Eachunitrequires10labourhours
withalabourcostofRs.6/hour.ItwillbeRs.9/hour/labour
forOT.ThesubcontractingcostisRs.208/unit&theRTcost
isRs.200/unit. Therearecurrently20workersinthe
company.Thehiring&firingcosts/labourareRs.300&Rs.
400respectively.Thecompany’spolicyistoretainasafety
stockof20%ofmonthlyforecastandeachmonth’ssafety
stockbecomesnextmonth’sbeginninginventory.The
beginninginventoryinJanuaryis50units.TheICCisRs.
2/unit/month.StockoutcostisRs.20/unit/month.Workout
thebestplanoutofthefollowingthree:
Working out Aggregate Plans

52. 52Dept. of ME, JSSATE, Bengaluru
•Problem7(cont’d):
•Plan1:Varytheworkforcesizetoaccommodatethedemand
•Plan2:Maintainaconstantworkforceof20anduseOT&ITto
meetthedemand.
•Plan3:Maintainaconstantworkforceof20andbuildinventory
orincurstockoutcost.
Working out Aggregate Plans
Month JanFebMarAprilMayJune
Demand, Units300500400100200300
Work days/month22192121 2220

53. 53Dept. of ME, JSSATE, Bengaluru
•Solution7:
•Step1:Computethenetdemandorproductionrequirememts
permonthconsideringthebeginninginventory&safetystock
Working out Aggregate Plans
Month JanFebMar AprilMay June
Demand, Units (A) 300500400 100 200 300
Safetystock @20%
of FD (B)
60100 80 20 40 60
Beginning inv. (50)
(C)
50 60 100 80 20 40
Production
requirements
(A) + (B) – (C)
310540380 40 220 320

54. 54Dept. of ME, JSSATE, Bengaluru
•Plan1:Varytheworkforcesize:
Working out Aggregate Plans
Month JanFebMarAprilMay June
Prodn. required 310 540 380 40 220 320
Prodn. Hours reqd. @
10 hrs/unit
31005400380040022003200
No. of days worked22 19 21 21 22 20
No. of hrs. worked by
each worker/month
176 152 168 168 176 160
No. of workers reqd.18 36 23 3 13 20
No. of workers hired-- 18 -- -- 10 7
No. of workers fired2 -- 13 20 -- --
Hiring cost, Rs. --5400 -- --30002100
Firing cost, Rs. 800 --52008000 -- --
Rs. 24,500

55. Dept. of ME, JSSATE, Bengaluru 55
Working out Aggregate Plans
•Plan2:Maintainaconstantworkforceof20anduseOT,IT
Month JanFebMarAprilMay June
Prodn. required 310 540380 40 220 320
Prodn. Hours reqd. @
10 hrs/unit
31005400380040022003200
No. of days worked 22 19 21 21 22 20
No. of hrs. worked by
each worker/month
176 152168168 176 160
Total labourhours
available with 20 workers
176*20
= 3520 30403360336035203200
No. of OT hours reqd.--2360440 -- -- Nil
No. of IT hours 420 -- --29601320 --
OT cost @ Rs. 9/hour--212403960 -- -- --
IT cost @ Rs. 6/hour2520 -- --177607920 --
Rs. 53,400

56. Dept. of ME, JSSATE, Bengaluru 56
Working out Aggregate Plans
•Plan3:Maintainaconstantworkforceof20,useinv.orSOcost
Month JanFebMarAprilMay June
Prodn. required 310 540380 40 220 320
No. of days worked 22 19 21 21 22 20
No. of hrs. worked by
each worker/month
176 152168168 176 160
Total labourhours
available with 20 workers
176*20
= 3520 30403360336035203200
No. of units produced
at 10 hrs/unit
352 304336336 352 320
Inv.Surplus/shortage42 -194-238 58 190 190
Cost, Rs. 2/unit/month
& Rs. 20/unit/month
84 38804760116 380 380
Rs. 9600

57. 57Dept. of ME, JSSATE, Bengaluru
•Problem9:Giventhefollowinginformation,setuptheproblemin
atransportationtableandsolvefortheminimum- costplan.
•Costs:
•RegularTimecost/unit=$20;Overtimecost/unit=$25
•Subcontractingcost/unit=$28
•Inventorycarryingcost/unit/quarter=$3
•Beginninginventory=300units
•Nobackorders
Working out Aggregate Plans
Source: OM by Russel & Taylor

58. 58Dept. of ME, JSSATE, Bengaluru
•ProductionPlan
Working out Aggregate Plans
Source: OM by Russel & Taylor
QuarterDemand,
units
RT
Production
OT
Production
SC
Production
Ending Inv.
1 900 1000 100+300 = 400
2 1500 1200 100
3 1600 1300 -200
4 3000 1300 -1900
Total7000 4800 -1600
Total cost of the plan is:

59. 59Dept. of ME, JSSATE, Bengaluru
•ProductionPlan
Working out Aggregate Plans
Source: OM by Russel & Taylor
QuarterDemand RT
Production
OT
Production
SC
Production
Ending Inv. =
(RT+OT+SC) –
Demand
1 900 1000 100 200+300=500
2 1500 1200 150 1200+500+150 –
1500 = 350
3 1600 1300 200 1300+350+200-
1600 = 250
4 3000 1300 200 1300+250+200-
3000= -1250
Total7000 4800 650 -1250

60. 60
Dept. of ME, JSSATE, Bengaluru
•ProductionPlan
Working out Aggregate Plans
Source: OM by Russel & Taylor
QuarterDemand RT
Production
OT
Production
SC
Production
Ending Inv. =
(RT+OT+SC) –
Demand
1 900 1000 100 0 1000+300+100-
900 = 500
2 1500 1200 150 250 1200+500+150+2
50 -1500=600
3 1600 1300 200 500 1300+600+200
+500 -1600 =
1000
4 3000 1300 200 500 1300+1000+200+
500-3000 = 0
Total7000 4800 650 1250 2100
Total cost of the plan is:
4800 * $20 + 650 * $25 + 1250 * $28 + 2100 * $3 = $153,550

61. 61Dept. of ME, JSSATE, Bengaluru
•Problem10:Giventhefollowinginformation,setuptheproblem
inatransportationtableandsolvefortheminimum- costplan.
Working out Aggregate Plans
Source: OM by W J Stevenson

62. 62Dept. of ME, JSSATE, Bengaluru
•ProductionPlan
Working out Aggregate Plans
PeriodDemand RT
Production
OT
Production
SC
Production
Ending Inv. =
(RT+OT+SC) –
Demand
1 550 500 50 30 130
2 700 500 50 120 100
3 750 500 50 100 0
Total2000 1500 150 250 230
Total cost of the plan is:
1500 * $60 + 150 * $80 + 250 * $90 + 230 * $1 = $124,730
Source: OM by W J Stevenson

63. 63Dept. of ME, JSSATE, Bengaluru
Working out Aggregate Plans –Transportation
Table Method
Source: OM by W J Stevenson
Source of
supply

64. 64Dept. of ME, JSSATE, Bengaluru
•Problem10:Giventhefollowinginformation,setuptheproblem
inatransportationtableandsolvefortheminimum- costplan.
Working out Aggregate Plans
Source: OM by W J Stevenson

65. 65
Dept. of ME, JSSATE, Bengaluru
Working out Aggregate Plans –Transportation
Table Method
Source: OM by W J Stevenson

66. 66
Dept. of ME, JSSATE, Bengaluru
Working out Aggregate Plans –Transportation
Table Method
Total Cost of the plan = Rs. {(0x100) + (60x450) + (61x50) + (81x50) +
(91x30) + (60x500) + (80x50) + (90x20) + (91x100) + (60x500) + (80x50) +
(90x100)
= Rs.{27000 + 3050 + 4050 + 2730 + 30000+ 4000 + 1800 + 9100 + 30000
+ 4000 + 9000} = Rs. 124,730
Source: OM by W J Stevenson

67. Part – II
Master Production Schedule
(Master Schedule)
Dept. of ME, JSSATE, Bengaluru 67

68. Master Production Schedule
Dept. of ME, JSSATE, Bengaluru 68
Month JanFebMarch April May June
ElectricMotors80 50 110 60 60 100
Month JanFebMarch AprilMay June
Induction, 3PhMotors, AC,
10 Hp
30 15 65 10 10 35
DC Motors, 24V 10 5 20 20 20 15
Stepper Motors, 200 steps10 5 10 10 10 15
ACMotors, 0.5 Hp 25 20 10 10 10 25
Servo Motors, 1 Micron
resolution
05 05 05 10 10 10
Total 80 50 110 60 60 100
Aggregate Plan
Master Production Schedule

69. Master Production Schedule
•Themasterproductionschedule(MPS),alsocalledthe
masterschedule,specifieswhichenditemsorfinished
productsafirmistoproduce,howmanyareneeded,and
whentheyareneeded.
•Themasterproductionscheduleworkswithinthe
constraintsoftheaggregateproductionplanbutproducesa
morespecificschedulebyindividualproducts.
•Thetimeframeismorespecific,usuallyexpressedindaysor
weeksandmayextendoverseveralmonthstocoverthe
completemanufactureoftheitems.
•OneoftheinputstoMaterialRequirementsPlanning(MRP).
•MPScoordinateswithmarketing,capacity,production&
distributionplanning.
Dept. of ME, JSSATE, Bengaluru 69

70. Master Production Schedule -Objectives
•Toschedulespecificenditemstobecompleted
promptlyandwhenpromisedtocustomers.
•Toavoidoverloadingorunderloadingofproduction
facilitysothattheproductioncapacity(RT,OT)is
efficientlyutilizedandlowproductioncostsresult.
Dept. of ME, JSSATE, Bengaluru 70

71. Master Production Schedule -Functions
•Translatingaggregateplans:
–From product families to specific end items in specific
time periods.
•Evaluating alternative master schedule
–MPS is done on trial-and-error basis, initially. Material &
capacity requirements are verified.
•Generating material & capacity requirements
•Facilitating information processing –when deliveries
are to be made..finance, marketing, other sections.
•Effectively utilizing the capacity - load and utilization
requirements for machines and equipment.
Dept. of ME, JSSATE, Bengaluru 71

72. Master Production Schedule –Time fences
•ChangestoMPSatitsearlystagecanbedisruptive.
•High-performanceorganizationshaveaneffective
masterschedulingprocess.
•Timefenceisatimeperiodforeffectiveschedulingby
facilitatingorderpromisingandtheentryofordersinto
thesystem.
•Timefencesdivideaschedulingtimehorizonintothree
sectionsorphases,referredtoasfrozen,slushy,and
liquid,inreferencetothefirmnessoftheschedule.
Dept. of ME, JSSATE, Bengaluru 72

73. Master Production Schedule –Time fences
Dept. of ME, JSSATE, Bengaluru 73

74. Master Production Schedule -Process
Dept. of ME, JSSATE, Bengaluru 74
Master
Scheduling
Beginning
Inventory
Forecasts
Customer orders
Inputs
Projected
inventory of
finished goods
Master
Production
Schedule
Uncommitted
inventory (ATP)
Outputs

75. Master Production Schedule -Process
•Inputs
•Thebeginninginventoryistheactualquantityonhand
fromtheprecedingperiod
•Forecastsareforeachperiodoftheschedule
•Customerordersarethequantitiesalreadycommitted
tocustomers
•Otherfactorsinclude:
•HiringorfiringrestrictionsimposedbyHR,skilllevels,
limitsoninventorysuchasavailablespace,whether
itemsareperishable,andwhethertherearesome
marketlifetime(e.g.,seasonalorobsolescence)
considerations.
Dept. of ME, JSSATE, Bengaluru 75

76. Master Production Schedule -Process
•Outputs
•Theprojectedon-handinventoryiscalculatedasfollows:
•Projectedon-handinventory=(Inventoryfromprevious
period)–(Currentperiod’srequirements)
•Available-To-Promise(ATP)isaminimumamountofa
givenproductavailableinthewarehousesothatthe
inventoryspaceisusedefficiently.
•ATPnumbercanchangeunlikeSSwherethenumberis
fixed.
•ApositivevalueofATP-inventoryavailabletosell
•AnegativevalueofATP-inventoryisbelowsafetystock
quantity.
Dept. of ME, JSSATE, Bengaluru 76

77. Master Production Schedule -Problems
•Problem:Acompanyhascertaindemandforaspecific
typeofelectricmotor.Thedetailsofvariousdemands
areshowninthetablebelow.Therearepresently60
motorsinstockandthelotsizeis90units.Developa
tentativeMPS.
Dept. of ME, JSSATE, Bengaluru 77
Sources of
demand
Electric Motor
Week
1 2 3 4 5 6 7 8 910
Customer forecast- 5 30 40 504050505050
Interplant forecast- - 5 - - 5 - - 550
Customer orders40 40 30 10 10 5 - - - -
Warehouse orders15 10 - 5 - - - - - -

78. Master Production Schedule -Problems
•TentativeMPS:
Dept. of ME, JSSATE, Bengaluru 78
Order Quantity =
90
Beg.Inv. = 60
Electric Motor
Week
1 2 3 4 5 6 7 8 910
Gross
requirements
55 55 65 55 6050505055100
Beg. Inventory (60)60 5 40 65 104080307015
Prodn. Required
(MPS)
- 90 90 - 9090 -90 -90
Ending inv.
(availableon hand)
5 40 65 10 40803070155

79. Master Production Schedule -Problems
•Problem:AcompanyproducestowproductsP&Qon
MTSbasis.Thedemandfortheproductscomesfrom
varioussources.Theestimateddemandforthe
productsforthenext5weeksisgivenbelow:
Dept. of ME, JSSATE, Bengaluru 79
Sources of
demand
Product P ProductQ
Week Week
1 2 3 4 5 1 2 3 4 5
Intra company
orders
----201010----10--10
Branch
warehouse orders
--20 ------------20--
R & D orders --1010 ----------1010
Customer demand
(forecast + inv.)
25252025203030252520

80. Master Production Schedule -Problems
•Solution:
Dept. of ME, JSSATE, Bengaluru 80
MPS for Products P & Q
Product Data Week
1 2 3 4 5
Product -P:
(Beginning Inv. =
50, Lot Size = 60,
Safety Stock = 25)
Total demand 2555503530
Beginning inventory5025304065
Required production--606060 --
Ending inventory 2530406535
Product -Q:
(Beginning Inv. =
60, Lot Size = 70,
Safety Stock = 30)
Total demand 3030355540
Beginning inventory6030703550
Required production--70 --7070
Ending inventory 3070355080