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Chapter 8

BU435 Chapter 8: BU435 Chapter 8

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Hamidreza Faramarzi

Chapter 8: Aggregate Planning in a Supply Chain 8.1 The Role of Aggregate Planning in a Supply Chain Aggregate Planning: process by which a company determines planned levels of capacity, production, subcontracting, inventory, stock outs and even pricing over a specified time horizon Goal: build a plan that satisfies demand while maximizing profit Requires inputs from all stages of supply chain Aggregate planners main objective is to identify the following operational parameters over specific time horizon: o Production rate: of units to be completed per unit time o Work force: of workersunits of labour capacity requires o Overtime: amt of overtime production planned o Machine capacity level: of units of machine capacity needed for production o Subcontracting: subcontracted capacity required over planning horizon o Backlog: demand not satisfied in period in which it arises but is carried over to future periods o Inventory on hand: planned inventory carried over various periods in planning horizon 8.2 The Aggregate Planning Problem Given the demand forecast for each prd in planning horizon, determine the production level, inventory level, capacity level (internaloutsourced), and any backlogs (unmet demand) for each prd that maximize firms profit over planning horizon Planning Horizon: time prd over which the aggregate plan is to produce a solution (usually 318 months) Aggregate Planner requires: Aggregate demand forecast F fot each period t in planning horizon that extends over T periods Production costs o Labour costs: regular time (hour) and overtime (hour) o Cost of subcontracting production (unit or hour) o Cost of changing capacity; specifically, cost of hiringlaying off workforce (worker) and cost of addingreducing machine capacity (machine) o Labourmachine hours required per unit o Inventory holding cost (unitperiod) o Stock outbacklog cost (unitperiod) o Constraints: limits on overtime, layoffs, capital available, stock outsbacklogs constraints from SRs to the enterprise Using this information a company can make the following determinations through aggregate planning: o Production Q from regular time, overtime and subcontracted time: used to determine of workers SR purchase levels o Inventory held: used to determine WH space and working capital required
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