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AGGREGATE PRODUCTION PLANNING Concerned with planning overall production of all products combined (in tonnes of steel, litres

of paint etc.) Over a planning horizon (generally next 3 to 6 months) for a given (forecast) demand schedule AGGREGATE PRODUCTION PLANNING

MANAGEMENT OPTIONS TO MEET FLUCTUATING DEMAND


Build inventories in slack periods in anticipation of higher demands later in planning horizon. Carry backorders or tolerate lost sales during peak periods. Use over time in peak periods, under time in slack periods to vary output, while holding work force and facilities constant. Vary capacity by changing size of work force through hiring and firing. Vary capacity through changes in plant and equipment (generally long term option) Subcontracting may be resolved. Each option involves cost (tangible or intangible). Aim in aggregate production planning is to choose best option.

KINDS OF COSTS INVOLVED


Procurement Costs Production Costs Inventory holding Costs Shortage losses associated with backorders and lost sales Costs of increasing / decreasing work force Cost of overtime / under time Cost of changing production rates (Set ups, opportunity losses etc)

Period 1 2 3 4 5 6 7 8 9 10 11 12 13

Expected Demand 100 180 220 150 100 200 250 300 260 250 240 210 140

Cumulative Demand 100 280 500 650 950 950 1200 1500 1760 2010 2250 2460 2600

Expected sales for one year planning horizon broken into 13 (4 week) periods. GRAPHICAL PROCEDURE

ANALYSIS OF PLAN 1
Period 1 2 3 4 5 6 7 8 9 10 11 12 13 Production 200 200 200 200 200 200 200 200 200 200 200 200 200 Inventory 100 120 100 150 250 250 200 100 40 0 0 0 0 Back Order 0 0 0 0 0 0 0 0 0 10 50 60 0 Capacity change +20 0 0 0 0 0 0 0 0 0 0 0 0 Over time 0 0 0 0 0 0 0 0 0 0 0 0 0 Sub - contract 0 0 0 0 0 0 0 0 0 0 0 0 0

ANALYSIS OF PLAN 2
Period 1 2 3 4 5 6 7 8 9 10 11 12 13 Production 150 150 150 150 150 250 250 250 250 250 250 175 175 Inventory 50 20 0 0 0 50 50 100 0 0 0 0 0 Back Order 0 0 50 50 0 0 0 0 10 10 0 35 0 Capacity change -30 0 0 0 0 +50 0 0 0 0 0 -25 0 Over time 0 0 0 0 0 40 40 40 40 40 40 0 0 Sub - contract 0 0 0 0 0 10 10 10 10 10 10 0 0

ASSUMPTIONS
All shortages backlogged Regular Time Capacity = 200 units/period Max. Overtime = 20% of Regular Time Capacity Overtime Preferable to Subcontract Assumed Initial Inventory = 0 Initial Regular Time Prodn. Capacity = 180

NATURE OF COSTS AND SOLUTION PROCEDURES


Production Cost Inventory Cost Linear Cost

- LP Simplified - Transportation - Transportation

NATURE OF COSTS AND SOLUTION PROCEDURES


Production Cost Inventory Cost Convex Cost

Transportation (after piece wise linearization ) HMMS ( LDR) (quadratic cost)

NATURE OF COSTS AND SOLUTION PROCEDURES


Production Cost Inventory Cost Concave and Piece-wise Concave Cost

Dynamic Programming (Shortest path Wangner / Whitin)

LINEAR DECISION RULES Holt, Modigliani, Muth & Simon (HMMS) 1955 (Study in large paint manufacturing unit)

COSTS INCURRED IN PERIOD IN PERIOD ' t '

1. Regular time payroll cost

2. Work force change cost

COSTS INCURRED IN PERIOD IN PERIOD ' t '


3. Overtime Cost

4. 4. Inventory related costs

Other Methods To Handle Aggregate Planning Linear Programming Formulation (Hanssmann & Hess) Search Decision Rules (Taubert) Goal Programming Formulation (Multiple goals) Parametric production planning (Jones) Management coefficients model (Bowman) SUMMARY Aggregate Production Planning relevant for fluctuation demands for medium term horizons (6 months -1 year). A simple graphical procedure that generates good solutions by examining the demand pattern was presented. Various ways to meet a fluctuating demand were considered. A summary of solution procedures including the Linear Decision Rules were indicated.

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