Management and Organizational Studies 3330A/B Study Guide - Midterm Guide: Master Production Schedule, Aggregate Demand, Production Control

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MOS 3330 Test 2 Notes
Aggregate Planning
1. What is an aggregate production plan?
LT: 2-10 years
Business plan
New products, facility, location
Med Term: 6-8 months
Production capacity to meet aggregate demand (demand for product lines
or product families)
ST: weekly, daily
Schedules for individual products
Aggregate demand: demand for product lines or product families
Aggregate production plan: a period-by-period plan of production, workforce, and inventory
o The main concern is whether or not there is enough capacity
If there is excess capacity, effective use of existing capacity and resources
What is aggregate demand and aggregate production plan?
Aggregate planning strategies
ACTIVE STRATEGY: by influencing demand (marketing tries to shift the demand patterns to minimize demand
o Incentives sales promotions, adv campaigns, pricing
o Products w/ counter cyclical demand
REACTIVE STRATEGY: by managing supply and capacity (reacting to demand fluctuations)
o Inventory, back orders, OT, undertime, subcontracting, hiring, firing
o 2 main approaches:
Level approach: avg demand, highest demand, max of cumulative demand avg
Chase approach
o Level approach:
Keeps the production rate constant produces the same capacity each time period
Demand variability dealt by inventory, back orders, overtime, undertime, subcontracting
Good for make-to-stock
Good for workforce variability
Bad for inv. Build up or stockouts
Take the production that is made when demand is lower and uses it when demand is high like a
constant amount of unites (pg 38 lecture notes)
What is the diff between an active and reactive strategy?
What are the 2 types of reactive strategies? What is the diff between them?
o Chase approach: “chasing the demand”
Production matches demand (if demand is up, production is up)
Demand variability dealt by changing capacities, mostly by hiring/firing of workers
Good for make-to-order, service
Good for minimizing inv level
Bad for employee moral (lay off people if slow)
General steps in generating an aggregate plan
o Step 1: choose the level or chase approach
o Step 2: based on the approach, determine the following to satisfy aggregate demand
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o Production rate
o Inventory level and back orders
o Workforce level (hiring and firing)
o Total cost of the plan = prod cost+inv cost+work force related
o Step 3: modify or improve the plan
Inventory t = inventory t-1 + production t demand t
Assumed to be computed at the end of the period
What are the 3 basic steps in generating an aggregate plan?
Modifying or improving the aggregate plan
o Pure level or chase hybrid approach (the regular ones we did 1a-d)
o Include policy or physical constraints (min or max requirements, desired levels)
o Improve objectives other than cost (max customer service, minimize changes in workforce levels, minimize
changes in production output)
Capacity Planning
o Do we have enough capacity?
Aggregate production plan if enough, operating at best operating level
Best operating level volume of output that results in the lowest avg unit cost
In the aggregate production plan, what does it mean if we have enough capacity?
Measuring capacity:
o Design capacity: max output rate under ideal conditions
Utilization (design) = (actual output rate)/(design capacity)
Looking more as a day as 8 hours
o Effective capacity: max output rate under normal conditions
Utilization (effective) = (actual output rate)/(effective capacity)
What is the diff between design and effective capacity?
Capacity shortage see page 45
o Should we outsource or expand?
o When to increase capacity and by how much?
o Capacity lead strategy: when you expand before demand increases
when demand is about to catch up to capacity, it is about time to expand
o Capacity lag strategy: catch up to demand and then expand
demand gets a little too far ahead of capacity, so time to expand
o Average capacity strategy: demand and capacity essentially cancel each other out
o Incremental versus One step expansion
One step expansion expands a lot ahead of demand into the future
Incremental expansion is more like capacity lead strategy expands ahead of demand
Draw a picture of the 4 capacity strategies
Production planning
Capacity planning
Resource level
Product lines or families
Aggregate production plan
Resource requirements
Individual products
Master production plan
Rough cut capacity plan
Critical work centres
Capacity requirements
All work centres
Manuf operations
Shop floor sched
Input/output control
Individual machines
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Material Requirements Planning (MRP)
Demand/sales forecast
Goes into ↓
Aggregate planning provides a framework for shorter term production and capacity decisions
Disaggregation: is the process of breaking an aggregate plan into more detailed parts
What is disaggregation?
MRP: is a COMPUTERIZED inventory and production control system
o Introduced in the 1960s
o Dependent demand inv: parts, components, raw materials
o Concerned w/ components needed to make end items
o Keep inv levels at a minimum
When was MRP introduced? What was it concerned with?
MRP system overview
What are the inputs?
Work Orders Purchase orders Action Notices
What are the outputs?
What goes into the planned order release? (see pg 48)
3 inputs:
o Master production schedule
Looks into individual products
Should anticipate a build schedule
Realistic and achievable
May not be feasible
It isn’t a sales forecast or a final assembly schedule
o Inventory master file
For reporting purposes only
Master Production Schedule (MPS)
Inventory Master File
Product structure file
2. Netting: (net requirements) = (gross reqts) (on hand inv) (qty on
- the amount of time or # of units that must be completed before the
succeeding operation can start or setup processing
4. Lot sizing: determine the batch size to be purchased or produced
Planned order release
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