Concept of Aggregate Planning in Operations Management Questions

OBJECTIVES:

After studying this unit the student will be to:

  • Understand key considerations relating to aggregate planning
  • Appraise the various techniques used in aggregate planning
  • Examine the concepts of capacity planning and rough cut capacity planning

STRUCTURE:

  • Introduction
  • Definition
  • Key considerations
  • Strategies of Aggregate Planning
  • Techniques used in Aggregate Planning
  • Phases of Aggregate Planning
  • Capacity planning
  • Rough cut capacity planning
  • Materials Requirement Planning
  • Shop floor planning
  • Summary
  • Review questions
  • References

INTRODUCTION

This unit deals with the concept of ‘Aggregate Planning’, which is an operational activity which does an aggregate plan for the production process, in advance of 3 to 18 months, to give an idea to management as to what quantity of materials and other resources are to be procured and when, so that the total cost of operations of the organisation is kept to the minimum over that period.

DEFINITION:

Aggregate planning may be defined as a systematic approach to formulate strategies for positioning the business in relation to its environment to ensure continued success and offer security from surprises. While no approach can guarantee continuous success and total security, an integrated approach to strategy formulation, involving all levels of management, can go some way in this direction.

Aggregate planning is that set of managerial decisions and actions that determines the long-run performance of a corporation. It includes environmental observation, planning, formulation, implementation, evaluation and control. Development of organization completely rests on the efficiency of the decision-makers. They have to decision based on present policies for achievement of future goals.

Future is always uncertain. Hence, the decisions are always incomplete and sometimes they have been based on false information. It may lead to further problems. Further organizations have to work with brevity and variety. Thoughts should become actions. Actions will leads to results. Result oriented action is the need of hour.

Definition given by business dictionary:

Aggregate planning is a type of medium range capacity planning that typically covers a 3 to 18 month period of time. Used in a manufacturing environment and determines overall output levels planned as well as appropriate resource input mix to be used for related groups of products.

(Source:http://www.businessdictionary.com/definition/aggregate-lanning.html#ixzz3DNlW0xrp)

KEY CONSIDERATIONS OF AGGREGATE PALNNING

Aggregate decisions are related with various functional levels of organizations. Hence it is necessary that these decisions must be made with in consultation with the CEO. The following are key consideration in aggregate planning;

  1. Preparation of budget: Aggregate decision making involves budget allocation i.e., resource allocation to various aspects of decision. Budget may be allocated to various factors of production.
  2. Future development: Aggregate plans are usually expected to have a significant on future prosperity of the organization. This is because there is a long-term commitment. In case of absence of long- term commitment, the firm cannot achieve future development.
  3. Orientation: Aggregate planning should keep in view of the competition existing in the market. Sometimes firms have to face non-price competition.
  4. Factors of Environment: Plans are always influenced by business environment always influencing factor for decision-making. There may external or internal factors that influence business. Buyers, Suppliers, government and competitors are likely to react in accordance with changes in environment. Thus business also should act in the same passion.
  5. Risk: Aggregate plans mostly face the problem of risk. The plans should able to tackle the risk bearing capacity. Risk and uncertainty are two important aspects, which can not be expected by business man.

STRATEGIES: The following strategies are suggested to meet demand with production capacity in the intermediate range:

  1. Increasing or decreasing working hours.
  2. Increase or decrease in the number of shifts per day.
  3. Effective inventory management.
  4. Make or Sub-contracting- Decision
  5. Addition and deletion in product line.
  6. Analysing demand for the product.

Techniques used in Aggregate Planning:

Linear Programming — LP models can be used to minimize the sum of costs related to aggregate planning such as regular labor time, overtime, subcontracting, inventory, and backorder costs. The solution generated by LP models are optimal under the assumptions of linear programming.    A linear programming application is shown below: Suppose that the costs associated with various capacity options are as shown in the table below:

CAPACITY PERIOD 1 PERIOD 2 COST
REGULAR 200 180 Rs.20 /unit
OVERTIME 80 60 Rs.25 /unit
SUBCONTRACT 100 100 Rs.30 /unit
DEMAND 340 300
INVENTORY
HOLDING COST Rs.3 /unit/period

Backorders are not permitted in this case.

Then, the linear programming formulation could be obtained as follows:

PERIOD 1 PERIOD 2 SUPPLY
PERIOD 1 REGULAR X111 20 X112 23 200
OVERTIME X211 25 X212 28 80
SUBCONTRACT X311                               30 X312                              33 100
PERIOD 2 REGULAR X122                               20 180
OVERTIME X222 25 60
SUBCONTRACT 30 100
X322
DEMAND 340 300

For example, for x312 the first subscript (3) stands for the type of capacity (i.e. subcontract). The middle subscript (1) stands for the supplying period or production period (i.e. period 1). The last subscript (2) stands for the receiving period or consumption period (i.e. period 2).

LP formulation for the problem above:

Min 20X111 + 23X112 + 25X211 + 28X212 + 30X311 + 33X312 + 20X122 + 25X222 + 30X322

st

X111 + X112 < 200

X211 + X212 < 80

X311 + X312 < 100

X122 < 180

X222 <60 X322 <100

X111 + X211 + X311 = 340

X112 + X212 + X312 + X122 + X222 + X322 = 300

The solution to this LP could be obtained by a software like LINDO (Linear Interactive Discrete Optimizer). The optimal values of the variables such as x111, x112, x211, etc. would show how much regular capacity, overtime capacity, etc. to use in each time period in order to minimize the cost of the

planned aggregate production.

  1. Goal Programming: This is a special form of linear programming. Ordinary LP has only one objective or goal; it is to minimize the cost or maximize the profit. On the other hand, goal programming is used to optimize multiple goals; it is also possible to attach a certain priority to each goal. Like LP, goal programming is also an optimization technique.
  2. Linear Decision Rule: calculus based approach that derives two linear equations from a quadratic equation which is nonlinear. One of the linear equations is used to plan the production levels and the other linear equation is used to plan the work force size.
  3. Management Coefficients: this heuristic model attempts to improve planning performance using multiple regression. Past managerial performance is used as a base to improve performance.
  4. Parametric Production Planning: this technique helps planning the production levels and work force levels by using a heuristic search routine.
  5. Simulation Models:- Many real life situations are simulated . The computerized simulation models are tested under these simulated conditions to determine the aggregate planning parameters such as production levels and work force sizes.
  6. HMMS Model ( Holt, Modigliani, Muth and Simon): The Model HMMS is called as ‘The Linear Decision Rule’ is a mathematical approach to production planning developed by Holt et al. (1960). It was first proposed at a time when there was a strong belief among academics that problems of production planning for a period such as a year could be solved using mathematical models. LDR seeks to meet demand while minimizing the costs of hiring, firing, holding inventory, backorders, payroll, overtime, and undertime. The primary application of this method was in a paint factory, but that application failed because employees would not implement the plan developed by the model.

Authors mentioned that the decision problems involved in setting the aggregate production rate of a factory and setting the size of its work force are frequently both complex and difficult. The quality of these decisions can be of great importance to the profitability of an individual company, and when viewed on a national scale these decisions have a significant influence on the efficiency of the economy as a whole. Their study reports some of the findings of a research team that has been developing new methods to enable production executives to make better decisions and to make them more easily than they can with prevailing procedures. With the cooperation of a manufacturing concern, the new methods have been developed in the context of a set of concrete production scheduling problems that were found in a factory operated by the company.

7.   Assembly Line Balancing( Kilbridge and Wester Method): It is a heuristic procedure which selects work elements for assignment to stations according to their position in the precedence diagram.

Procedure:

Step 1. Construct the precedence diagram so those nodes representing work elements of Identical precedence are arranged vertically in columns.

Step 2. List the elements in order of their columns, column I at the top of the list. If an element can be located in more than one column, list all columns by the element to show the transferability of the element.

Step 3. To assign elements to workstations, start with the column I elements. Continue the assignment procedure in order of column number until the cycle time is reached (Tc).

8.  Heuristic Method (Modie and Young’s Method): These are also called as ‘Heuristic and simulation techniques’. A broad definition of this term would be methods which help the decision maker learn from his or her own experience and facilitate the development of procedures by which complicated problems can be satisfactorily solved.

PHASES OF AGGREGATE PLANNING:

  1. Preparation of Plans: a) Demand Forecasting and b) Strategic Business Plan
  2. Consulting production Manager for determining strategies
  3. Preparation of Schedules.
  4. Draft Master Production Schedule.
  5. Testing the possibilities of implementing Master Production Schedule
  6. Revise and Implement Master Production Schedule.

5.6.1    DEMAND FORECASTING

Expecting future demand for a product is called ‘demand forecasting’. Accurate forecasting is essential for a firm to enable it to produce the required quantities at the right time and arrange well in advance for the various factors of production viz., material, money, men, management, machinery etc.

Factors involved in Demand Forecasting:

  1. Time Factor: Forecasting may be done for short-term or long-term. Short-term forecasting is generally taken for one year while long-term forecasting covering a period of 5 year, 10 year or 20 year period.
  2. Level Factor: Demand forecasting may be undertaken at three different levels.
    • Macro level: It is concerned with business conditions over the whole economy.
    • Industry level: Prepared by different industries.
    • Firm-level: Firm-level forecasting is the most important from managerial view point.
  3. General or specific purpose factor: The firm may find either general or specific forecasting or both useful according to its requirement.
  4. Product: Forecasting varies according to the type of product i..e new product or existing product or well established product.
  5. Nature of the Product: Goods can be classified in to i) consumer goods and ii) producer goods. Demand for a product will be mainly dependent on nature of the product. Forecasting methods for producer goods and consumer goods will be different accordingly.
  6. Competition: While making forecasting, market situation and the product position in particular market should be analyzed.
  7. Consumer Behaviour: What people think about the future, their own personal prospects and about products and brands are vital factors for firm and industries.

Advantages of Forecasting:

  1. Production scheduling and its appropriate preparation.
  2. Helps the firm in reducing cost of the manufacturing.
  3. Inventory control by determining the firms future resource requirements.
  4. Determination of appropriate price policy can be possible with the help of forecasting.
  5. Setting sales targets and establishing controls and incentives.
  6. Evolving a suitable advertising and promotion programme.
  7. Forecasting to make a long term investment decision.
  8. Forecasting helps in planning man-power requirements.
  9. Long-term sales forecasts are quite essential to access long-term financial requirements. Methods of Forecasting:

Demand Forecasting methods can be broadly categorized in two types (1) Opinion survey methods and (2) Statistical Methods.

Opinion Survey Methods:

Consumer plays a dominant role in creating demand for a product. If the businessman wants to know the expected demand in future, he has to get the information based on consumers’ opinions. Opinion surveys methods are most popular in ‘Demand Forecasting’. Managerial decisions that are taken after analyzing opinions, made a favourable impact on sales progress.

Example: Product addition Life-bouy brand, Life bouy gold, and Life bouy family etc.

The opinion survey methods further classified into three types:

  • 100% Enumerator Survey.
  • Delphi method.
  • Sales force opinion survey method.
  1. 100% Enumerator Survey: This is the most direct method of forecasting demand in the short-run. Customers will be asked questions like what they are planning to buy for the forthcoming time period- usually a year. But it is observed fact that complete 100% enumerator survey will not be possible and at the same time a number of biases may creep in to the surveys. It is very expensive, when it compared with other methods.
  2. Delphi Method: This method tries to arrive a consensus opinion in an uncertain area by questioning group of experts repeatedly until the responses appear to converge along a single or the issues causing disagreement are clearly defined. This method is also not totally free from limitations such as (i) Ego involvement of experts, and (2) lagging or too much delay in sending responses to the questionnaire supplied to experts.
  3. Sales Force Opinion survey or Collective Opinion: Salesman are expected to estimate expected sales in their respective territories and zones. The rational of this method is that salesmen, being the closest to the customers are likely to have the most intimate feel of the market i.e., customer response to the product of the firm. This method is based on historical data and consumer’s opinion. This method is known as the ‘Collective opinion method’ as it takes advantages of the collective wisdom of salesman, managerial economist, marketing manager and personnel relating to sales department.

‘Opinion Survey Methods’ are purely based on data collected from consumers’ opinions which are always volatile. So decisions made with the help of opinion survey methods may not be successful in future. Hence, Statistical analysis should be considered for expecting future, because past experience may represent future performance.

Part of Operations Management Question

Concept of Production Planning and Control the Operations Management

Production and Operations Management Assignment Question and Answers

Type of Production and Manufacturing Systems Management

Productivity and Product Selection Management Questions

What Is Concept of Maintenance Management in Production Department?

Statistical Methods:

  1. Trend Analysis: Trend analysis or Time series relating to sales represent the past pattern of effective demand for a particular product. The most popular method of analysis of time series is to project the trend of the time series. This method is very simple and inexpensive. The basic assumption is that the trend will persist in future also.
  2. Regression Analysis: Regression equation establishes the relationship between dependent variable and independent variable, assuming the relationship to be linear. Hence, demand for any product can be estimated at a given value of price. The equation will be form of Y = a + bx, once regression equation is derived, based on data of different variables.
  3. Simultaneous Equation: Establishing relation between two variables with the help of equation, we can estimate demand for a product. These equations are mathematical linear equations to arrive the results.
  4. Barometric method: Based on index numbers i.e., economic indicators like Wholesale Price Index (WPI), Consumer Price Index (CPI) estimations will be made.

PROCEDURE OF DEMAND FORECASTING:

  1. Identify the objectives of forecasting.
  2. Establish state short-run or long-run product of entire firm etc.
  3. Identify the variables influencing the demand for the product.
  4. Select appropriate method of forecasting.
  5. Collection of relevant data.
  6. Determination of relationship between independent and dependent variable.
  7. Processing of data and interpretation of result.
  8. Assume the trend will continue in future.
  9. Forecast in terms of physical units and in terms of value also.
  10. Classify the forecast according product group, brand, labels, colours etc.

 

CAPACITY PLANNING

Capacity planning interacts with the discipline of Performance Engineering, both during the requirements and design activities of building a system, and when using performance monitoring as an input for managing capacity of deployed systems. In the production process, estimation of ‘Capacity’ plays a vital role. Because, it involves two crucial production factors viz., man and machine. Capacity planning is the process of estimating the requirements of machines and man to meet the targets of production. It is the determination of capacity and adjustment of capacity to the fluctuations in demand. Demand for the product can be met by estimating capacity and utilization of optimum capacity of these two factors. Thus, Capacity can be defined as products or productive resources per a particular unit of measure. Thus, capacity is rate that can be measured at either the inputs side or the output side of productive system.

  1. LABOUR EFFICIENCY: The labour efficiency figure changes from machine to machine and from company to company. In fact, actual figure of labour efficiency must be considered to compute capacity requirements. The rosy picture might please the management now but tease later on as hidden items come to surface like defections, frequent job split-ups, over-time working, nervous breakdown of the senior staff and lower morale on the shop.
  2. Plant Efficiency: Plant efficiency factor considers enforced idle-time of machines because of scheduled delays, machine-break downs, preventive maintenance and the like. Plant efficiency factor varies from to equipment, and from company to company and from time to time. These range generally between 0.50 to 0.95. For instance, if 700 grinding machine hours are required per month, the firm needs equivalent of 700/.80 = 875 hours if the plant efficiency is taken at 80 percent. The plant efficiency factor can be established by the PPC either by estimation or by conducting work sampling studies.
  3. Multiplicity of Shifts: This means that number of shifts that the firm should run on each working day. Single shifts increase investment while multiple shifts increase labour costs, supervision costs and other plant overheads. Wage premium is ranging from 20 percent to 25 percent for the third shifts. Generally the productivity is low in the second shift and much lower in the third shifts while losses due to defectives are higher at multiple shifts. The decisions relating to multiple shifts, therefore, are not a simple issue.

 

  1. Sub-contracting : Sub-contracting is the process of off-loading. Some of the units manufacturing requirements to outside vendors to design peculiar to the unit for economic reasons or to augment the existing manufacturing facilities. Sub-contracting certainly is the most convenient and the fastest method of meeting the firm’s investment and labour costs at minimum. The decisions as to the sub-contracting, however, must be backed by the systematic and careful cost analysis, cost comparison between the costs to ‘make’ and the costs to ‘buy’. Such analysis is relevantly significant where new capital equipment is involved.
  2. Policies of the Management: There are some very typical managerial policies that have greater and deeper bearing on the capacity planning process like: sub-contracting, capacity of the plant, shift duties, maintenance of inventory etc.

Hence, we can state that the capacity planning is basically concerned with matching the resources to demand. Stable demand makes the task of capacity planning simple while fluctuations in demand create problems concerning the acquisition of resources and matching them with the demand levels. Capacity decisions are of Aggregate nature. Capacity planning considers for each machine standard hours, labour efficiency to compensate for standard performances, plant efficiency factor to compensate for the time may be lost due to unavoidable delays and interruptions, converting requirements of machine hours into “equivalent number of machines”, evolving decisions as to what proportion of the total requirement decisions as to what proportion of the total requirement is to be sub-contracted and finally taking decisions to meet short-term and long-term requirement of machines.

Capacity is the maximum amount which can be produced by a productive resource (or) production unit within a stated time period, normally expressed in terms of output units per unit of time. But capacity is an elusive concept because it must be related to the intensity with which a facility is used. For example, it may be the policy to work a plant five days per week, one shift per day, to produce a maximum of 1000 units per week per week. On this basis, one might rate the regular capacity as 1000 output units per week.

Ways of increasing capacity:

  1. The limit can be increased through overtime; resulting in a capacity limit with overtime of 1150 units.
  2. By adding a second shift, however, the capacity can be pushed to perhaps 1800 units per week.
  3. Another way of increasing a capacity limit is to engage in subcontracting when it is feasible.

Thus changing policies with respect to the intensiveness with which facilities are used can change capacities without actually adding any new capacity. These alternative sources of capacity can provide managers with important flexibility in making capacity plans.

 

5.6.2. CONVERTING CAPACITY INTO WORKABLE UNITS:

There is a definite procedure to do so. These logical steps are:

  • Collect Bill of Materials and Route Sheets of the items to be processed at the company’s own plant.
  • Prepare work-load data sheet for each work centre. The work-load data sheet should give the list of jobs to be processed on machine tool, operations to be performed for each job and the standard tune for each indicated operation. For most accurate estimates, standard time may be entered for say 100 numbers.
  • Estimate and record the average requirements per period per month of each job listed on the load data sheet.
  • Calculate for each job and for each operation “Equipment Running Hours”. Equipment running hours equal standard hours divided by average labour efficiency.
  • Calculate for each job and each operation “Equipment capacity, hours” Equipment capacity hours equal to equipment running hours divided by the plant efficiency.
  • Convert total equipment capacity hours for a job into equipment machine requirements. This is done by dividing equipment capacity hours by the available hours per period, the latter being dependent upon the multiplicity of the shifts.
  • Synthesize that is, sum up individual equipments to get the total requirements of the specific equipment.
  • Subtract from the total requirement of the equipment its present availability to get additional needs.

Thus, capacity planning is one of the key problems of production planning. It concerns acquisition of equipment to match them with demand level. A number of factors such as demand forecasts, labour efficiencies, plant efficiencies, multiplicity of the shifts, sub-contracting and management policies need to be considered while determining the needs of a given firm.

  • CRUCIAL CONSIDERATIONS:

 

  • Estimation of trends in industry and company’s share in the market.
  • Product’s demand forecasting and testing its accuracy.
  • Selection of suitable method for capacity planning
  • Analysis of location and identifying different factors influencing location.
  • Calculation of available man days and man power.
  • Decision-making like: ‘make or buy’, according to cost-benefit analysis.
  • Utilizing ability of management with respect to different factors of production.

 

  • STANDARD CONCEPTS OF CAPACITY:

Capacity is the limiting capability of the firm to produce within the specified period and it is generally expressed in units of time that is so many units per hour. Limiting capability can be overcome to a certain extent. That is capacity can be generated without really building by :

  • Working extra day a week instead of six-or additional shift a day —working two shifts in place of one
  • Resorting to overtime work
  • Strengthening the weakest link i.e., increasing capacity of the bottleneck operation
  • Investing in “balancing equipment” thereby increasing capacity of the production line and
  • Sub-contracting the complete production as well as those jobs for which in house capacity is less.

 

  • MEASUREMENT OF CAPACITY:

Measurement of capacity is comparatively a simpler issue when the firm manufactures a single product or a family of relatively homogeneous products. The capacity of such plants can be measured in number of units per unit of time say, per day, per week or per month. For instance, the capacity of an automobile unit is expressed in thousands of vehicles per month, that of steel in million tons of steel per year, that of textiles millions of metres of cloth per year, that of thermal power plant in mega-watts of power and in case of cigarettes hundreds of cigarettes per minute which can be converted into hour, or a day of eight hour. On the contrary, measurement of capacity of the firm that produces multiple products with some products sharing common facilities and some other utilising special facilities, measurement of capacity becomes really difficult. Since in such cases, the capacity can not be measured in terms of quality per unit of time, the capacity is expressed in labour or machine hours or in terms of its applicable limiting resources. This is the case with a job shop where machine or labour hours are acceptable, in case of hospital in terms of bed days per month, in case of a consultancy house, consultation days per year.

 

  • PROCEDURE:

When output units are relatively homogeneous, the capacity is measured in terms of units of output per period of time ( i.e., hour, shift, day, week). These are however complex situations. Where it is difficult to use volume of output of each product to express the capacity of the firm. Job shop is an extreme example.

In such cases, capacity of the firm is expressed in terms of money value ( or) production values of the various products produced put together. For example, the airlines uses available seat miles as a measure. They do not use ‘number of seats’ because such a measure does not provide an indication of the potential intensiveness of the use of the seats. Similarly, a restaurant would not use seats as measure because it does not indicate how many ‘turns’ the restaurants can accommodate. Thus, available seat-turns, or the number of people that can be served during the mean time, would be an appropriate measure for the restaurant.

Measures of capacity:

  1. Auto Plant: Number of Autos
  2. Steel Plant: Tons of Steel
  3. Beer plant: Cases of Beer.
  4. Nuclear Power Plant: Megawatts of electricity
  5. Airline: Available Seat Miles
  6. Hospitals: Bed-days
  7. Restaurant: Seats
  8. Schools: Seats/ intake
  9. Administration : Sections
  10. Library: Capacity of books
  11. Bus: Occupancy ratio
  12. Train: Occupancy ratio

 

ROUGH -CUT CAPACITY PLANNING

Rough-Cut Capacity Planning is the process of comparing and analyzing the initial master schedule with Material Requirement Planning (MRP). MRP is associated with initial master schedule. It is known fact that, initial master schedule is temporary in nature. It should be modified according to needs and demands of customers. It is also based on the plant and machinery and its utilization capacity. Different capacities like: Production capacities, machines, equipment, labour, warehouses etc are to be examined while preparation of MRP.

For instance, there may be requirement of extra working hours or extra manpower, or the reduction in the production or expansion in the production. The capacity of vendor is also to be considered. Some cases, the organization may decide to make provision for sub-contract. All these strategies are necessary to meet customers’ demand. This process of checking the feasibility of master schedule with respect to the available capacity is called ‘rough-cut capacity planning’.

Rough-cut Capacity Planning

Aggregate planning is based on a general production plan that deals with how much capacity will be available and how it will be allocated. A rough-cut capacity plan can be developed to evaluate the work load that a production plan imposes on work centers.

Although a trial production plan is often used for rough-cut capacity planning, a trial master production schedule can be used too. The example below shows the application of rough-cut capacity planning based on a trial master schedule.

 

MASTER PRODUCTION SCHEDULE
MONTH
PRODUCT 1 2 3 4 5 6
A 180 240 300 420 350 260
B 210 220 240 230 220 200
C 500 480 450 440 420 400
D 310 330 380 410 480 500

 

Below is a bill of labor which lists the hours required in each department to make one unit of product?

PRODUCT
DEPARTMENT A B C D
11 0.4 0.2 0.7 0.5
22 0.1 0.6 0.4 0.9
33 1.1 0.3 0.7 0.6
44 0.3 0.8 0.2 0.5
55 0.5 0.0 0.4 0.6

Develop capacity requirements for the following combinations:

MONTH DEPARTMENT
2 33
4 11
6 55
3 22

 

The solution is outlined below:

  • 240(1.1) + 220(0.3) + 480(0.7) + 330(0.6) = 864 hours
  • 420(0.4) + 230(0.2) + 440(0.7) + 410(0.5) = 727 hours
  • 260(0.5) + 200(0.0) + 400(0.4) + 500(0.6) = 590 hours
  • 300(0.1) + 240(0.6) + 450(0.4) + 380(0.9) = 696 hours

For example, we must have at least 864 hours available in Department 33 for Month 2 to meet capacity requirements. Suppose that we only have 640 man hours available in Department 33 in Month 2. Then, we can use aggregate planning strategies such as hiring, overtime, etc. to bring the capacity up to the required amount of 864 man or machine hours in order to comply with master production schedule. Note that this 864 hours is greater than the actual number of hours in a month (24 hours /day x 30 days/ month = 720 hours / month). We may encounter this situation often because we are talking about the man or machine hours. For example, in case of a one 8-hour shift, 20 working days per month, and 10 workers, the man hours = 8 x 20 x 10 = 1,600.

Work Force Size Planning

In aggregate planning the major objective is to determine feasible and possibly optimal production quantities and the corresponding capacity (work force size) to accommodate such production requirements. An example of determining the appropriate work force size follows.

The table below gives forecasted demand in four quarterly

(3-month) periods:

Forecast Demand

 

Quarter (standard units of work)
1 6,000
2 4,500
3 4,200
4 5,500
1 year 20,200

 

  1. Assume employees contribute 180 regular working hours each month, and each unit requires 2 hours to produce. How many employees will be needed during Quarter 1 and Quarter 2?
  2. What will be the average labor cost for each unit if the company pays employees Rs.10/hour and maintains for the entire year a sufficient staff to meet the peak demand?
  3. What percentage above the standard-hour cost is the company’s average labor cost per unit in this year due to excess staffing for all but the peak quarterly period?

The solution is as follows:

  1. Quarter 1: 6000 x 2 = 12,000 hours

12,000 /. (180 x 3 months) = 22.22 —> 23 employees

Quarter 2:         4,500 x 2 = 9,000

9,000 /. (180 x 3 months) = 16.66 —> 17 employees

 

  1. 180 hours/employ.-month x 12 months x 23 x Rs.10/hour  =      496,800

20,200 total units                             20,200

= Rs.24.59/unit

  1. 2 hours x 10/hour = Rs.20/unit (standard cost)

Rs.24.59 -Rs.20 = 0.23 or 23% higher

Rs.20

 

THE PROCESS OF ROUGH-CUT CAPACITY PLANNING:

  1. Preparation of production plan: This is mostly based on the factors like demand analysis, expected production, orders received, desired inventory.
  2. Preparation of Rough-cut capacity plan
  3. Load files.
  4. Compare the feasibility of implementing rough-cut capacity plan and load files.
  5. Test for optimality
  6. Finalize Master Schedule.

 

 MATERIAL REQUIREMENTS PLANNING (MRP)

It is a system of planning and scheduling the time-phased material requirements for production operations. The master production schedule specifies the quantity required for each end item in each planning period. Software for MRP is available for control of production planning and inventory management. MRP is a calculation of the requirements of the department. The following data is required to implement MRP:

 

  • The product structure.
  • The lead times.
  • The delivery schedules.
  • The current on hand inventory.

 

APPLICATON OF MRP:

  • MRP is useful to solve daily practical problem faced by production department
  • MRP is help to maintain delivery schedules, so as to meet customers’ demand.
  • MRP controls purchases and inventory
  • MRP helps in planning production targets
  • MRP aims at low cost of production

 

LIMITATIONS:

  1. ‘Integrity of the data’: One major limitation is ‘integrity of data’, without which MRP can not be implemented.
  2. MRP requires inter communication between branches and head-office. It can not be implemented in isolation.

SHOP FLOOR PLANNING

The following are the important aspects included in the ‘shop floor’ plan:

  1. Prioritization orders.
  2. Determining the sequence of processing orders
  3. Preparation of details relating to number of orders to be prepared, priorities, completion of dates
  4. e. scheduling the activities.
  5. Maintenance of Inventory ledgers.
  6. Preparation of work-in-progress statement.
  7. Installation of control mechanism at different processing stages.
  8. Measuring efficiency, utlization and productivity of workers and machines at each work center.

 

SUMMARY:

Aggregate planning is a comprehensive approach to preparation of strategies. It differs from project planning, and tactical planning and operational planning. Aggregate planning is long-term nature, high-risk oriented and decided by top level management. While, tactical planning is medium- term, medium-risk oriented and implemented by middle level managers. Operational planning is short-term, low-risk and followed by low-level managers.

 

REVIEW QUESTIONS:

  1. What is “Aggregate Planning”? Explain long-term and short-term planning in production management.
  2. Explain the process of materials requirement planning.
  3. What do you understand by rough cut capacity planning.

 

REFERENCES

  1. B.S.Goel, Production and Operations Management, Pragati Prakashan, Meerut, 2002.
  2. Russell Staylor, “Operations Management”, Seventh Edition, Wiley India Pvt. Ltd., New Delhi.
  3. Mahadevan, “Operations Management Theory and Practice” Second Edition, Pearson, New Delhi.
  4. James R. Evans, david A. Collier, “Operations management Concepts, Techniques and Applications”, Latest Edition, Cengage Learning India Pvt. Ltd., New Delhi.