Inventory and Rim Jaber Essay

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Operations
Management
Aggregate Planning
Chapter 13
1

Outline
 The Planning Process
 Sales and Operations Planning
(S&OP)
 The Nature of Aggregate Planning
 Aggregate Planning Strategies
 Capacity Options
 Demand Options
2

 Mixing Options to Develop a Plan

Outline – Continued
 Methods for Aggregate Planning
 Graphical Methods
 Mathematical Approaches
 Comparison of Aggregate
Planning Methods
 Aggregate Planning in Services
 Restaurants, Hospitals, National
Chains of Small Service Firms,
Airline Industry
 Miscellaneous Services
3

 Revenue (Yield) Management

Learning Objectives
When you complete this chapter you should be able to:

1. Define sales and operations planning and aggregate planning
2. Identify optional strategies for developing an aggregate plan
3. Prepare a graphical aggregate plan
4. Solve an aggregate plan via the transportation method and linear programming 5. Understand and solve a revenue
(yield) management problem
4

Planning Horizons

Figure 13.1

Sales and Operations Planning
(S&OP)
▶Coordination of demand forecasts with

functional areas and the supply chain
▶Typically done by cross-functional teams
▶Determine which plans are feasible
▶Limitations must be reflected
▶Provides warning when resources do not match expectations
▶Output is an aggregate plan

Sales and Operations Planning
(S&OP)
▶ Decisions must be tied to strategic planning

and integrated with all areas of the firm over all planning horizons
▶ S&OP is aimed at
1. The coordination and integration of the internal and external resources necessary for a successful aggregate plan
2. Communication of the plan to those charged with its execution

Sales and Operations
Planning
▶ Requires

▶A logical overall unit for measuring sales

and output
▶A forecast of demand for an intermediate planning period in these aggregate terms
▶A method for determining relevant costs
▶A model that combines forecasts and costs so that scheduling decisions can be made for the planning period

Aggregate Planning
(or Aggregate Scheduling)
Aggregate Planning is a high level approach

to planning. It translates annual and quarterly business plans into intermediate term production plans.
Objective:

- To meet forecasted demand while minimizing cost over the planning period
Provides the quantity and timing of

production for intermediate future
Usually 3 to 18 months into future

Combines (‘aggregates’) production
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ADM 3301 ~ Rim Jaber

Aggregate Planning
QUARTER 1
Jan.

Feb.

March

150,000

120,000

110,000

QUARTER 2
April

May

June

100,000

130,000

150,000

QUARTER 3
July

Aug.

Sept.

180,000

150,000

140,000

Aggregate Planning
In manufacturing organizations

aggregate planning means determining the size of the work-force, the rate of production and inventory level that are needed to implement a production plan.
In service organizations aggregate planning means scheduling staff to meet customers' service needs.
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ADM 3301 ~ Rim Jaber

S&OP and the
Aggregate
Plan

Figure 13.2

Steps in Planning Process
Forecasting the demand for the planning period:
Total demand for each product is aggregated.
Determination of the aggregate production plan:
Production and work-force levels, as well as

production capacity requirements are determined.
Determination of the Master Production
Schedule (MPS):
Production levels by product type by time period over the planning horizon are calculated.

13

ADM 3301 ~ Rim Jaber

Steps in Planning Process
Material Requirements Planning (MRP):
The master production schedule is “exploded"

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to obtain requirements for sub-assemblies, components and raw materials for each time period. Determination of the detailed job shop schedule: Detailed production schedules for components, sub-assemblies and final products and order quantities for raw materials are determined to meet the specification of production quantities from the MRP system.
ADM 3301 ~ Rim Jaber

Aggregate Planning Goals
Meet demand…