March 12

Aggregate Strategies

  • Aggregate planners can adopt several strategies to meet production needs:
    • Maintain a Level Workforce (Level Capacity)
    • Maintain a consistent output rate across all periods.
    • Chase Demand (Match Demand Period by Period)
    • Adjust workforce levels to match changes in demand.
    • Combination of Decision Variables
    • Utilize multiple approaches to meet demand variability.

Choosing an Aggregate Strategy

  • Each strategy has potential pros and cons.
  • A Mixed Strategy may yield better results.
    • Explore various mixed strategies based on company policy and costs.

Trial-and-Error Approach

  • Develop tables or graphs to visually compare projected demand against production.
  • Assumptions:
    • Regular output capacity remains constant across all periods.
    • Total costs are a linear function dependent on the number of units produced.

Aggregate Planning Relationships

  1. Calculate ending inventory and back orders for period i:
    • X=extBeginningInventory+(extOutput−extForecast)−extBackOrders−1X = ext{Beginning Inventory} + ( ext{Output} - ext{Forecast}) - ext{Back Orders}_{-1}
      • Where output is the total of regular, overtime, and part-time production.
    • If X>0X > 0: Ending inventory = XX; Back orders = 0.
    • If X<0X < 0: Ending inventory = 0; Back orders = -XX.
  2. Calculate average inventory:
    • extAvg.Inventory=extBeginningInventory+extEndingInventory2ext{Avg. Inventory} = \frac{ ext{Beginning Inventory} + ext{Ending Inventory}}{2}
  3. Calculate beginning inventory:
    • extBeginningInventory=extEndingInventory−1ext{Beginning Inventory} = ext{Ending Inventory}_{-1}

Aggregate Planning Costs

Type of CostHow to Calculate
Output
RegularextRegularcostperunitimesextQuantityofregularoutputext{Regular cost per unit} imes ext{Quantity of regular output}
OvertimeextOvertimecostperunitimesextOvertimequantityext{Overtime cost per unit} imes ext{Overtime quantity}
SubcontractextSubcontractcostperunitimesextSubcontractquantityext{Subcontract cost per unit} imes ext{Subcontract quantity}
Hire/Layoff
HireextCostperhireimesextNumberhiredext{Cost per hire} imes ext{Number hired}
LayoffextCostperlayoffimesextNumberlaidoffext{Cost per layoff} imes ext{Number laid off}
Inventory
Back OrderextCarryingcostperunitimesextAverageinventoryext{Carrying cost per unit} imes ext{Average inventory}
extBackordercostperunitimesextNumberofbackorderunitsext{Backorder cost per unit} imes ext{Number of backorder units}

Aggregate Planning Example

  • A production planner for garden tractors outlines a six-month aggregate production plan:
    • Forecast Demand: Total = 18,000 units over 6 months.
    • Production: 2,800 units/month from a workforce of 140 (20 units/worker).
    • Costs:
    • Regular labor: $100/unit
    • Overtime: $150/unit
    • Temporary: $100/unit
    • Hire cost: $500/temporary worker
    • Inventory hold: $10/unit/month
    • Backorder: $150/unit/month

Scenario Analysis

  1. Evaluating a level output plan with uneven forecast demand.
  2. Investigating overtime to cover production shortages while considering maximum overtime output per month.
  3. A detailed cost analysis required to compare various production plans to determine equilibrium between inventory costs, backorder costs, and total production costs.