Aggregate Production Planning
Again. aggregate production planning is concerned with setting production rates by product group or other broad categories for the intermediate term (6 to 18 months). Note again in Exhibit 15.1 that the aggregate plan precede the master schedule. The main purpose of the aggregate plan is to specify that combination of production rate, workforce level. and the resulting inventory on hand or backlog that both minimizes costs (efficiency) and satisfies the forecasted demand (effectiveness). Production rate refers to the quantity of product .
completed per unit of time (such as VCRs per hour or automobiles per day). Workforce level is the number of workers needed for production. When the number of units produced in any given period exceeds demand, the results and inventory on hand of the product. When demand exceeds production, the result is a backlog (or stockpot), which represents the shortfall. Both inventories and backlogs are carried forward to the next time period. However, there can be situations when stocks are not carried forward because e the customer decided t~ purchase the product elsewhere rather than wait. The process of aggregate planning varies from company to company. In some firms. it is a formalized report containing both planning objectives and the planning premises on which it is based. In other companies. particularly smaller ones, it may be much more informal in the form of verbal communications. The process by which the plan itself is derived also varies. One common ap roach is to develop it from the corporate annual plan. as was shown in Exhibit 15.1. A typical corporate plan contains a section on manufacturing that specifies how many units in each major product line need to be produced over the next 12 months to meet the sales forecast. The planner takes this information and attempts to determine how best to meet these requirements with available resources. Alternatively. some organizations combine output requirements into equivalent units and use this as the basis for aggregate planning. For example. a division of General Motors may be asked to produce a certain number of cars of all types at a particular facility. The production planner would then take the average labor hours required for all models as a basis for the overall aggregate plan. Refinements to this plan.specifically model types to be produced, would be reflected in shorter-term production plans. Another approach is to develop the aggregate plan by simulating various master production schedules and calculating corresponding capacity requirements to see if adequate labor and equipment exist at each work center. If capacity is inadequate. additional requirements for overtime, subcontracting. extra workers, and so forth are specified for each product line and combined into a rough- ut capacity plan. This plan is then modified baby trial and error or mathematical methods to derive a final and. one hopes, lower-cost plan.
Production Planning Environment
Exhibit 15.2 illustrates the internal and external factors that makeup the production planning environment. In general, the factors in the external environment are outside the production planner's direct control. In some firms. demand for the product can be managed. but even so, the production planner must live with the sales projections and orders promised by the marketing function. This leaves the internal factors as the variables that can be adjusted to arrive at a feasible production plan. he inter al factors themselves differ in their degree of control. Current physical capacity (plant and equipment) is virtually fixed in the short run and. therefore, cannot be increased: union agreements often constrain what can be done in changing the workforce: and top management may set limits on the amount of money that can be tied up in inventories. Still. there is always some flexibility in managing these factors, and production planners can implement one or a combination of the production planning strategies discussed here.
Production Planning Strategies
There are essentially three production planning strategic. These strategies inv e tradeoffs among workforce size, work hours, inventory, and order backlogs. When there i need to adjust the workforce on a regular basis, many firms will maintain a nucleus of full-time employees, which is then increased a~ required with temporary workers, ho are often.
hired through an employment agency. Those temporary workers who perform well are then hired on B full-time ba: i.. as the need arises.
I. Chase strategy. Match the production rate to meet the order rate by hiring and laying off employee as the order rate varies. There are obvious motivational issues with this strategy. When order backlog are low, employees may feel compelled to slow down out of fear of being laid off as soon a exitingiting order are completed.
2. Stable workforce variable work hours. are the output by varying the number of hour worked through flexible work schedule or overtime, By varying the number of work hour. pr deuce n quantities can be matched. within limit. to existing orders. hi strategy provide wor 'fore continuity and avoid many of the emotional and tangible coat of hiring and firing personnel that are as opiate with the chase strategy.
3. Level strategy. maintain a table work for e working at a constant output rate. Shortage and purple e are absorbed by flu treating inventory levels. order backlogs. and 10 tale . Employee benefit from table work hours. but inventory costs are increase. ed. Ano her on em i the po bile of inventoried products becoming obsolete.
When ju tone of the e variable i u ed to ab ore demand fluctuations. it is termed a pure strategy: one or more u ed in combination is a mixed strategy. As you might suspect. mixed strategies ar more . idely u ed in indu. try,Exhibit \ illu rate a pure chase trategy. Here production is in lockstep with demand. In other w old. the number of units required in each time interval equals the number of units that produce make. Exhibit 15.38. on the other hand. demonstrates a pure level strategy. Here produ tion i held con rant, regardless of what the demand is. The difference between demand and production i accounted for in a "buffer" inventory of fillished goods. when demand exceed: production. the difference is taken out of finished good, inventor. (-I) when demand i less than production. the difference is placed back into inventory a umed that when demand exceeds produ ction in the initial cycle. 3 shown in Exhi u 15.38, that there i: sufficient inventory on hand at the beginning of the aggregate planning period to supply the required number of units.) When there i" inutricient inventory on hand to meet demand. a backlog occur Certain indu trie . due to their inherent operating characteristics. often fa\ or one type.
customer is involved in the service delivery process. (If your restaurant is too crowded on a Saturday night. customers will not wait until Monday morning when you have more than enough capacity available to serve them!) Process-oriented facilities. on the other hand, such as breweries and refineries. tend to follow a level strategy because the high fixed cost associated with them require that they operate at a high level of capacity utilization.
Subcontracting In addition to these strategies, managers also may choose to subcontract some portion of production. This strategy is similar to the chase strategy. but hiring and laying off are translated into subcontracting and not subcontracting. Some level of subcontracting can be desirable to accommodate demand fluctuations. However. unless the relationship with the supplier is particularly strong. a manufacturer can lose some control over schedule and qualityy. For this reason. extensive subcontracting may be viewed as a high-risk strategy.
of strategy 0 er the other. For example, service tend to follow a chase rrategy because the