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OM/U3 Topic 2 Aggregate Production Planning, Materials Requirement Planning, Scheduling

AGGREGATE PRODUCTION PLANNING

Aggregate production planning, abbreviated as APP, is useful for operation management. It is associated with the determination of production, inventory, and personnel levels to fulfil varying demand over a planning perspective that ranges from a period of six months to one year. Aggregate production plans are needed to exploit workforce opportunity and represent a crucial part of operations management. Aggregate production plans facilitate matching of supply and demand while reducing costs. Process of Aggregate production planning applies the upper-level predictions to lower-level, production-floor scheduling and is most successful when applied to periods 2 to 18 months in the future. Plans generally either “chase” demand, adjusting workforce accordingly, or are “level” plans, meaning that labour is comparatively constant with fluctuations in demand being met by inventories and back orders.

Concept of aggregate production planning denotes to the process of determine the overall quantities of products to be manufactured or produced in a plant or other manufacturing facility during a medium term planning period such as a month, or a quarter. The aggregate plan output comprises of the total quantities of each product or a group of product to be manufactured in the plan period of going into details of scheduling of different manufacturing activities required to attain the planned production levels. The aggregate production will also not specify details such as the dates when material ordered against individual customer order will be ready for delivery. The aggregate production plan is designed to establish overall production targets and as input for planning availability of other inputs and supporting activities to meet the production targets. The aggregate plans then form the basis of more comprehensive production such as daily and weekly production schedules and customer delivery schedules.

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Importance of Aggregate Planning

Aggregate planning plays an important part in achieving long-term objectives of the organization. Aggregate planning helps in:

  • Achieving financial goals by reducing overall variable cost and improving the bottom line
  • Maximum utilization of the available production facility
  • Provide customer delight by matching demand and reducing wait time for customers
  • Reduce investment in inventory stocking

Techniques of Aggregate Planning

Various techniques are used to perform the task of aggregate planning. Usually, there are two categories: Informal trial-and-error techniques and mathematical techniques. In practice, informal techniques are more commonly used. However, a substantial amount of research has been done to mathematical techniques, but still, they are not as extensively used, they often serve as a basis for comparing the effectiveness of alternative techniques for aggregate planning.

There are several steps in general procedure for aggregate planning:

  • Determine demand for each period.
  • Determine capacities (regular time, overtime, subcontracting) for each period.
  • Identify company or departmental policies that are pertinent (e.g., maintain a safety stock of 5 percent of demand, maintain a reasonably stable workforce).
  • Determine unit costs for regular time, overtime, subcontracting, holding inventories, back orders, layoffs, and other relevant costs.
  • Develop alternative plans and compute the cost for each activity.

If satisfactory plans emerge, select the one that best satisfies objectives.  

Aggregate planning as an Operational Tool

Aggregate planning helps achieve balance between operation goal, financial goal and overall strategic objective of the organization. It serves as a platform to manage capacity and demand planning.

In a scenario where demand is not matching the capacity, an organization can try to balance both by pricing, promotion, order management and new demand creation.

In scenario where capacity is not matching demand, an organization can try to balance the both by various alternatives such as.

  • Laying off/hiring excess/inadequate excess/inadequate excess/inadequate workforce until demand decrease/increase.
  • Including overtime as part of scheduling there by creating additional capacity.
  • Hiring a temporary workforce for a fix period or outsourcing activity to a sub-contrator.

MATERIALS REQUIREMENT PLANNING

Material requirements planning (MRP) is a production planning, scheduling, and inventory control system used to manage manufacturing processes. Most MRP systems are software-based, but it is possible to conduct MRP by hand as well.

An MRP system is intended to simultaneously meet three objectives:

  • Ensure materials are available for production and products are available for delivery to customers.
  • Maintain the lowest possible material and product levels in store
  • Plan manufacturing activities, delivery schedules and purchasing activities.

 MRP INPUTS

The information input into MRP systems comes from three main sources: a bill of materials, a master schedule, and an inventory records file. The bill of materials is a listing of all the raw materials, component parts, subassemblies, and assemblies required to produce one unit of a specific finished product. Each different product made by a given manufacturer will have its own separate bill of materials. The bill of materials is arranged in a hierarchy, so that managers can see what materials are needed to complete each level of production. MRP uses the bill of materials to determine the quantity of each component that is needed to produce a certain number of finished products. From this quantity, the system subtracts the quantity of that item already in inventory to determine order requirements.

The master schedule outlines the anticipated production activities of the plant. Developed using both internal forecasts and external orders, it states the quantity of each product that will be manufactured and the time frame in which they will be needed. The master schedule separates the planning horizon into time “buckets,” which are usually calendar weeks. The schedule must cover a time frame long enough to produce the final product. This total production time is equal to the sum of the lead times of all the related fabrication and assembly operations. It is important to note that master schedules are often generated according to demand and without regard to capacity. An MRP system cannot tell in advance if a schedule is not feasible, so managers may have to run several possibilities through the system before they find one that works.

MRP PROCESSING

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MRP PROCESSING

Using information culled from the bill of materials, master schedule, and inventory records file, an MRP system determines the net requirements for raw materials, component parts, and subassemblies for each period on the planning horizon. MRP processing first determines gross material requirements, then subtracts out the inventory on hand and adds back in the safety stock in order to compute the net requirements.

The main outputs from MRP include three primary reports and three secondary reports. The primary reports consist of: planned order schedules, which outline the quantity and timing of future material orders; order releases, which authorize orders to be made; and changes to planned orders, which might include cancellations or revisions of the quantity or time frame. The secondary reports generated by MRP include: performance control reports, which are used to track problems like missed delivery dates and stock outs in order to evaluate system performance; planning reports, which can be used in forecasting future inventory requirements; and exception reports, which call managers’ attention to major problems like late orders or excessive scrap rates.

SCHEDULING

Scheduling is the process of arranging, controlling and optimizing work and workloads in a production process or manufacturing process. Scheduling is used to allocate plant and machinery resources, plan human resources, plan production processes and purchase materials.

It is an important tool for manufacturing and engineering, where it can have a major impact on the productivity of a process. In manufacturing, the purpose of scheduling is to minimize the production time and costs, by telling a production facility when to make, with which staff, and on which equipment. Production scheduling aims to maximize the efficiency of the operation and reduce costs.

In some situations, scheduling can involve random attributes, such as random processing times, random due dates, random weights, and stochastic machine breakdowns. In this case, the scheduling problems are referred to as stochastic scheduling.

Overview on Scheduling

Scheduling is the process of arranging, controlling and optimizing work and workloads in a production process. Companies use backward and forward scheduling to allocate plant and machinery resources, plan human resources, plan production processes and purchase materials.

Forward scheduling is planning the tasks from the date resources become available to determine the shipping date or the due date.

Backward scheduling is planning the tasks from the due date or required-by date to determine the start date and/or any changes in capacity required.

The benefits of production scheduling include:

  • Process change-over reduction
  • Inventory reduction, leveling
  • Reduced scheduling effort
  • Increased production efficiency
  • Labour load levelling
  • Accurate delivery date quotes
  • Real time information
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