371 13 Capacity Planning
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IN THE NAME OF ALLAH THE MOST BENIFICIEN THE MOST MERCIFUL
1
Group Members
Shahid Iqbal Farhan Shahzad
ME2-2002 ME2-2012
Gulraiz Khan
ME2-2017 Muhammad Asadullah ME2-2025
2
Ca pacity pla nning o r Ag gregate Pl annin g
3
Aggregate Plan Aggregate Plan: A statement of a company’s production rates, workforce levels, and inventory holding based on estimates of customer requirements and capacity limitations
Service Industry
Manufacturing Industry
Staffing Plan
Production Plan
Regarding staffs and labor related factors
Regarding production rates and inventory 4
Aggregate Production Planning (APP)
Determines resource capacity to meet demand
For intermediate time horizon, 6-12 months
Not feasible to build new facility
May be feasible to hire/lay off workers, overtime, or subcontract
Adjusting capacity OR managing demand
5
How should an aggregate plan fit with other plans?
Business or annual plan Production or staffing Plan (Aggregate Plan) MPS or workforce schedule 6
Aggregate Plan – Managerial Inputs Distribution and marketing Customer needs Demand forecasts Competition behavior
Operations Current machine capacities Plans for future capacities Workforce capacities Current staffing level
Materials Supplier capabilities Storage capacity Materials availability
Aggregate plan
Engineering New products Product design changes Machine standards
Accounting and finance Cost data Financial condition of firm
Human resources Labor-market conditions Training capacity 7
Aggregate Plan – Outputs Aggressive Alternatives Complementary Products
Competitive Pricing
Reactive Alternatives Size of Workforce and Workforce Adjustment
Inventory Levels
Aggregate plan
Production per month (in units or $)
Units or dollars Of Backlogs, backorders , or stockout
Units or dollars subcontracted
8
Aggregate Planning Objectives
Minimize Costs/Maximize Profits
Maximize Customer Service
Minimize Inventory Investment
Minimize Changes in Production Rates
Minimize Changes in Workforce Levels
Maximize Utilization of Plant and Equipment 9
Demand Units
Examples of Capacity Adjustment to Meet Demand
Time 1.
Producing at a constant rate and using inventory to absorb fluctuations in demand 2.
Hiring and firing workers to match demand
Maintaining resources for high demand levels Increase or decrease working hours (overtime and undertime) 5. Subcontracting work to other firms 6. Using part-time workers 7. Providing the service or product at a later time period (backordering) 3.
4.
10
Planning Strategies
Chase Strategies
PURE STRATEGIES
Level Strategies
Match demand during the planning horizon by either Vary workforce or vary output rate
Maintain a constant workforce level or constant output rate during the planning horizon Constant workforce or constant output rate
Mixed Strategies
Combined several strategies 11
Pure Strategy Level Production
Chase Demand
Demand
Demand Production Units
Units
Production
Time
Time
12
PLANNING STRATEGIES FOR AGGREGATE PLANS Possible Alternatives during Slack Season
Possible Alternatives during Peak Season
1. Chase #1: vary workforce level to match demand
Layoffs
Hiring
2. Chase #2: vary output rate to match demand
Layoffs, undertime, vacations
Hiring, overtime, subcontracting
3. Level #1: constant workforce level
No layoffs, building anticipation inventory, undertime, vacations
No hiring, depleting anticipation inventory, overtime, subcontracting, backorders, stockouts
4. Level #2: constant output rate
Layoffs, building anticipation inventory, undertime, vacations
Hiring, depleting anticipation inventory, overtime, subcontracting, backorders, stockouts
Strategy
13
Aggregate Planning Costs
Regular-Time Costs Overtime Costs Hiring and Layoff Costs Inventory Holding Costs Backorder and Stockout Costs
14
Ex 1 Candy Company Given the following costs and quarterly sales forecasts of a candy company, compare the two strategies: Strategy 1: Level production with constant workforce level Strategy 2: Chase production by varying workforce level Quarter Spring Summer Fall Winter
Sale Forecast (LB)
80,000 50,000 120,000 150,000
Hiring cost Firing cost Inventory carrying cost
Production rate per employee Beginning workforce
$100 per worker $500 per worker $0.50 per pound per quarter 1000 pounds per quarter 100 workers
15
Transportation Method
A method of LP Gather all cost info into one matrix Try to obtain the lowest cost alternative
16
Tableau Method
Step 1: Put all capacities from the total capacity column into the unused capacity column. Next, put unit costs in each of the small boxes
Step 2: In column 1 (period 1), allocate as much production as you can to the cell with the lowest cost but do not exceed the unused capacity in that row or the demand in that column.
Step 3: Subtract your allocation from the unused capacity for the row. This quantity must never be negative.
17
Tableau Method
(Cont’d)
Step 4: If there is still some demand left, repeat step 2, allocating as much production as possible to the cell with the next-to-lowest cost. Repeat until the demand is satisfied.
Step 5: Repeat steps 2 through 4 for periods 2 and beyond. Take each column separately before proceeding to the next. Be sure to check all cells with unused capacity for the cell with the lowest cost in a column.
18
Farnsworth's Production, Demand, Capacity, and Cost Data Sales Period Mar.
Apr.
May
Demand Capacity:
800
1000
750
Regular
700
700
700
Overtime
50
50
50
Subcontracting
150
150
130
Beginning inventory
100 tires 19
Cost
Regular time = $40 per tire Overtime = $50 per tire Subcontracting = $70 per tire Carrying Cost = $2 per tire per month
20
Supply Form
Demand For
Period 1 (Mar.) 0
Beginning inventory 1
Period 2 (Apr.)
Period 3 (May)
2
100 Regular
Total Capacity Available (supply)
40
Unused Capacity
4 44
42
0
100
0
700
700 Overtime
50
52
54
0
50
72
74
0
150
40
42
50
52
0
50
70
72
0
150
49
0
700
50
0
50
70
0
130
50 Subcontra
70
150 2
Regular
0
700
700 Overtime
50 Subcontra
50 3
100
Regular
700 Overtime
50 Subcontra
21
130 Total Demand
800
1000
750
230
2780
Aggregate Planning in Services Aggregate planning may be easier than in manufacturing for services like
Restaurants Hospitals National chains of small service firms Airline industries etc
22
Controlling the cost of Labor in services is critical As it is the primary planning vehicle involving :
Close scheduling of labor hours (quick response) On Call labor resources (unexpected demand) Flexibility of individual worker skills Individual worker flexibility in rate of out put
23
END THANK U
24
1
Group Members
Shahid Iqbal Farhan Shahzad
ME2-2002 ME2-2012
Gulraiz Khan
ME2-2017 Muhammad Asadullah ME2-2025
2
Ca pacity pla nning o r Ag gregate Pl annin g
3
Aggregate Plan Aggregate Plan: A statement of a company’s production rates, workforce levels, and inventory holding based on estimates of customer requirements and capacity limitations
Service Industry
Manufacturing Industry
Staffing Plan
Production Plan
Regarding staffs and labor related factors
Regarding production rates and inventory 4
Aggregate Production Planning (APP)
Determines resource capacity to meet demand
For intermediate time horizon, 6-12 months
Not feasible to build new facility
May be feasible to hire/lay off workers, overtime, or subcontract
Adjusting capacity OR managing demand
5
How should an aggregate plan fit with other plans?
Business or annual plan Production or staffing Plan (Aggregate Plan) MPS or workforce schedule 6
Aggregate Plan – Managerial Inputs Distribution and marketing Customer needs Demand forecasts Competition behavior
Operations Current machine capacities Plans for future capacities Workforce capacities Current staffing level
Materials Supplier capabilities Storage capacity Materials availability
Aggregate plan
Engineering New products Product design changes Machine standards
Accounting and finance Cost data Financial condition of firm
Human resources Labor-market conditions Training capacity 7
Aggregate Plan – Outputs Aggressive Alternatives Complementary Products
Competitive Pricing
Reactive Alternatives Size of Workforce and Workforce Adjustment
Inventory Levels
Aggregate plan
Production per month (in units or $)
Units or dollars Of Backlogs, backorders , or stockout
Units or dollars subcontracted
8
Aggregate Planning Objectives
Minimize Costs/Maximize Profits
Maximize Customer Service
Minimize Inventory Investment
Minimize Changes in Production Rates
Minimize Changes in Workforce Levels
Maximize Utilization of Plant and Equipment 9
Demand Units
Examples of Capacity Adjustment to Meet Demand
Time 1.
Producing at a constant rate and using inventory to absorb fluctuations in demand 2.
Hiring and firing workers to match demand
Maintaining resources for high demand levels Increase or decrease working hours (overtime and undertime) 5. Subcontracting work to other firms 6. Using part-time workers 7. Providing the service or product at a later time period (backordering) 3.
4.
10
Planning Strategies
Chase Strategies
PURE STRATEGIES
Level Strategies
Match demand during the planning horizon by either Vary workforce or vary output rate
Maintain a constant workforce level or constant output rate during the planning horizon Constant workforce or constant output rate
Mixed Strategies
Combined several strategies 11
Pure Strategy Level Production
Chase Demand
Demand
Demand Production Units
Units
Production
Time
Time
12
PLANNING STRATEGIES FOR AGGREGATE PLANS Possible Alternatives during Slack Season
Possible Alternatives during Peak Season
1. Chase #1: vary workforce level to match demand
Layoffs
Hiring
2. Chase #2: vary output rate to match demand
Layoffs, undertime, vacations
Hiring, overtime, subcontracting
3. Level #1: constant workforce level
No layoffs, building anticipation inventory, undertime, vacations
No hiring, depleting anticipation inventory, overtime, subcontracting, backorders, stockouts
4. Level #2: constant output rate
Layoffs, building anticipation inventory, undertime, vacations
Hiring, depleting anticipation inventory, overtime, subcontracting, backorders, stockouts
Strategy
13
Aggregate Planning Costs
Regular-Time Costs Overtime Costs Hiring and Layoff Costs Inventory Holding Costs Backorder and Stockout Costs
14
Ex 1 Candy Company Given the following costs and quarterly sales forecasts of a candy company, compare the two strategies: Strategy 1: Level production with constant workforce level Strategy 2: Chase production by varying workforce level Quarter Spring Summer Fall Winter
Sale Forecast (LB)
80,000 50,000 120,000 150,000
Hiring cost Firing cost Inventory carrying cost
Production rate per employee Beginning workforce
$100 per worker $500 per worker $0.50 per pound per quarter 1000 pounds per quarter 100 workers
15
Transportation Method
A method of LP Gather all cost info into one matrix Try to obtain the lowest cost alternative
16
Tableau Method
Step 1: Put all capacities from the total capacity column into the unused capacity column. Next, put unit costs in each of the small boxes
Step 2: In column 1 (period 1), allocate as much production as you can to the cell with the lowest cost but do not exceed the unused capacity in that row or the demand in that column.
Step 3: Subtract your allocation from the unused capacity for the row. This quantity must never be negative.
17
Tableau Method
(Cont’d)
Step 4: If there is still some demand left, repeat step 2, allocating as much production as possible to the cell with the next-to-lowest cost. Repeat until the demand is satisfied.
Step 5: Repeat steps 2 through 4 for periods 2 and beyond. Take each column separately before proceeding to the next. Be sure to check all cells with unused capacity for the cell with the lowest cost in a column.
18
Farnsworth's Production, Demand, Capacity, and Cost Data Sales Period Mar.
Apr.
May
Demand Capacity:
800
1000
750
Regular
700
700
700
Overtime
50
50
50
Subcontracting
150
150
130
Beginning inventory
100 tires 19
Cost
Regular time = $40 per tire Overtime = $50 per tire Subcontracting = $70 per tire Carrying Cost = $2 per tire per month
20
Supply Form
Demand For
Period 1 (Mar.) 0
Beginning inventory 1
Period 2 (Apr.)
Period 3 (May)
2
100 Regular
Total Capacity Available (supply)
40
Unused Capacity
4 44
42
0
100
0
700
700 Overtime
50
52
54
0
50
72
74
0
150
40
42
50
52
0
50
70
72
0
150
49
0
700
50
0
50
70
0
130
50 Subcontra
70
150 2
Regular
0
700
700 Overtime
50 Subcontra
50 3
100
Regular
700 Overtime
50 Subcontra
21
130 Total Demand
800
1000
750
230
2780
Aggregate Planning in Services Aggregate planning may be easier than in manufacturing for services like
Restaurants Hospitals National chains of small service firms Airline industries etc
22
Controlling the cost of Labor in services is critical As it is the primary planning vehicle involving :
Close scheduling of labor hours (quick response) On Call labor resources (unexpected demand) Flexibility of individual worker skills Individual worker flexibility in rate of out put
23
END THANK U
24
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