Mark M.

Davis
Janelle Heineke

OPERATIONS MANAGEMENT
INTEGRATING MANUFACTURING AND SERVICES
FIFTH EDITION

PowerPoint Presentation by
Charlie Cook, The University of West Alabama
Copyright 2005, The McGraw-Hill Companies, Inc.

CHAPTER

13

Aggregate Planning

PowerPoint Presentation by Charlie Cook

The University of West Alabama
Copyright 2005 The McGraw-Hill Companies. All rights reserved.

CHAPTER OBJECTIVES
Demonstrate how aggregate planning provides the link
between long-range strategic planning and short-range
scheduling.
Present alternative strategies for matching supply and
demand: adjusting supply (an operations function) or
adjusting demand (a marketing function).
Introduce alternative strategies for developing aggregate
plans and ways to identify their strengths and weaknesses.
Define marginal costs and total costs as they pertain to
aggregate planning.
Introduce yield management as a tool for matching supply
and demand in service operations.
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Managerial Issues
Translating long-range strategic plans into daily work
schedules for the shop floor.
Using aggregate planning to develop intermediate-range
plans that link the long-range strategic plan and the shortrange operational plan.
Developing aggregate plans that match the demand for
products with the firms ability to supply the products and
to do so at minimum cost.
Coordinating marketing management and operations to
develop an aggregate plan that is both effective and
efficient.
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Overview of Operational
Planning Activities
Long-Range Planning
Focuses on strategic issues relation to capacity,
process, selection, and plant location.

Intermediate-Range Planning
Focuses on tactical issues pertaining to
aggregate workforce and material requirements
for the coming year.

Short-Range Planning
Addresses day-to-day issues of scheduling
workers on jobs at assigned work stations.
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Overview of
Manufacturing
Planning
Activities

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Exhibit 13.1

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Intermediate-Range Planning
Aggregate Production Planning
The process for determining the most cost
effective way to match supply and demand over
the next 1218 months.

Item Forecasting
Estimating specific products (and replacement
parts), which, when integrated with the aggregate
production plan, becomes the output requirement
for the master production schedule (MPS).
The process of monitoring and integrating this
information is termed demand management.
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Intermediate-Range Planning (contd)

Master Production Scheduling (MPS)
Short-term scheduling of specific end product
requirements for the next several quarters.

Rough-Cut or Resource Capacity Planning

Determining that adequate production capacity
and warehousing are available to meet demand.

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Aggregate Production Planning

Production Rate
The capacity of output per unit of time (such as
units per day or units per week.

Workforce Level
Number of workers required to provide a
specified level of production.

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Required Inputs to
the Production Planning System

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Exhibit 13.2

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Aggregate Production Planning (contd)

Inventory on Hand
The surplus of units that results when production
exceeds demand in a given time period.

Backlog (or Stockout)

The deficit in units that results when demand
exceeds the number of units produced in a given
time period.

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Production Planning Strategies

Chase Strategy
Matching the production rate to exactly meet
the order rate by hiring and laying off workers as
the order rate varies.

Stable WorkforceVariable Work Hours

Varying output by varying the number of hours
worked through flexible schedules or overtime.

Level Strategy
Maintain a stable workforce working at constant
output rate; absorb demand variations with
inventory, backlogs, or lost sales.
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Production Planning Strategies (contd)

Pure Strategy
Either a chase strategy when product exactly
matches demand or a level strategy when
production remains constant over a specified
number of periods.

Mixed Strategy
A combination of chase and level strategies to
match supply and demand.

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Examples of Pure Chase and Pure Level

Strategies

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Exhibit 13.3

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Aggregate Production Planning

Relevant Costs
Basic production costs (fixed and variable)
Costs associated with changes in the production
rate (e.g., labor costs)
Inventory holding costs
Backlog (stockout) costs

Budgets
Aggregate planning helps justify
requests for organizational
resources.

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Aggregate Planning Techniques

Trial and Error
Costing out the production alternatives and
choosing the one with the lowest cost.

Linear Programming
Linear Decision Rule
Various Heuristic Methods

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Aggregate Planning Techniques (contd)

Full Costs
All of the actual, out-of-pocket costs associated
with a particular aggregate plan.
Used for developing a labor and material
budget.

Marginal (Incremental) Costs

Unique costs attributable to a particular
aggregate plan that are above and beyond those
required to build the product by its most
economical means.

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New England Shirt Company

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New England Shirt Company (contd)

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Forecast Demand and Workdays

for the D&H Company

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Exhibit 13.4

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First
FirstAlternative:
Alternative:
Pure
PureChase
ChaseStrategy
Strategy

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Exhibit 13.5

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Second Alternative: Pure Level Strategy

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Exhibit 13.6

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Third Alternative: Minimum Workforce with Subcontracting Strategy

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Exhibit 13.7

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Fourth Alternative: Constant Workforce with Overtime Strategy

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Exhibit 13.8

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Summary of Costs for

Alternative Aggregate Plans

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Exhibit 13.9

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Actual Demand Requirement

for Full-Time Direct Employees and
Full-Time-Equivalent (FTE) Part-Time Employees

Note: Some workweeks are staggered to include weekdays, but this

does not affect the number of workdays per employee.
*Full-time days are derived by multiplying the number of days in each
month by the number of workers.
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Exhibit 13.10

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Three Possible Plans for

the Parks and Recreation Department

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Exhibit 13.11

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Yield Management
Yield (Revenue) Management
The concept used in service operations with
high-fixed costs and low-variable costs that
attempts to match supply and demand (a chase
strategy) to maximize capacity utilization.

Yield Management Requires:

The ability to segment the market
High-fixed and low-variable costs where
additional sales create more profits
Product perishability (cannot be inventoried)
Lower-priced capacity that can be presold
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Comparison of Costs for All Three Alternatives

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Exhibit 13.12

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