Industrial Facilities Design
(7th Term, Batch 2009)
28/3/2012
lectur # 31 & 32
1
Lecture Outline
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28/3/2012
Production + Planning
Common of Objectives Of P Planning
P Planning (Classification)
Aggregate P Planning
Capacity Decision Hierarchy
Aggregate Planning Process
Methods of Influencing Demand & Supply
APP Variables
Strategies for Adjusting Capacity
Aggregate P Planning Example
lectur # 31 & 32
13-2
Production
Production is a function in which raw
materials or human efforts (inputs) are
transformed into finished good or
services (outputs)
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lectur # 31 & 32
13-3
Planning
An organizational process of creating
and maintaining a plan;
Or
The psychological process of thinking
about the activities required to create a
desired goal on some scale
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lectur # 31 & 32
13-4
Common objectives of
production planning...
MINIMIZE:
cost, inventory levels, changes in work
force levels, use of overtime, use of
subcontracting, changes in production
rates, plant/personnel idle time
MAXIMIZE:
profits, customer service
Slide
28/3/2012
11.5
lectur # 31 & 32
Production Planning

Long Range Planning
 Strategic planning (1-5 years)

Medium Range Planning
 Employment, output, and inventory levels (2-
18 months)

Short Range Planning
 Job scheduling, machine loading, and job
sequencing (0-2 months)
Slide
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11.6
lectur # 31 & 32
Aggregate production planning
is medium-term capacity planning over
a two to eighteen month planning
horizon. It involves determining the
lowest-cost method of providing the
adjustable capacity for meeting
production requirements.
Slide
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11.7
lectur # 31 & 32
Capacity Decisions Hierarchy
Linkages
Facilities
Planning
Aggregate
Planning
Scheduling
Time Frame
Time
Slide
28/3/2012
11.8
Scheduling
lectur # 31 & 32
Facilities Planning
Aggregate Planning
Aggregation refers to the idea of
focusing on overall capacity, rather than
individual products or services.
Aggregation is done according to:
 Products
 Labor
 Time
Slide
28/3/2012
11.9
lectur # 31 & 32
Aggregate production planning
involves managing...
Work force levels - the number of
workers required for production.
 Production rates - the number of units
produced per time period.
 Inventory levels - the balance of unused
units carried forward from the previous
period.

Slide
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11.10
lectur # 31 & 32
Aggregate Planning Process
28/3/2012
lectur # 31 & 32
13-11
Methods of Influencing Demand
Price Incentives
 Reservations
 Backlogs
 Complementary Products or Services
 Advertising/promotion
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Slide
28/3/2012
11.12
lectur # 31 & 32
Methods of Influencing
Supply
Hiring/firing workers
 Overtime/slack time
 Part time/temporary labor
 Subcontracting
 Cooperative arrangements
 Inventories

Slide
28/3/2012
11.13
lectur # 31 & 32
Aggregate Production
Planning Variable Costs
Hiring/firing costs
 Overtime/slack time costs
 Part time/temporary labor costs
 Subcontracting costs
 Cooperative arrangements costs
 Inventory carrying costs
 Backorder or stock out costs
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Slide
28/3/2012
11.14
lectur # 31 & 32
Strategies for Adjusting Capacity

Level production

Overtime and under-time
 Producing at a constant rate
 Increasing or decreasing
and using inventory to absorb
working hours
fluctuations in demand
 Subcontracting
 Chase demand
 Let outside companies
 Hiring and firing workers to
complete the work
match demand
 Part-time workers
 Peak demand
 Hiring part time workers to
 Maintaining resources for
complete the work
high-demand levels
 Backordering
 Providing the service or
product at a later time period
28/3/2012
lectur # 31 & 32
13-15
Level Production
Demand
Units
Production
Time
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lectur # 31 & 32
13-16
Chase Demand
Demand
Units
Production
Time
28/3/2012
lectur # 31 & 32
13-17
Level Production Strategy
Level production
(50,000 + 120,000 + 150,000 + 80,000)
= 100,000 pounds
4
QUARTER
Spring
Summer
Fall
Winter
SALES
FORECAST
PRODUCTION
PLAN
INVENTORY
100,000
100,000
100,000
100,000
400,000
Cost of Level Production Strategy
(400,000 X $2.00) + (140,00 X $.50) = $870,000
28/3/2012
80,000
50,000
120,000
150,000
lectur # 31 & 32
20,000
70,000
50,000
0
140,000
13-18
Chase Demand Strategy
QUARTER
SALES PRODUCTION
FORECAST
PLAN
Spring
Summer
Fall
Winter
80,000
50,000
120,000
150,000
WORKERS
NEEDED
80,000
50,000
120,000
150,000
80
50
120
150
WORKERS WORKERS
HIRED
FIRED
0
0
70
30
20
30
0
0
100
50
Cost of Chase Demand Strategy
(400,000 X $2.00) + (100 x $100) + (50 x $500) = $835,000
28/3/2012
lectur # 31 & 32
13-19
Mixed Strategy
Combination of Level Production and
Chase Demand strategies
 Examples of management policies

 no more than x% of the workforce can be
laid off in one quarter
 inventory levels cannot exceed x dollars

28/3/2012
Many industries may simply shut down
manufacturing during the low demand
season and schedule employee
vacations during that time
lectur # 31 & 32
13-20
Aggregate Planning Example
A small manufacturing company with 200 employees produces
umbrellas. The company produces the following three product lines:
1) the Executive Line, 2) the Durable Line and 3) the Compact line,
as shown in the below
Executive
Line
28/3/2012
Compact
Line
Durable
Line
lectur # 31 & 32
13-21
Aggregate Planning Example:
Demand for Executive Umbrellas
Number of working days:
28/3/2012
lectur # 31 & 32
Jan:
Feb:
Mar:
Apr:
May:
Jun:
22
19
21
21
22
20
13-22
Aggregate Planning Example:
Cost Information for Executive
Umbrellas
Materials
Holding costs
Marginal cost of stockout
Hiring & training cost
Layoff costs
Labor hours required
$5.00
$1.00
$1.25
$200.00
$250.00
0.15
Straight time labor cost
Beginning inventory
Productive hours
Paid straight hours
Beginning # of workers
28/3/2012
lectur # 31 & 32
$8.00
250
7.25
8
7
/unit
/unit/month
/unit/month
/worker
/worker
hrs/unit
/hr
units
hrs/worker/day
hrs/day
workers
13-23
Aggregate Planning Example:
Determining Straight Labor Costs and Output for Executive Umbrellas
Days/mo
Hrs/worker/mo
Units/worker
$/worker
Jan
22
159.5
1063.33
$1,408
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January
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159.5
1063.33
$1,408
28/3/2012
Feb
19
137.75
918.33
1,216
M ar
21
152.25
1015
1,344
Apr
21
152.25
1015
1,344
M ay
22
159.5
1063.33
1,408
Jun
20
145
966.67
1,280
= 22 [days/month] * 7.25 [productive hrs/worker]
= 159.5 [hrs/worker/month] / .15 [hrs/unit]
= 8 [$/hr] * 8 [paid hrs/day] * 22 [days/month]
lectur # 31 & 32
13-24
Aggregate Planning Example:
Determining Straight Labor Costs and Output for Executive Umbrellas
Aggregate Planning Problem
Days/month
Hrs/worker/month
Units/worker
Labor cost/worker
28/3/2012
Jan
Feb
Mar
Apr
May
Jun
22
19
21
21
22
20
160
138
152
152
160
145
1,063
918
1,015
1,015
1,063
967
$1,408.00 $1,216.00 $1,344.00 $1,344.00 $1,408.00 $1,280.00
lectur # 31 & 32
13-25
Aggregate Planning Example
Chase Strategy for Executive Umbrellas
Days/mo
Hrs/wo rker/mo
Units/wo rker
$ /wo rker
Demand
Beg. inv.
Net req.
Req. wo rkers
Hired
Fired
W o rkfo rce
Ending invento ry
28/3/2012
Jan
22
1 5 9 .5
1 ,0 6 3 .3 3
$ 1 ,4 0 8
Jan
4 ,5 0 0
250
4 ,2 5 0
3 .9 9 7
3
4
0
• Objective: Adjust workforce level so as to
eliminate the need to carry inventory from
period to period
• 4,500 units is the demand in January (any
combination of firm orders and forecast
• 250 is the starting inventory position
• 4,250 = 4,500 – 250
• 3.997 = 4,250 / 1,063.33
• 7 = workforce level at the beginning of
January
• 3 = 7 – 4 = workers fired
• 4 = workforce level at end of January
• lectur
0 =# ending
inventory level
31 & 32
13-26
Aggregate Planning Example
Chase Strategy for Executive Umbrellas
Chase Strategy
Demand
Beginning inventory
Net requirements
Beginning # of workers
Required workers
Workforce adjustment
Production quantity
Ending inventory
28/3/2012
Jan
4,500
250
4,250
7
4
-3
4,250
0
Feb
5,500
0
5,500
4
6
2
5,500
0
lectur # 31 & 32
Mar
7,000
0
7,000
6
7
1
7,000
0
Apr
10,000
0
10,000
7
10
3
10,000
0
May
8,000
0
8,000
10
8
-2
8,000
0
Jun
6,000
0
6,000
8
6
-1
6,000
0
13-27
Aggregate Planning Example
Chase Strategy for Executive Umbrellas
Chase Strategy Costs
Material cost
Labor cost
Hiring cost
Firing cost
Inventory holding cost
Inventory stockout cost
Jan
Feb
Mar
Apr
May
Jun
$21,250.00 $27,500.00 $35,000.00 $50,000.00 $40,000.00 $30,000.00 $203,750.00
$5,628.00 $7,283.00 $9,269.00 $13,242.00 $10,594.00 $7,945.00 $53,961.00
$0.00 $400.00 $200.00 $600.00
$0.00
$0.00 $1,200.00
$750.00
$0.00
$0.00
$0.00 $500.00 $250.00 $1,500.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
TOTAL: $260,411.00

28/3/2012
January costs: $21,250.00 = 4,250 [units] * $5 [$/unit]
$ 5,627.59 = 3.997 [workers] * 1,408 [$/worker]
$ 750.00 = 3 [workers fired] * 250 [$/worker fired]
lectur # 31 & 32
13-28
Aggregate Planning Example
Level Strategy for Executive Umbrellas
Demand
Beg. inv.
Net req.
W o rkers
P ro ductio n
Ending invento ry
Surplus
Sho rtage
28/3/2012
Jan
4 ,5 0 0
250
4 ,2 5 0
6
6 ,3 8 0
2 ,1 3 0
2 ,1 3 0
lectur # 31 & 32
• Objective: Adjust inventory
level so as to eliminate the need
to hire or fire workers from
period to period
• Assume that January is started
with 6 employees
• 6,380 = 6 [employees] *
 1,063.33
[units/worker]
• 2,130 = 6,380 – 4,250 (surplus)
13-29
Aggregate Planning Example
Level Strategy for Executive Umbrellas
Level Capacity Strategy
Demand
Beginning inventory
Net requirements
Beginning # of workers
Required workers
Workforce adjustment
Production quantity
Ending inventory
28/3/2012
Jan
4,500
250
4,250
6
4
0
6,380
2,130
Feb
5,500
2,130
3,370
6
4
0
5,510
2,140
lectur # 31 & 32
Mar
7,000
2,140
4,860
6
5
0
6,090
1,230
Apr
10,000
1,230
8,770
6
9
0
6,090
-2,680
May
8,000
-2,680
10,680
6
10
0
6,380
-4,300
Jun
6,000
-4,300
10,300
6
11
0
5,800
-4,500
13-30
Aggregate Planning Example
Level Strategy for Executive Umbrellas
Level Capacity Strategy Costs
Material cost
Labor cost
Hiring cost
Firing cost
Inventory holding cost
Inventory stockout cost
Jan
Feb
Mar
Apr
May
Jun
Total
$31,900.00 $27,550.00 $30,450.00 $30,450.00 $31,900.00 $29,000.00 $181,250.00
$8,448.00 $7,296.00 $8,064.00 $8,064.00 $8,448.00 $7,680.00 $48,000.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$2,130.00 $2,140.00 $1,230.00
$0.00
$0.00
$0.00 $5,500.00
$0.00
$0.00
$0.00 $3,350.00 $5,375.00 $5,625.00 $14,350.00
TOTAL: $249,100.00

28/3/2012
January costs: $8,448 = 6 [workers] * $1,408 [$/worker]
$ 31,900 = 6,380 [units] * $5 [$/unit]
$ 2,130 = 2,130 [surplus units] * $1 [$/unit held/month]
lectur # 31 & 32
13-31
Aggregate Planning Example
Which Plan is Cheaper?
Level Capacity
Chase
$249,100.00
$260,411.00
Clearly, the level capacity plan is cheaper over
the selected time horizon
Note: Be cautious in using the chase strategy as many
intangibles, such as employee loyalty and commitment
to the organization are adversely affected
28/3/2012
lectur # 31 & 32
13-32