Production management team 5.pdf

Chapter 4: Aggerate Planning- Part 1 Nguyễn Minh Trí- IELSIU23097 (Group leader) Trần Ngọc Xuân An- IELSIU23003 Võ Minh Chi- IELSIU23013 Phạm Hữu Quang- IELSIU23078 Quản Trọng Tùng- IELSIU23102 Lê Đại Việt- IELSIU23136 Bùi Hoàng Khánh Vy- IELSIU23107 Lê Phạm Phương Vy- IELSIU23108 Trần Duyên Thảo V...

Chapter 4: Aggerate Planning- Part 1 Nguyễn Minh Trí- IELSIU23097 (Group leader) Trần Ngọc Xuân An- IELSIU23003 Võ Minh Chi- IELSIU23013 Phạm Hữu Quang- IELSIU23078 Quản Trọng Tùng- IELSIU23102 Lê Đại Việt- IELSIU23136 Bùi Hoàng Khánh Vy- IELSIU23107 Lê Phạm Phương Vy- IELSIU23108 Trần Duyên Thảo Vy- IELSIU23109 Review Review Quantity discount Given for specific higher order quantities: A quantity discount is a price discount on an item if a predetermined number of units are ordered. Example: Manufacturing Materials and companies supplies Retail stores Merchandise Review Quantity discount Price per unit decreases as order quantity increases Where: P: per-unit price of the item D: annual demand CoD: Cost of delay CcQ: Cost of quality Example 13.4  Review Reorder Point The determinant of when to order in a continuous inventory system is the reorder point, the inventory level at which a new order is placed. EXAMPLE  Safety stocks As a hedge against stockouts when demand is uncertain, a safety stock of inventory is frequently added to the expected demand during lead time.  Service levels The service level is the probability that the amount of inventory on hand during the lead time is sufficient to meet expected demand— that is, the probability that a stockout will not occur.  Reorder point with variable demand The reorder point to meet a specific service level as  Review Order Quantity for a Periodic Inventory System  Meaning Physically counts inventory at the end of each period to determine what's on hand and the cost of goods sold.  Meaning Throughout inventory activities -> Determine the number of products exists in that period.  Meaning This system is often used by small retailers such as drugstore, grocery,... Fixed order quantity model tool Periodic Inventory system  Example The KVS Pharmacy stocks a popular brand of over-the-counter flu and cold medicine. The average demand for the medicine is 6 packages per day, with a standard deviation of 1.2 packages. A vendor for the pharmaceutical company checks KVS’s stock every 60 days. During one visit the store had 8 packages in stock. The lead time to receive an order is 5 days. Determine the order size for this order period that will enable KVS to maintain a 95% service level. Answer  Planning Process of thinking about duties that required to achieve the desired goal. It is the first and foremost activity.  Planning levels Organizations make capacity decisions on three levels: Short-range plans (Detailed plans) Intermediate plans (General levels) Long-range plans Planning levels Short-range planning Looks at the qualities of the corporation in the present and develops methods for enhancing them. Example: Hiring and training new employees is prioritized to meet short-term staffing needs. Intermediate-range planning Helping to predict long-term answers to short- term issues. Entails putting rules and processes to prevent short-term problems from reoccurring. Example: Where a short-term response to equipment failure is to repair the machine, a medium-term solution is to arrange for a service contract. Long range planning Long-range planning focuses on setting strategic goals and objectives for a corporation or organization over an extended period, typically five to ten years or more. It involves anticipating future trends, market changes, and internal growth to ensure sustained success. Planning levels Aggregate  The definition of aggregate planing Is the process of planning the quantity and timing of output over the intermediate range by adjusting the production rate, employment, inventory, and other controllable variables. Often focused on targeted sales forecasts, inventory management, and production levels in the mid-term (3-to-18-month) future. Regularly updated, often monthly, to consider updated forecasts and other changes. Managerial Inputs Distribution and Operations marketing Accounting Aggregate Plan and finance Materials Human resources Engineering Managerial Inputs Current machine capacities Plans for future capacities Operations Workforce capacities Current staffing level Managerial Inputs Supplier capabilities Materials Storage capacity Materials availability Managerial Inputs New products Engineering Product design changes Machine standards Managerial Inputs Customer needs Distribution and marketing Demand forecasts Competition behavior Managerial Inputs Accounting Cost data and finance Financial condition of firm Managerial Inputs Human Labor-market conditions resources Training capacity Outputs  Outputs Aggressive alternatives Aggregate planning Reactive alternatives  Outputs Complementary Products Aggressive alternatives Competitive Pricing  Outputs Size of Workforce and Workforce Adjustment Inventory Levels Reactive Alternatives Production per month Units or dollars Units or dollars Of Backlogs, backorders, or stockout Relationship of Aggregate Schedule  Goals Chase strategies Planning Strategies Level strategies Goals Use capacity Meet demand efficiently Meet inventory Minimize cost policy Chase demand strategies  Chase demand strategies Match demand during the planning Vary horizon by workforce either or vary output rate Level demand strategies  Level demand strategies Maintain a constant workforce level or Constant constant workforce output rate or during the constant planning output horizon rate Aggregate Planning Objectives  Aggregate Planning Objectives Minimize Costs/Maximize Profits Maximize Customer Service Minimize inventory investment Reduce workforce demand and fluctuation Maximize production rates while minimizing fluctuation Increase facility and production equipment utilization  Examples of Capacity Adjustment to Meet Demand A company specializing in clothing supply. As winter arrives, the demand for thermal wear increases. To meet the increased demand, the store takes several capacity adjustment actions: Hiring Temporary Workers Extending Store Hours Temporary Increase in Inventory These capacity adjustments allow the store to efficiently handle the holiday rush, ensuring higher sales and maintaining customer satisfaction  Mathematical Techniques Linear Programming: Definition Target Advantages and Disadvantages Linear Decision rule: Definition Target Advantages and Disadvantages Stimulation models: Definition Target Advantages and Disadvantages  Linear Programming: Definition: Techniques for arriving at the best possible answers, in terms of cost minimization, to problems involving the distribution of limited resources. Target: Profit Maximization Cost Minimization Production Planning Flexibility Resource Allocation Advantages: Optimal resource utilization Cost reduction Decision- making improvement Flexibility Bottlenecks identification Disadvantages: Linearity Assumption Complexity Data Sensitivity Limited Scope  Linear Decision rule: Definition: Aims to reduce the total expenses related to standard payroll, recruitment and downsizing, overtime, and inventory by utilizing a set of cost approximating functions Target: Cost Minimization Demand Satisfaction Inventory Management Capacity Utilization Advantages: Manage costs efficiently Enable quick adjustments to production or the workforce daily. Avoid making too much or too little, optimizing inventory. Disadvantages: Cannot reflect the complexity of real-life situations. May not handle big or sudden changes well The decisions based on the LDR could be wrong.  Simulation models: Definition: Creating computerized models that can be tested under a variety of conditions. Target: Identify acceptable solutions for problems Advantages: Safer and cheaper Able to test before building Is the basis for identifying problems that arise in the process Change speed to see changes over the periods of time => avoid risk Disadvantages: Not always give the optimal solutions Planners must have sufficient thorough awareness before planning Mistakes may be made Time may be needed to make sense of the results EXAMPLE  Example 1 Inventory Management Scenario: A retailer needs to manage its inventory for the next month. The retailer sells two products, X and Y. The goal is to determine the optimal order quantities to minimize costs while meeting demand. Inputs: Demand for Product X: 500 units Demand for Product Y: 300 units Cost per unit of Product X: $10 Cost per unit of Product Y: $15 Storage cost per unit of Product X: $1 per month Storage cost per unit of Product Y: $1.50 per month Maximum storage capacity: 600 units Tasks: Formulate the linear decision rule for this problem. Determine the optimal order quantities for Products X and Y. Calculate the total cost, including storage.  Example 1 Step 1: Define the Variables Let: x = order quantity for Product X (units) y = order quantity for Product Y (units)  Example 1 Step 2: Objective Function (Minimize Total Cost) The total cost includes the cost of ordering products and the cost of storage. The purchasing cost and storage cost are as follows: Cost of purchasing Product X: 10x (since each unit costs $10) Cost of purchasing Product Y: 15y (since each unit costs $15) Storage cost for Product X: 1x (since each unit has a storage cost of $1 per month) Storage cost for Product Y: 1.5y (since each unit has a storage cost of $1.50 per month) Thus, the total cost Z to be minimized is: Z=10x+15y+1x+1.5y=11x+16.5y  Example 1 Step 3: Constraints We have the following constraints: Demand constraints: For Product X: The retailer must meet a demand of 500 units, so x ≥ 500x. For Product Y: The retailer must meet a demand of 300 units, so y ≥ 300y Storage capacity constraint: The total number of units (both X and Y) stored cannot exceed 600 units. So: x+y ≤ 600x + y Non-negativity constraint: The order quantities x and y cannot be negative: x ≥ 0, y ≥ 0x  Example 1 Step 4: Formulate the Linear Program The linear program can be formulated as follows: Minimize: Z=11x+16.5y Subject to: x≥500 y≥300 x+y≤600 x,y≥0  Example 1 Step 5: Solve the Linear Program Plot the constraints: x=500 is a vertical line at x=500. y=300 is a horizontal line at y=300. x+y=600 is a line that passes through (600,0) and (0,600). Feasible Region: The feasible region is bounded by the lines x≥500, y≥300y, and x+y≤600. Find the Corner Points: Intersection of x=500 and x+y=600. 500+y=600⇒y=100 So, one corner point is (500,100). I Intersection of y=300 and x+y=600: x+300=600⇒x=300 So, another corner point is (300,300). The last corner point is (500,300), which satisfies both x=500 and y=300.  Example 1 Step 5: Solve the Linear Program Evaluate the Objective Function at Each Corner Point: At (500,100) Z=11(500)+16.5(100)=5500+1650=7150 At (300,300): Z=11(300)+16.5(300)=3300+4950=8250 At (500,300): Z=11(500)+16.5(300)=5500+4950=10,450  Example 1 Step 6: Conclusion The optimal solution occurs at the corner point (500,100), where the total cost is minimized. Optimal order quantity for Product X: 500 units Optimal order quantity for Product Y: 100 units Total cost: $7150 (purchasing and storage combined) Staffing Plan for a Distribution Center Example 2 Reference: San Aziz, “Aggregate Planning - Examples,” MDH, 20181. Scenario: A large distribution center must develop a staffing plan that minimizes the total cost using part-time workers. Use both chase and level strategies to compute the total cost. Inputs: Each period is 20 hours. The manager starts with 10 part-time workers. The distribution center can hire new part-time workers in any period, but no more than 10. Overtime cannot exceed 20% of the regular time (i.e., 4 hours) in any period. Costs: Regular time: $2000 per period (20 hours). Overtime: 150% of the regular time. Hiring: $1000 per person. Layoffs: $500 per person. Forecasted Demand (Number of Part-Time Workers): Period 1: 6 Period 2: 15 Period 3: 13 Period 4: 12 Period 5: 6 Period 6: 18 Tasks: 1. Develop a staffing plan using the level strategy. 2. Develop a staffing plan using the chase strategy. 3. Compute the total cost for each strategy.  Example 2 1. Level Strategy Steps: + Determine average demand: Take the average demand across all periods to find the optimal number of part-time workers that can handle most of the demand, without having to hire/fire workers in each period. Average demand= 6+15+13+12+6+18​=11.67≈12 workers 6 + Overtime usage: If demand exceeds the regular capacity, overtime will be used to meet the demand (up to 4 hours per worker). + Excess capacity: If there are more workers than required in some periods, they will be kept on the payroll to maintain a steady workforce.  Example 2 1. Level Strategy Formulas: + Overtime hours: (Demand - Workers available )* Overtime (4 hours). + Overtime cost: Overtime * 150% * 100. + Total cost: Overtime cost + Regular cost. Example 2  Example 2 2. Chase Strategy Steps: + Adjust workforce: In each period, hire or lay off workers to match the forecasted demand. + Overtime usage: Only use overtime if the number of workers is less than the demand after hiring up to the maximum of 10 new workers. Formulas: + Work hired= Demand - Work available (If demand is lower than work available, Work hired= 0). + Work laid off= Work available - Demand ( If work available is lower than demand, Work laid off= 0). + Hiring cost= Work hired x Hiring cost ($1000/ person). + Laid off cost= Work laid off x Laid off cost ($500/ person). + Regular cost= Demand x Regular time cost ($2000/ period). + Total cost= Hiring cost + Laid off cost + Regular cost. Example 2 2. Chase Strategy  Example 3 Demand for Quiggly Pops follows an up-and-down pattern over the four quarters of a year, with peaks in the spring and winter months when special promotions are held. Production is handled by a highly skilled local workforce during a regular 40-hour week (i.e., overtime and subcontracting are not used). The company likes to zero out its inventory at the end of a year so that it can start fresh each January. QP currently uses a level production strategy but would like to evaluate other options. Create a production plan and calculate the cost of the plan for each strategy listed below. Which plan would you recommend to QP? a. Level production b. Chase demand c. Produce 70,000 in period 1, and 100,000 in periods 2 through 4. d. Produce 90,000 in periods 1 through 3, and 100,000 in period 4. Beginning workforce 40 workers  Example 3 Production per employee 1,250 units per quarter Hiring cost $500 per worker Firing cost $500 per worker Inventory carrying cost $1 per unit per quarter Regular production cost $10 per unit Example 3 Example 3  Example 4 Caltex uses overtime, inventory, and subcontracting to absorb fluctuations in demand. An annual production plan is devised and updated quarterly. Expected demand, available capacities, and costs for the next four quarters are given below. Design a production plan that will satisfy demand at minimum cost Regular production cost per unit $10 Overtime production cost per unit $15 Subcontracting cost per unit $20 Inventory holding cost per unit per period $ 2 Example 4  References San Aziz, “Aggregate Planning - Examples,” MDH, 20181. Megan Keup, “What is Aggerate Planning - Strategies and Tips”. Strathmore Business School, “Linear Programming: Model Formulation and Solution. ACM Digital Library, “A Linear Decision Rule for Production and Employment Scheduling Quiz  Thank You For Listening