Aggregate Production Planning

A Presentation on

AGGREGATE PRODUCTION PLANNING Presented By :  Kausar Hayat  Manju  Priyanka Vatsh  Lipika Roy  Kanika Sharma September 23, 2009  Charu SinghSECTION-A

PGDM

4TH TRIMESTER

1

PLANNING Planning is a process of logical thinking or brain storming and outcome of planning is a plan. In industries planning means integration of activities required for conversion of sales SECTION-A PGDM 4TH September 23, 2009 TRIMESTER orders into actual products or

2

Objectives of Planning  To meet desired production schedules in terms of quantity, quality and time.  Optimum utilization of resources through :  Minimizing number of setups  Effective in process inventory control(work in progress)  Proper material handling system  Minimizing idle time of machines and manpower.

September 23, 2009

SECTION-A PGDM TRIMESTER

4TH

3

Two Basic Strategies are:APP strategy APP alternatives Key features applicable Level strategy

Inventory based alternatives a)Build inventory b)Backlog /backorder

Inventory as the critical link between the periods; made-tostock environment; products with low risk of obsolescence

Chase strategy

Capacity adjustment alternatives a)Over time/undertime b)Vary no.of shifts c)hire/lay off workers

no inventory carried from one period to another; several service systems

September 23, 2009

Capacity augmentation alternatives:a)subcontract/outsource SECTION-A PGDM b)De-bottleneck 4TH TRIMESTER

4

MIXED STRATEGY This strategy employs a combination of the available alternatives for APP  Mixed Strategy 1 : d. hire workers at the beginning of the planning e. maintain a constant production rate f. utilize inventory based alternatives  Mixed Strategy 2 : h. do not hire/layoff workers i. adjust the production rates j. use23,inventory and subcontracting to match September 2009 SECTION-A PGDM 4TH 5 TRIMESTER supply /demand

 Mixed Strategy 3 : b. do not hire/layoff workers c. use subcontracting during period of high demand and build inventory during low demand.

September 23, 2009

SECTION-A PGDM 4TH TRIMESTER

6

QUESTIONS September 23, 2009

SECTION-A PGDM TRIMESTER

4TH

7

Question 1 • A manufacturer of ceiling fans offer three different versions of the product to its customers: basic(three blades), improved (four blades) and deluxe(enhanced performance features).The table below has information on the machines hours required for each of these variations and the number of fans to be manufactured in the next quarter. Assume 25 working days per month. • Choose an appropriate aggregate unit for planning the production • For the chosen aggregate unit, estimate the capacity required SECTION-A PGDM 4TH • If the September 23, 2009 manufacturer operates two shifts8 TRIMESTER

Solution: Fan type

April

May

June

Basic

140

160

160

M/c hours per unit 9.50

Improve d

110

150

150

12.00

Deluxe

120

120

140

18.50

September 23, 2009

SECTION-A PGDM TRIMESTER

4TH

9

Case1:

Basic

April

May

June

140*9.50= 1330

160*9.50= 1520

160*9.50= 1520

Improved

110*12.00= 150*12.00= 150*12.00= 1320 1800 1800

Delux

120*18.50= 120*18.50= 140*18.50= 2220 2220 2590

Total

September 23, 2009

4870

SECTION-A PGDM TRIMESTER

5540

4TH

5910

10

Case 2 : • Estimate the capacity required? Aggregate Capacity= working hours*number of working days = 8*25 = 200 • 4870/200=25 25 machines are required in April. 5540/200=28 28 machines are required in May 5910/200=30 30 machines are required in June SECTION-A PGDM 4TH September 23, 2009 11 TRIMESTER

Case 3 : • Manufacturer operates 2 shifts each of 8 hours i.e. 200+200=400 • 4870/400=13 13 machines are required in April to fulfill the requirement of next quarter. • 5540/400=14 14 machines are required in May • 5910/400=15 15 machines are required in month of SECTION-A PGDM 4TH September 23, 2009 12 TRIMESTER June.

Question 2 A manufacturing organisation employs 220 people in the factory. The Manufacturing is largely manual, therefore, man hours are a good measure of the capacity of the system. The factory currently works on a single shift of 8 hours. The no. of working days for the next 6 months is as follows : 24, 22, 25, 19, 21 and 23. The company uses this information to plan its capacities. SECTION-A PGDM 4TH The demand September 23, 2009 for its product during the next 613 TRIMESTER

Under these circumstances, analyse the situation and answer the following questions: c)What is the total capacity available in the factory as of now? d)The company is considering 3 options to meet the impending demand for capacity v. Introduce 2 hours of overtime for the next 6 months vi. Introduce 1 hour of overtime for the next 6 months vii. Introduce 2hours of overtime for the first 6 months and 2 hours of idle time thereafter. SECTION-A PGDM 4TH September 23, 2009 14 TRIMESTER

Solution (a) : No. of workers

220

Working hours

8

MONT HS 1

WORKI CAPACIT CURREN NG Y T DAYS (HOURS DEMAND ) 24 42240 33792

PROJECTED DEMAND FOR NEXT 6 MONTHS 45619

2

22

38720

30976

41818

3

25

44000

35200

47520

4

19

33440

26752

36115

5

21

36960

29568

39917

6

23

40480

32384

43718

TOTAL CAPACITY

September 23, 2009

235840 SECTION-A PGDM TRIMESTER

4TH

15

Solution (b) : Case (i) 2 hours overtime for the next 6 months : MONT HS

WORKI NG DAYS

EXISTI NG CAPACI TY

CAPACIT Y (OVERTI ME)

7

24

8

22

38720

9

25

10

42240

10560

TOTAL DEMAND CAPACI CAPACI (PROJECT TYDEM TY ED) AND “A” “B” C = A-B

52800

45619

7181

9680

48400

41818

6582

44000

11000

55000

47520

7480

19

33440

8360

41800

36115

5685

11

21

36960

9240

46200

39917

6283

12

23

40480

10120

50600

43718

6882

TOTAL CAPACITY DEMAND

September 23, 2009

SECTION-A PGDM TRIMESTER

4TH

40093

16

Solution (b) : Case (ii) 1 hour overtime for the next 6 months : MONT HS

WORKI NG DAYS

EXISTI NG CAPACI TY

CAPACIT Y (OVERTI ME)

7

24

8

22

38720

9

25

10

42240

5280

TOTAL DEMAND CAPACI CAPACI (PROJECT TYDEM TY ED) AND “A” “B” C= A-B

47520

45619

1901

4840

43560

41818

1742

44000

5500

49500

47520

1980

19

33440

4180

37620

36115

1505

11

21

36960

4620

41580

39917

1663

12

23

40480

5060

45540

43718

1822

TOTAL CAPACITY DEMAND

September 23, 2009

SECTION-A PGDM TRIMESTER

4TH

10613

17

Solution (b) : Case (iii) 2 hours of overtime for the first 3 months & 2 hours of idle time thereafter : MONT HS

WORKI NG DAYS

EXISTI NG CAPACI TY

CAPACIT Y CHANGE (OT/UT)

7

24

8

22

38720

9

25

10

42240

10560

TOTAL DEMAND CAPACI CAPACI (PROJECT TYDEM TY ED) AND “A” “B” C= A-B

52800

45619

7181

9680

48400

41818

6582

44000

11000

55000

47520

7480

19

33440

(8360)

25080

36115

11

21

36960

(9240)

27720

39917

12

23

40480

(10120)

30360

43718

(11035 ) (12197 ) (13358 ) (1534 7)

TOTAL CAPACITY DEMAND September 23, 2009

SECTION-A PGDM TRIMESTER

4TH

18

Question 3 Suppose in the above problem, the following are the costs pertaining to overtime, inventory and shortage and idle time:(d)Overtime premium:Rs.4.00 per hour. (e)Idle time costs :Rs.2.00 per hour. (c) Cost of holding inventory :Rs.10.00 SECTION-A PGDM 4TH September 23, 2009 19 per hour. TRIMESTER

Case 1 : Two hour Overtime for next six months

Month Openin Closin Inventor OT/U s g g y T Invent Invent /Shorta hours ory ory ge Cost 7 0 7180 35904 10560

OT/UT Cost

Total Cost

42240

78144

8

7180

13763

104720

9680

38720

143440

9

13763

21243

175032

11000

44000

219032

10

21243

26928

240856

8360

33400

274296

11

26928

33211

300696

9240

36960

337656

12

33211

40092

366520

10120

40480

407000

September 23, 2009

SECTION-A PGDM TRIMESTER

4TH

20

Case2 : One hour Overtime for next six months

Month s 7

Openin Closing Invent g Invent ory Invent ory /Shorta ory ge 0 1900 9504 Cost

OT/UT hours

OT/UT Cost

Total Cost

5280

21120

30624

8

1900

3643

27720

4840

19360

47080

9

3643

5623

46332

5500

22000

68332

10

5623

7128

63756

4180

16720

80476

11

7128

8791

79596

4620

18480

98076

12

8791

10612

97020

5060

20240

117260

September 23, 2009

SECTION-A PGDM TRIMESTER

4TH

21

Case 3 : Two hours OT for next three months, two hours under time thereafter Month s 7

Openin g Invent ory 0

Closin g Invent ory 7180

OT/UT hours

OT/UT Cost

Total Cost

10560

42240

78144

13763

Invent ory /Short age 35904 Cost 104720

8

7180

9680

38720

143440

9

13763

21243

175032

11000

44000

219032

10

21243

10208

157256

(8360)

16720

173976

11

10208

-1988

90800

(9240)

18480

109280

12

0

-15347

20240

327180

September 23, 2009

306940 (10120)

SECTION-A PGDM TRIMESTER

4TH

22

Question 4 Hot spot is a fast food restaurant located in a prominent locality in the city of Bangalore. Hot spot offers three different menus of breakfast : standard, extended, custom made. The standard offering takes nearly 20 minutes of one worker and the extended requires 30 minutes. On the other hand, custom made requires three workers to spend 25 minutes each. SECTION-A PGDM 4TH September 23, 2009 TRIMESTER

23

Type of service offered

Demand during next 4 weeks

STANDA RD

1

2000

2

3

2200

4

2500 2800

1700

1600

1000

EXTEND ED

1300 500

600

400 200

CUSTOM -MADE September 23, 2009

SECTION-A PGDM TRIMESTER

4TH

24

Solution: DEMAND DURING WEEKS

Type of service offered STANDA RD EXTEND ED CUSTOM -MADE

1

2

3

In units

4

Number of workers 1

2000

1700

220 0 1 600

500

600

September 23, 2009

std time (mins) per worker 20

2800 2500 1300

1

30

3

25

1000 200

400

SECTION-A PGDM TRIMESTER

4TH

25

 No. of hours taken by worker:  For standard : 20/60*1 = 0.33  For extended : 30/60*1 = 0.5  For custom–made : 25/60*3 = 1.25

September 23, 2009

SECTION-A PGDM TRIMESTER

4TH

26

In hours CUSTOMMADE

WEEKS STANDARD EXTENDED 1

2

660

726

3

924

4

825

850

800 650 500

625

750 250 500

CAPACITY/ DEMAND(h rs) (TOTAL) 2135

2276 1824 1825

Question 5 Assume that hot spot currently employs 29 workers in its restaurant. If hot spot works for 6 days a week, 10 hrs a day compute the following: (c)What is capacity available at hot spot in its current level of working? (d)Is the capacity adequate to meet the demand? If not, how much additional capacity do they need? (e)What alternatives would you recommend to hot spot to solve their capacity problem?

Given: No. of employees – 29 Work schedule – 10 hrs a day Work week – 6 days

Available/current capacity= no. of working days * working hrs* no. of worker = 6* 29 * 10 = 1740 Demand(hrs)

Addl. capacity

2135

Available capacity (hrs) 1740

2276

1740

536

1824

1740

84

1825

1740

85

395

(a) Current capacity is 1740 hrs per week. (b) No, the current capacity is inadequate. Additional capacity needed is shown above. (c) Alternatives available: 4.To maintain flexible workforce through hire/fire. 5. To recruit average no. of workers and manage additional requirement through hiring temporary workers. 6. To recruit peak load requirement and investigate method for increasing

(d) No. of employee to be hire = shortage/working hr.* no. of working days Hire For 1st week = 395/6*10 = 6.58 or 7 Hire For 2nd week = 536/6*10 = 8.93 or 9 Hire For 3rd week = 84/6*10 = 1.40 or 2 Hire For 4th week = 85/6*10 = 1.42 or 2 Additional capacity

Man hrs

Week 1

395

No. of employees to be hire 7

Week 2

536

9

Week 3

84

2

Week 4

85

2

Example 11.4 A manufacturer of industrial motors produces four varieties of motors. Type 4 motor requires a greater amount of customization than the other three. The production planning department has estimated the no of hours required for manufacturing one unit of motor of each PGDM 4TH variety. typeSECTION-A 1 requires 125 hrs ; September 23, 2009 32 TRIMESTER

Forecast of

Motor Demand

In units

Months

Type1

Type2

Type3

Type4

April

100

40

60

10

May

90

30

30

5

June

80

50

50

10

July

130

40

70

20

August

70

30

30

15

Septembe r October

90

50

50

5

100

40

50

10

Novembe r December

110

30

40

15

60

60

80

5

January

110

20

30

10

February

120

40

40

5

March

140

50

70

10

September 23, 2009

SECTION-A PGDM TRIMESTER

4TH

33

Contd…….. Overtime premium is estimated to be Rs 20/hr while under time costs are 50% of OT premium. the cost carrying inventory is Rs 15/hr/mnth and the backordering/shortage costs are 200% of the inventory carrying costs. The company can sub-contract capacity from a reputed vendor and the additional costs related to subcontracting is Rs 25/hr of the capacity. Evaluate the following alternatives SECTION-A PGDM 4TH for APP: September 23, 2009 34 TRIMESTER

Contd…….. (b) Use constant production rate for the first six months, change the production rate to another level and have a constant production rate for the next six months. use inventory/backlogging to absorb demand-supply mismatch. (c) Maintain a production level of 31,000 hrs/month and use OT/UT alternatives to chase the demand. (d) Maintain a production level of 31,000hrs/month. Build inventory during periods of low demand and use subcontractingSECTION-A when the exceeds 35 PGDMdemand 4TH September 23, 2009 TRIMESTER available capacity.

Aggregate of Product Demand:

hr/uni t

125

175

200

350

Forecast of Motor Demand (units)

Forecast of Motor Demand (hrs)

Mont Type Type Type Type4 Type Type Type Type Total h 1 2 3 1 2 3 4 April 100 40 60 10 1250 7,000 12,00 3,500 35,00 0 0 0 May 90 30 30 5 1125 5,250 6,000 1,750 24,25 0 0 June 80 50 50 10 10,00 8,750 10,00 3,500 32,25 July

130

40

70

20

Aug

70

30

30

15

Sep

90

50

50

5

Oct

100

40

50

10

Nov

110

30

40

15

Dec

60

60

80

5

Jan

110

20

30

10

Feb

120

40

Marc h

140

50

September 23, 2009

0 0 0 16,25 7,000 14,00 7,000 44,25 0 0 0 8,750 5,250 6,000 5,250 25,25 0 11,25 8,750 10,00 1,750 31,75 0 0 0 12,50 7,000 10,00 3,500 33,00 0 0 0 13,75 5,250 8,000 5,250 32,25 0 0 7,500 10,50 16,00 1,750 35,75 0 0 0 13,75 3,500 6,000 3,500 26,75

0 0 15,00 7,000 8,000 1,750 31,75 0 0 70 10 17,50 8,750 14,00 3,500 43,75 0 0 SECTION-A PGDM 0 4TH 40

5

TRIMESTER

36

Plan A-Level Strategy Months

Prd rate(hr) 33,000

Prodct dmd (2000)

Opng invt 0

Closng invt (2000)

C.o.I/B.O

April

Demand (hr 35,000

May

24,250

33,000

8,750

(2000)

6,750

50,625

June

32,250

33,000

750

6,750

7,500

1,06,875

July

44,250

33,000

(11,250)

7,500

(3,750)

1,68,750

Aug

25,250

33,000

7,750

(3,750)

4,000

30,000

Sep

31,750

33,000

1,250

4,000

5,250

69,375

Oct

33,000

33,000

0

5,250

5,250

78,750

Nov

32,250

33,000

750

5,250

6,000

84,375

Dec

35,750

33,000

(2,750)

6,000

3,250

69,375

Jan

26,750

33,000

6,250

3,250

9,500

95,625

Feb

31,750

33,000

1,250

9,500

10,750

151,875

March

43,750

33,000

(10,750)

10,750

0

80,625

Avg. (12)

33,000

September 23, 2009

Total cost of Plan SECTION-A PGDM TRIMESTER

4TH

60,000

10,46,25 0 37

Calculations:  Cost of inventory = Rs 15/hr/month  Cost of shortage/backlogging=200% * 15=Rs 30 Months

Cost of inventory/cost of shortage

April

2000*30= Rs60,000

May

6750/2*15= Rs 50,625

June

(6750+7500)/2*15 = Rs 1,06,875

July

(7500/2)*15 +3750*30 = Rs 1,68,750

August

(4000/2)*15 =Rs 30,000

Sep

(4000+5250)/2*15 =Rs 69,375

Oct

(5250+5250)/2*15 = Rs 78,750

Nov

(5250+6000)/2*15 = Rs 84,375

Dec

(6000+3250)/2*15 = Rs 69,375

Jan

(3250+9500)/2*15 = Rs 95,625

Feb

(9500+10750)/2*15 = Rs 151,875

March

(10750/2)*15 = Rs 80,625

September 23, 2009

SECTION-A PGDM TRIMESTER

4TH

38

Plan B-two level of Constant Production Months Demand Prd Rate Prd Opng Clsng C.O.I/C. (h

rate(hr)

dmd

invt

invt

B.O

April

35,000

32,125

(2,875)

0

(2,875)

86,250

May

24,250

32,125

7,875

2,875

5,000

37,500

June

32,250

32,125

(125)

5,000

4,875

74,063

July

44,250

32,125

4,875

(7,250)

2,54,063

August

25,250

32,125

(12,125 ) 6,875

(7,250)

(375)

11,250

Sep

31,750

32,125

375

(375)

0

----

Oct

33,000

33,875

875

0

875

6,563

Nov

32,250

33,875

1,625

875

2,500

25,313

Dec

35,750

33,875

(1,875)

2,500

625

23,438

Jan

26,750

33,875

7,125

625

7,750

62,813

Feb

31,750

33,875

2,125

7,750

9,875

1,32,188

March

43,750

33,875

(9,875)

9,875

0

74,063

Avg(fst 6) Avg(sec

32,125 33,875

September 23, 2009 6)

Total cost Of the plan SECTION-A PGDM TRIMESTER

4TH

7,87500 39

Plan C: Chase Strategy with OT/UT Mont h April

Dema nd (hrs) 35,000

Prod Rate (hrs) 31,000

Prod. Demand (hrs) (4,000)

Op. Invent (hrs) 0

Clg. Invent (hrs) 0

Cost of OT/UT 80,000

May

24,250

31,000

6,750

0

0

67,500

June

32,250

31,000

(1,250)

0

0

25,000

July

44,250

31,000

(13,250)

0

0

August

25,250

31,000

5,750

0

0

2,65,0 00 57,500

Sept.

31,750

31,000

(750)

0

0

15,000

Octob er Nov.

33,000

31,000

(2,000)

0

0

40,000

32,250

31,000

(1,250)

0

0

25,000

Dec.

35,750

31,000

(4,750)

0

0

95,000

Jan.

26.750

31,000

4,250

0

0

42,500

Feb.

31,750

31,000

(750)

0

0

15,000

March

43,750

31,000

(12,750)

0

0

2,55,0 00 9,82,5

Total cost of the Plan September 23, 2009

SECTION-A PGDM TRIMESTER

4TH

00 40

Plan D: Mixed Strategy Month

Dema nd (hrs)

Prod Rate (hrs)

Prod Demand (hrs)

Op. Inven t (hrs) 0

Clg. Inven t (hrs) (4,000

April

35,000

31,000

(4000)

May

24,250

31,000

6,750

) 2,750

(1,250)

(4,000 ) 2,750

June

32,250

31,000

July

44,250

31,000

(13,250)

1,500

25,250

31,000

5,750

Sept.

31,750

31,000

(750)

(11,75 0) (6,000

(11,75 0) (6,000

August October

33,000

31,000

(2,000)

Nov.

32,250

31,000

(1,250)

Dec.

35,750

31,000

(4,750)

Jan.

26,750

31,000

4,250

Feb.

31,750

31,000

(750)

March

43,750

31,000

(12,750)

Total cost of plan September 23, 2009

SECTION-A PGDM TRIMESTER

) (6,750 ) (8,750 ) (10,00 0) (14,75 0) (10,50 0) (11,25

Cost of the plan

1,500

) (6,750 ) (8,750 ) (10,00 0) (14,75 0) (10,50 0) (11,25 0) 0

0) 4TH

41

September 23, 2009

SECTION-A PGDM TRIMESTER

4TH

42