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Chapter 13

Chapter 13 BU395.docx

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Maryam Hafezi

BU395 Chapter 13 – Aggregate Operations Planning Week 6 Introduction -Organizations make capacity and production decisions on three levels: long term, intermediate term, and short term -Long term decisions relate to products selection, facility size and location, major equipment decisions, and layout of facilities -Short-term decisions include scheduling jobs, workers, and equipment Sales and Operations Planning -Sales and operations planning – process of integrating sales forecasts with operations plans -Performed once a month -The process must reconcile all supply, demand, and new-product plans at both the detail and aggregate level and tie them to the strategic plan -The process of sales and operations planning (S&OP) begins with recording the sales, production, and inventory levels of the previous month, updating forecasts for the next 12 months or so, seeing if necessary production changes are feasible and providing a summary of information to top management for making decisions -Aggregate operations planning – monthly planning for all the products in the same family (produced in the same facility) for the next 12 months or so -Useful for organizations that experience seasonal fluctuations in demand -Planners must make decisions on output rates, employment levels and changes, inventory levels and changes, and backorders The Concept of Aggregation -In aggregate operations planning, planners focus on a group of similar products, or sometimes an entire line -Ex. All sizes of TVs for a company producing televisions are grouped as the same and they are grouped together and dealt with as if they were a single product -For labour-intensive services, a common aggregate measure or equivalent unit is full time equivalent (FTE) of a workforce – Ex. One half time worker (working 20 hours a week) is counted as 0.5 FTE -An aggregate approach allow managers to make general decisions about intermediate-term capacity and production levels without having to deal with highly specific details Demand and Capacity Options Demand Options 1. Pricing – pricing differentials are commonly used to shift demand from peak periods to off peak periods 2. Promotion – price discounts, advertising, and other forms of promotion, such as displays and direct marketing can sometimes be very effective in shifting demand 3. Backorders – A company can shift demand to future periods by using backorders 4. Complementary products – Manufacturers that experience seasonal demands for certain products are sometimes able to develop a demand for a complementary product that makes use of their resources during off season – Ex. Snow blowers and lawnmowers Capacity Options 1. Hiring and laying off permanent workers 2. Using overtime/idle time 3. Hiring and laying off part-time/temporary workers 4. Stockpiling inventories – the use of finished-goods inventories allows companies to produce goods in one period and sell or distribute them in a future period Inputs to and Outputs from Aggregate Operations Planning BU395 Chapter 13 – Aggregate Operations Planning Week 6 -Effective aggregate operations planning requires good information -The available resources over the planning horizon must be known, and forecasts of demand must be available -Planners must then take into account company policies -The outputs of aggregate planning is the level of production (output), which is determined from the level of employment, and in turn determines the amount of inventory or backordering in each period Basic Strategies 1. Maintain level output/workforce 2. Change output to match demand period by period 3. Use a combination -Level output/workforce strategy – maintaining a steady rate of output and workforce while meeting variations in demand by a combination of inventories and backorders -Chase demand strategy – matching output to demand; the planned output for any period is set at the forecast of demand for that period Choosing a Strategy -Whatever strategy a company chooses, two important factors are: -Company policy -Costs -Company policy may set a constraint on the available options Techniques for Aggregate Production Planning -Two different approaches are used: -Trial-and-error -Optimization -A general procedure for aggregate production planning consists of the following steps: 1. Determine demand forecast for each period in the planning horizon 2. Determine capacities and production rates 3. Identify company policies that are pertinent 4. Determine unit costs for regular time permanent, overtime, and part-time/temporary production; holding inventory; backorder; hiring and layoff 5. If using the trail-and-error approach, develop alternative feasible plans, compute the total for each, and select the one with the lowest total cost Trial-and-Error -Consists of developing simple tables/worksheets or graphs that enable managers to meet projected demand requirements with
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