Unit – 3

AGGREGATE PLANNING

Aggregate planning is the process of developing, analysing, and maintaining a preliminary,

approximate schedule of the overall operations of an organization. The aggregate plan

generally contains targeted sales forecasts, production levels, inventory levels, and customer

backlogs. This schedule is intended to satisfy the demand forecast at a minimum cost.

Properly done, aggregate planning should minimize the effects of short-sighted, day-to-day

scheduling, in which small amounts of material may be ordered one week, with an

accompanying layoff of workers, followed by ordering larger amounts and rehiring workers

the next week. This longer-term perspective on resource use can help minimize short-term

requirements changes with a resulting cost savings.

TECHNIQUES FOR AGGREGATE PLANNING

1. Determine demand for each period.

2. Determine capacity for each period. This capacity should match demand, which means it

may require the inclusion of overtime or subcontracting.

3. Identify company, departmental, or union policies that are pertinent. For example,

maintaining a certain safety stock level, maintaining a reasonably stable workforce,

backorder policies, overtime policies, inventory level policies, and other less explicit rules

such as the nature of employment with the individual industry, the possibility of a bad

image, and the loss of goodwill.

4. Determine unit costs for units produced. These costs typically include the basic

production costs (fixed and variable costs as well as direct and indirect labor costs). Also

included are the costs associated with making changes in capacity. Inventory holding

costs must also be considered, as should storage, insurance, taxes, spoilage, and
 obsolescence costs. Finally, backorder costs must be computed. While difficult to

measure, this generally includes expediting costs, loss of customer goodwill, and revenue

loss from cancelled orders.

5. Develop alternative plans and compute the cost for each.

Factors Affecting Aggregate Planning

Following factors are critical before an aggregate planning process can actually start;

 A complete information is required about available production facility and raw

materials.

 A solid demand forecast covering the medium-range period

 Financial planning surrounding the production cost which includes raw material,

labor, inventory planning, etc.

 Organization policy around labor management, quality management, etc.

For aggregate planning to be a success, following inputs are required;

 An aggregate demand forecast for the relevant period

 Evaluation of all the available means to manage capacity planning like sub-

contracting, outsourcing, etc.

 Existing operational status of workforce (number, skill set, etc.), inventory level and

production efficiency

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

 Reduce investment in inventory stocking

 Able to meet scheduling goals there by creating a happy and satisfied work force

Aggregate Planning Strategies

There are three types of aggregate planning strategies available for organization to choose

from. They are as follows.

1. Level Strategy

As the name suggests, level strategy looks to maintain a steady production rate and

workforce level. In this strategy, organization requires a robust forecast demand as to

increase or decrease production in anticipation of lower or higher customer demand.

Advantage of level strategy is steady workforce. Disadvantage of level strategy is

high inventory and increase back logs.

2. Chase Strategy

As the name suggests, chase strategy looks to dynamically match demand with

production. Advantage of chase strategy is lower inventory levels and back logs.

Disadvantage is lower productivity, quality and depressed work force.

3. Hybrid Strategy

As the name suggests, hybrid strategy looks to balance between level strategy and

chase strategy.

Material Requirements Planning (MRP)

Material requirements planning (MRP) is a system for calculating the materials and

components needed to manufacture a product. It consists of three primary steps: taking

needed and then scheduling their production or purchase.

Benefits of Materials Requirements Planning (MRP) in Manufacturing

The main benefits of materials requirement planning are:

Better inventory control – minimise the amount of inventory you are holding whilst keeping

production on track. Using an MRP system means that you can avoid holding rarely used or

excess materials for long periods of time whilst remaining confident that you won’t have any

shortages of key materials.

Reduced costs – both for you and your customers. By holding less stock, you have less

working capital tied up. With fewer raw materials or components held in stock, you can

reduce your storage costs. These cost savings can be passed onto the customer in the form of

more competitive pricing.

Improved scheduling – MRP gives a clear indication of when production operations need to

be carried out. This enables your production managers to see what labour they need and when

and avoid expensive overtime.

Excellent customer service – utilising MRP enables you to deliver in full on time to your

customers

Production Planning – production of the end product (or even sub-assemblies of a complex

project) is dependent on the availability of the raw materials or components. MRP highlights

any shortages so that your production manager can reallocate your work centres, machinery

or labour for alternative jobs that have a complete inventory.

Benefits of Material Requirement Planning

An MRP is intended to complete three fundamental things:

production, to keep the production plan running easily.

 Support just-in-time (JIT) production by enabling the most minimal levels of

materials and stock to be accessible and still keep production on track.

 Plan production timetables to take care of customer demand for items in a timely

manner

Manufacturing Resource Planning

Manufacturing resource planning, also known as MRP II, is a method for the effective

planning of a manufacturer's resources. MRP II is composed of several linked functions, such

as business planning, sales and operations planning, capacity requirements planning, and all

related support systems. The output from these MRP II functions can be integrated into

financial reports, such as the business plan, purchase commitment report, shipping budget,

and inventory projections. It has the capability of specifically addressing operational planning

and financial planning, and has simulation capability that allows its users to conduct

sensitivity analyses.

MRP II includes the following four major developments from MRP:

1. Feedback

MRP II includes feedback from the shop floor on how the work has progressed, to all levels

of the schedule so that the next run can be updated on a regular basis. For this reason it is

sometimes called 'Closed Loop MRP'.

There is a scheduling capability within the heart of the system that concentrates on the

resources, i.e. the plant and equipment required to convert the raw materials into finished

goods. For this reason the initials `MRP' now mean Manufacturing Resources Planning. The

advantages of this development are that detailed plans can be put to the shop floor and can be

reported on by operation, which offers much tighter control over the plant. Moreover loading

by resource means that capacity is taken into account. The difficulty is that capacity is only

considered after the MRP schedule has been prepared. It may turn out that insufficient time

was allowed within the MRP schedule for the individual operations to be completed.

3. Batching Rules

Batching rules can be incorporated; indeed, they have to be if resource scheduling is to take

place. Most software packages offer a variety of batching rules. Three of the more important

are 'Lot for Lot', 'EBQ' and 'Part Period Cover'.

 'Lot for Lot' means batches that match the orders. Therefore, if a company is

planning to make 10 of Product A followed by 20 of Product B, then the

batches throughout the process will match this requirement. If both A and B

require two of a certain sub assembly then that will be made in quantities of 20

of A and 40 of B. It is the batching implicitly followed in basic MRP.

 'EBQ' stands for Economic Batch Quantity. The batch size is calculated by a

formula that minimises the cost through balancing the set-up cost against the

cost of stock.

 'Part Period Cover' means making batches whose size cover a fixed period of

demand. A policy of making a week’s requirement in one batch is an example.

A number of other software programmes are included in the MRP II suite. Some of these are

further designed to help the scheduling procedure. The most important is Rough Cut Capacity

Planning (RCCP), an initial attempt to match the order load to the capacity available, by

calculating (using a number of simplifying assumptions) the load per resource. Overloads are

identified and orders can be moved to achieve a balance. This has been described as

"knocking the mountains (the overloads) into the valleys (periods of underload)".

Master Production Scheduling is the process that helps manufacturers plan which products

and related quantities to produce during certain periods. MPS is proactive in that it drives the

production process in terms of what is manufactured and what materials are procured.

Master Production Scheduling

The master production schedule (also commonly referred to as the MPS) is effectively the

plan that the company has developed for production, staffing, inventory, etc.

It has as input a variety of data, e.g. forecast demand, production costs, inventory costs, etc

and as output a production plan detailing amounts to be produced, staffing levels, etc for each

of a number of time periods.

Benefits of working with the MPS

There are multiple benefits when a manufacturing business introduces an MPS. They are

described below:

 It provides a solid base to build, improve and track the sales forecast.

 It provides a solid base to determine the desired inventory levels.

 It provides a solid base to calculate the quantities of parts, subcomponents or

raw materials to buy or produce, as part of the MRP next stage.

as part of the MRP next stage.

 It allows optimizing the installed capacity and balancing the load of the plant.

 Manufacturing can estimate the production and maintenance costs associated

with the work centers.

 The financial department of the company can get income and expenses,

derived from the MPS and generate a forecast of the cash flow in the

company. It will help to build other financial statements, such as the Balance

sheets, Profit and Loss statements, and the investment plans.

 The Department of Human Resources can take advantage of the MPS to

anticipate the requirements of hiring labor.

Enterprise Resource Planning (ERP)

Enterprise resource planning (ERP) is a process used by companies to manage and integrate

the important parts of their businesses. Many ERP software applications are important to

companies because they help them implement resource planning by integrating all of the

processes needed to run their companies with a single system. An ERP software system can

also integrate planning, purchasing inventory, sales, marketing, finance, human resources,

and more.

The objective of the ERP Business Transformation Strategy is to modernize and integrate

business processes and systems. This “leapfrog” into the future will empower staff and

students to access information and provide services through an intuitive and integrated

interface, and ultimately aims to:

1. Improve Service Experience

2. Enhance Competitiveness
3. Modernize Business Processes and Systems

4. Automate Business Solutions

5. Increase Operating Efficiency

6. Provide Access to Standardized College Data