Scribd
Upload
155 views

PPT_08

Chapter 8 of 'Supply Chain Management' discusses aggregate planning, emphasizing its importance in optimizing production, inventory, and capacity levels to maximize profit over a specified planning horizon. It outlines the necessary information for creating an aggregate plan, the outputs of such plans, and the basic trade-offs involved, including strategies like chase, utilization flexibility, and level strategies. Additionally, it highlights the significance of accounting for forecast errors and the need for safety inventory and capacity to handle demand fluctuations.

Uploaded by

dalqassem7
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
155 views

PPT_08

Chapter 8 of 'Supply Chain Management' discusses aggregate planning, emphasizing its importance in optimizing production, inventory, and capacity levels to maximize profit over a specified planning horizon. It outlines the necessary information for creating an aggregate plan, the outputs of such plans, and the basic trade-offs involved, including strategies like chase, utilization flexibility, and level strategies. Additionally, it highlights the significance of accounting for forecast errors and the need for safety inventory and capacity to handle demand fluctuations.

Uploaded by

dalqassem7
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
You are on page 1/ 15

Supply Chain Management: Strategy,

Planning, and Operation


Seventh Edition, Global Edition

Chapter 8
Aggregate Planning in a
Supply Chain

Copyright © 2019 Pearson Education, Ltd.


Learning Objectives
8.1 Describe aggregate planning and its
importance as a supply chain activity.
8.2 Explain the basic trade-offs to consider when
creating an aggregate plan.

Copyright © 2019 Pearson Education, Ltd.


Aggregate Planning and Its Role in a
Supply Chain
• Capacity has a cost and lead times are often long
• Aggregate planning:
– Given the demand forecast for each period in
the planning horizon, determine the production
level, inventory level, capacity level (internal
and outsourced), and any backlogs (unmet
demand) for each period that maximize the
firm’s profit over the planning horizon.
– How can a firm best use the facilities it has?

Copyright © 2019 Pearson Education, Ltd.


Role of Aggregate Planning in a Supply
Chain
• Identify operational parameters over the specified time
horizon
– Production rate
– Workforce
– Overtime
– Machine capacity level
– Subcontracting
– Backlog
– Inventory on hand
• All supply chain stages should work together on an
aggregate plan that will optimize supply chain
performance
Copyright © 2019 Pearson Education, Ltd.
The Aggregate Planning Problem
• Given the demand forecast for each period in the
planning horizon, determine the production level,
inventory level, and the capacity level for each
period that maximizes the firm’s (supply chain’s)
profit over the planning horizon
• Specify the planning horizon (typically 3-18
months)
• Specify the duration of each period
• Specify key information required to develop an
aggregate plan

Copyright © 2019 Pearson Education, Ltd.


Information Needed for An Aggregate Plan
• Aggregate demand forecast Ft for each Period t over T periods

• Production costs
– Labor costs, regular time ($/hr) and overtime ($/hr)
– Subcontracting costs ($/hr or $/unit)
– Cost of changing capacity – hiring or layoff ($/worker), adding or
reducing machine capacity ($/machine)
• Labor/machine hours required per unit
• Inventory holding cost ($/unit/period)
• Stockout or backlog cost ($/unit/period)
• Constraints – overtime, layoffs, capital available, stockouts,
backlogs, from suppliers
Copyright © 2019 Pearson Education, Ltd.
Outputs of Aggregate Plan
• Production quantity from regular time, overtime,
and subcontracted time
• Inventory held
• Backlog/stockout quantity
• Workforce hired/laid off
• Machine capacity increase/decrease
• A poor aggregate plan can result in lost sales, lost
profits, excess inventory, or excess capacity

Copyright © 2019 Pearson Education, Ltd.


Basic Tradeoffs in Aggregate Planning
• Trade-off between capacity, inventory,
backlog/lost sales
• Chase strategy – using capacity as the lever
• Flexibility strategy – using utilization as the lever
• Level strategy – using inventory as the lever
• Tailored or hybrid strategy – a combination of
strategies

Copyright © 2019 Pearson Education, Ltd.


Chase Strategy
• Vary machine capacity or hire and lay off workers
as demand varies
• Often difficult to vary capacity and workforce on
short notice
• Expensive if cost of varying capacity is high
• Negative effect on workforce morale
• Results in low levels of inventory
• Used when inventory holding costs are high and
costs of changing capacity are low

Copyright © 2019 Pearson Education, Ltd.


Utilization Flexibility Strategy
• Use excess machine capacity
• Workforce stable, number of hours worked varies
• Use overtime or a flexible work schedule
• Flexible workforce, avoids morale problems
• Low levels of inventory, lower utilization
• Used when inventory holding costs are high and
capacity is relatively inexpensive

Copyright © 2019 Pearson Education, Ltd.


Level Strategy
• Stable machine capacity and workforce levels,
constant output rate
• Inventory levels fluctuate over time
• Inventories carried over from high to low demand
periods
• Better for worker morale
• Large inventories and backlogs may accumulate
• Used when inventory holding and backlog costs
are relatively low

Copyright © 2019 Pearson Education, Ltd.


Demand and Costs (1 of 3)
• Highly seasonal demand
• Options
– Adding workers during peak times
– Subcontract
– Build up inventory
• Develop a forecast

Copyright © 2019 Pearson Education, Ltd.


Forecast Error in Aggregate Plans (1 of 2)
• Forecast errors must be considered, flexibility
must be built in
• Safety inventory
– Build and carry extra inventories to satisfy
higher than forecasted demand

Copyright © 2019 Pearson Education, Ltd.


Forecast Error in Aggregate Plans (2 of 2)
• Safety capacity
– Capacity used to satisfy higher than forecast
demand
 Use overtime as a form of safety capacity
 Carry extra workforce permanently as a form
of safety capacity
 Use subcontractors as a form of safety
capacity
 Build and carry extra inventories as a form
of safety inventory
 Purchase capacity or product from an open
or spot market as a form of safety capacity
Copyright © 2019 Pearson Education, Ltd.
For mathematical models
• https://www.youtube.com/watch?v=KrDXxVzlxQ4

• https://www.youtube.com/watch?v=WsIK_TkJV2w

• https://www.youtube.com/watch?v=Sx_QuvQ0OgI

Copyright © 2019 Pearson Education, Ltd.

You might also like