Production planning.

Businesses operate according to a plan. Aggregation is a macro approach to planning, which concentrates on the overall capacity rather than individual products or services.

Consider IBM, a company making many different products in many plants with thousands of employees. To prepare a plan involving every product and employee to satisfy market demand would be virtually impossible, and the attempt would be extremely costly. Even if successful, necessary change would require much effort to keep the plan current. Therefore plans are made in an aggregate fashion. Aggregation means to bring a group of individual things together to make a whole.

1. Facilities planning. Top management makes decisions regarding the products that will be produced and the facilities required to produce them. These are strategic decisions made with an eye to the long-term future- in the order of five years.

2. Aggregate planning. These are medium term decisions, two to eighteen months in duration. The aggregate planning process produces decisions about how many to produce to meet demand. The decisions are made by top and middle management.

3. Schedule. Scheduling decisions are made by shop managers and are the decisions that are required to implement the aggregate plan.

Aggregation can be done on several bases:

1. Products. The most common system uses segregation by product. GM, for example might decide to produce one million cars, a half million vans, three hundred and fifty thousand trucks, and two hundred thousand sport utility vehicles. Even though a variety of different brands of car are produced by General Motors in many plants around the world, one number is decided on as the aggregate of all cars to be produced. The idea is to create broad product families so that the plan can include all products without including detail on any of them.

2. Labour. Often a company has groups of employees with similar skills that it can identify and use as a part of the aggregate. A company with specialized labour with various skills might be aggregated on the basis of these skills. We could think of IBM as doing this. Many software projects might be contemplated, but by aggregating the programmers, a single decision can be made on how many programmers to employ, and the individual projects can be considered in detail later.

3. Time. We might also tally time required for part of the effort, and add up the time required thus aggregating on the basis of time. A law firm might do this, allowing so many employee hours for criminal law, so many for corporate law, and so on.

While it is not obvious here, the basis on which to aggregate is usually quite obvious when the company is examined. The basis generally presents itself.

Production planning needs to be done on several time scales.

Long-range. Top management oversee strategic plans and makes strategic planning decisions. This plan is done annually for perhaps a five-year term. It is a game plan, in which management links possible markets, company expertise and facilities, and financial capability, and plots of direction for the company for the next five years.

Medium range. Medium range decisions are made for two months to a year. Based on the game plan above, medium range production goals are determined. This is where aggregate planning is used. Medium range goals are expressed as aggregate goals: so many cars and trucks, this year for GM, for example, so much code produced by IBM, so many new product developed, so many computers built. The medium range plan is desegregated into the MPS, the master production schedule. It is a schedule of the products that must be produced for each of the planned time periods.

Short range. The short range is no more than two months, with plans for perhaps a week or two. This is the plan or schedule that details what machine will be run for what period of time, what personnel will be assigned to what tasks etc.. This results in a schedule from which is formed the MRP, materials requirement plan. This plan lists all the materials, parts and so on, that will be required to produce the required volume.

The MRP is based on requirements of the MPS, and on inputs from the bills of materials for each product, which state what components of raw materials will be required for the production volume, and the state of inventory of both finished parts and components and raw materials. The MRP is now the basis for a detailed schedule of work centre loading, and of purchasing requirements.

The planning problem.

Planning involves three items. First is the work force level, the number of workers required for production. Second is production rate, the number of units produced per time period. The final item is the inventory level. This is the remainder of unused units carried from the last time period.

The problem is for each time period to find a production level, inventory level, and number of workers, that will meet the required forecast. This must be done at minimum cost.

There are a number of things we try to minimize. These are costs, inventory, work force changes, overtime, use of subcontractors, changes in production rate, number of machine set-ups, and idle time. At the same time we try to maximize customer service and profits.

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