UNIT 3

Operations planning and scheduling systems

Operations Planning and Scheduling systems are

concerned about the volume and timing of outputs, the
utilization of operations capacity, and balancing outputs with
capacity at desired levels for competitive effectiveness. These
systems must fit together activities at various levels, from top
to bottom, in support of one another. The time orientation
ranges from long to short as we progress from top to bottom.
Also, the level of detail in the planning process ranges from
broad at the top to detailed at the bottom.

The concept of aggregation

Aggregate planning is the process of planning the quantity

and timing of output over the time horizon (6 months to 18
months).To develop an aggregate plan, managers must first
identify a meaningful measure of output. No problem arises
for organizations with a single product because their outputs
are measured directly by the number of units they produce.
However, most organizations have several products.

Goals for Aggregate Planning

The aggregate plan must simultaneously satisfy a number

of goals. First, it has to provide the overall levels of output,
inventory, and backlogs dictated by the business plan. If the
business plan calls for inventory buildup in anticipation of a
major promotional campaign, the aggregate plan should
provide for the appropriate production support. Similarly, the
business plan may call for seasonal buildup or reduction, and
this too must be provided for in the aggregate plan.

A second aggregate planning goal is to use the facility's

capacity in a manner consistent with the organization's strategy.
Underutilized capacity can be an expensive waste of resources.
Therefore, a firm's strategy must be to operate for full capacity.
Another company, may keep a cushion of capacity for quick
reaction to sudden changes in market demand. Finally, the
aggregate plan should be consistent with the company's goals
and policies regarding its employees.

Costs associated with aggregate planning

Basic production costs: material costs, direct labour costs, and

overhead costs. It is customary to divide these costs into
variable and fixed costs.
Costs associated with changes in the production rate: Costs
involved in hiring, training, and laying off personnel, as well as
overtime compensations.
Inventory related costs: Aggregate production planning
models may be supportive as decision support systems and to
appraise proposals in union negotiations

Payroll costs: Payroll expense is the amount of salaries and

wages paid to employees in exchange for services rendered by
them to a business. This includes EPF, ESI, Health and
Education.
Aggregate Planning Guidelines

The guidelines for Aggregate planning are presented below

which will be discussed in detail.
1. Determine corporate policy regarding controllable
variables.
2. Use a good forecast as a basis for planning.
3. Plan in appropriate units of capacity.
4. Maintain as stable a workforce as is practical.
5. Maintain needed control over inventories.
6. Maintain flexibility to change.
7. Respond to demand in a controlled manner.
8. Evaluate planning on a regular basis.

Corporate Planning Policy: All aggregate planning activities

should rest firmly upon underlying business plan or the
corporate objectives, for they direct organization activities
and dictate items of vital importance to employees, such as
whether they will have steady work or will be laid off and
about the inventory policies.
Forecast as a basis for Planning: A good forecast of demand
is the basis for aggregate planning and serves as a target to
guide production activities. Forecast controls and validity
checks should be constantly maintained to justify faith in
the system.
Appropriate Units of Capacity: Plant capacity is relatively a
fixed asset which is often not fully utilized. Many
individual equipment capacities are not always balanced,
thus limiting the output of the system. By taking all these
things into consideration, aggregate planning should be
done in such a way that plant capacity is optimally utilized.
Also, the aggregate plans themselves should be expressed
in homogenous units of production like labor-hours of
 production time, or other units that are common or
manageable, rather than in monetary units.
Work-force Stability: This has become an increasingly
important goal as firms has begun to accept a greater
responsibility for their role in society, technically called as
‘Corporate Social Responsibility’. Employees give life to
an organization, dedicate their work efforts to it, and are
deserving of a just share of the benefits and the security it
can provide. If workers are hired to satisfy a seasonal or
peak demand, they should be made aware of the temporary
nature of their employment before being engaged.
Effective Control over Inventories: Control over inventories
is necessary to effectively use them. In other words,
specifying the aggregate levels of raw materials, in-process,
and finished goods inventory is essential. One of the best
ways to exercise control is to have the information about
the real time inventory levels.
Flexibility to Change: In the business realm change is
inevitable. Aggregate plan should be done in such a way
that it should support a fast reaction to the change with little
disruption to the plant. Subcontracting is one way of
shifting fluctuations to the external environment. Internally,
inventory fluctuations generally cause less disruption than
does employee turnover.
Controlled Response to Demand: The demand fluctuations
should not be permitted to generate similar fluctuation in
the production rates at a manufacturing plant. Simulation
studies have revealed that production distribution systems
that involve factory, distributor, and retailer inventories can
have substantial lag and pipeline effects. A 10% increase in
retail sales followed by normal inventory adjustments, can
appear as a 40% increase by the time the demand
information gets back to the factory.
 Too rapid a response to demand, and overcorrection, can
amplify demand fluctuations. Operation managers must
guard against such effects by developing a good
information base, assisting wholesalers and retailers with
inventory control and production information, and making
a controlled, or modified, adjustment to demand.
Evaluation of Planning Adequacy: Planning efforts are of no
value unless the plans are implemented and do the job they
are designed for. Control should be built into the aggregate
planning system so that actual levels of activity are
measured, the data are fed back to production control in a
timely and accurate manner, comparisons are made of
actual and planned levels, and corrections are authorized
and made.

Aggregate Planning Strategies

There are two pure planning strategies available to the

aggregate planner: a level strategy and a chase strategy. Firms
may choose to utilize one of the pure strategies in isolation, or
they may opt for a strategy that combines the two.

Level Strategy

A level strategy seeks to produce an aggregate plan that

maintains a steady production rate and/or a steady employment
level. In order to satisfy changes in customer demand, the firm
must raise or lower inventory levels in anticipation of increased
or decreased levels of forecast demand. The firm maintains a
level workforce and a steady rate of output when demand is
somewhat low. As demand increases, the firm is able to
continue a steady production rate/steady employment level,
while allowing the inventory surplus to absorb the increased
demand.
A second alternative would be to use a or backorder. A
backorder is simply a promise to deliver the product at a later
date when it is more readily available. The backorder is a
device for moving demand from one period to another, when
demand is low, thereby smoothing demand requirements over
time.

A level strategy allows a firm to maintain a constant level of

output and still meets the demand. Negative results of the level
strategy would include the cost of excess inventory,
subcontracting, overtime costs, backorder costs and the loss of
customer goodwill.

Chase Strategy

A chase strategy implies matching demand and capacity period

by period. This could result in a considerable amount of hiring,
firing or laying off of employees which creates insecure and
unhappy employees. This will also result in increased inventory
carrying costs; problems with labor unions; and erratic
utilization of plant and equipment. The major advantage of a
chase strategy is that it allows inventory to be held to the lowest
level possible, and for some firms this is a considerable savings.
Most firms utilize a chase strategy approach to aggregate
planning.

Hybrid strategy
Most firms find it advantageous to utilize a combination of the
level and chase strategy. A combination strategy (sometimes
called a hybrid or mixed strategy) can be used to meet
organizational goals and policies and achieve lower costs than
the previous strategies.