Chapter 12

Aggregate
Operations Planning
Master Scheduling

Sam Lampropoulos
© 2021 McGraw-Hill Education Limited.
George Brown College
 Canada Post
Canada Post delivers approximately two-thirds of all parcels ordered online in Canada,
and more than one-quarter of these are delivered in November and December.

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 Learning Objectives
• Explain what sales and operations planning
and aggregate operations planning are,
and identify the variables and strategies
used in aggregate operations planning.
• Develop a good aggregate production plan.
• Discuss the differences with aggregate
service planning.
• Explain what master production scheduling
is and how it is performed.

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 Chapter Outline
 Introduction to Aggregate Planning
 Nature of Aggregate Operations Planning
 Techniques for Aggregate Production Planning
 Aggregate Service Planning
 Disaggregating the Aggregate Production Plan
 Performing Master Production Planning

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 Planning Horizons
Organizations usually make capacity and production decisions
on three levels: long term, intermediate term, and short term .

Figure 12-1
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 Sales and Operations Planning
 Process of integrating sales forecasts with
operations plans.
 Reconcile supply, demand, and new
product plans and tie them to strategic
plan.
 Consider detail & aggregate (product
family) level.
• Usually once a year with monthly updates

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 Production Planning Hierarchy

Figure 12-2

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Sales and Operations Planning Process
Demand Supply Partnership Executive
planning planning meeting meeting

•Day 1: •Day 11-15: •Day 16: •Day 18:

Prepare sales Review Functional Resolve any
data; perform forecast, mgrs review & misalign-
baseline compare with approve ments &
forecast capacity, forecast, issues,
•Day 3: identify evaluate approve
Gather field constraints, performance numbers,
intelligence develop measures, authorize
•Day 7: counter- analyze actions
measures finances,
Regional mgrs workout
review & issues,
modify identify
forecast needed
actions

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 Aggregate Operations Planning
 Monthly planning for all the products in same family
(and facility) for the next 12 months or so
• Focus on group of similar products or product line
• For example, planners in an ice cream plant
would not concern themselves with flavours and
brands of ice cream. Instead, planners would
lump all tubs (containers) of the same size
together
 General decisions about intermediate
• Employment levels
• Production levels
• Inventory levels
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 Demand Options

Early Back
orders orders

Promotion Exporting

Comple-
Pricing
Manage mentary
Demand products

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 Capacity Options

Part-time
workers
Overtime/ Stockpile
idle time inventories

Hire temp. Adjust Sub-

workers Capacity contracting

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Aggregate Planning Inputs and Outputs
INPUTS

Demand
Resources Policies Costs
forecast

Aggregate
Operations Plans

Total cost of a Projected

OUTPUTS plan levels of

Inventory

Output/Backorders

Employment
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 Aggregate Planning Inputs

Demand
Resources forecast Policies Costs

Production Overtime Inventory

rates holding

Inventory Max. pt Backorders

capacity workers
Hiring
Inventory
levels Wage rates

Overtime
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 Aggregate Planning Outputs
Total cost Projected
of a plan levels of:

Inventory

Output

Employment

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 Basic Aggregate Strategies
 Level output/workforce strategy:
• Maintain steady rate of output
• Meeting variations in demand with inventories
• Only for durable goods
 Chase demand strategy:
• Matching capacity to demand
• Planned output set at forecasted demand
• Meeting variations in demand with overtime,
subcontracting & part-time/temporary workers
• Use a Combination (mixed)
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 Basic Strategies

Figure 12-3
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 Choosing a Strategy

 A mixed strategy may be best

• Many possible mixed strategies
 Consider company policy and costs
 Finding optimal plan not always possible

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 Techniques for Aggregate Production
Planning

4. Determine total
1. Determine cost of plan.
product groups to
be aggregated • Repeat step 2&3 to
find lower cost

2. Determine
3. Identify feasible
demand forecast
labour schemes
for each period

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 Trial-and-Error

 Develop simple tables (worksheets) or

graphs that enable managers to visually
compare projected demand requirements
with production.
 Assumptions:
• Regular output capacity is the same in all
periods.
• Each total cost is a linear function of number
of units.

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Cumulative Graph for Level Strategy

Figure 12-4A

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 Procedure for Trial-and-Error

Determine output for regular labour

Determine total short units and periods

Determine cheapest way to meet units short

Use trade-off analysis to compare alternatives
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 Trade-off Analysis
 Compare unit costs of:
• Labour
• Inventory
• Backorders
 Without having to recalculate the total
plan cost.

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Aggregate Planning Relationships
1. To determine ending inventory and back order in any
period i, first calculate X:
X = Beginning inventoryi + (Output - Forecast)I - Back orderi-1,
where output = sum of regular, overtime, and part-time
production.
If X  0, then ending inventoryi = X and back orderi = 0;
If X < 0, then ending inventoryi = 0 and back orderi = -X.
2. Avg.
For inventory
each period
= (Beginning inventory + Ending inventory)/2

Beginning inventoryi = ending inventoryi-1

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 Optimization Techniques
 Linear programming:
• Used to solve allocation of scarce resources problems
• Linear equations or inequality constraints created for
relationships between variables
• Finds lowest cost feasible solution
• Excel Solver
 Transportation Model:
• Used when no hiring or layoff
• Identify:
• Maximum supply of regular time, overtime, part time
• Demand for each period
• Related costs of production and inventory

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Aggregate Services Planning
 Services occur when they are rendered
• No inventory or back order options
 For labour intensive services:
• Measure the aggregate plan in terms of time
• e.g. Full Time Equivalent (FTE)

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Yield Management
 Uses a strategy of variable pricing
 Prices set relative to capacity availability
• Price discounts during periods of low demand
• Higher prices during peak periods

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Aggregate Plan to Master Schedule
Master Production Schedule (MPS): The anticipated build
schedule stating which end items are to be produced, when,
and in what quantities.
Aggregate
Planning

Disaggregation

Master
Schedule
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 Disaggregating the Aggregate Plan
 Master production schedule (MPS)
• Result of disaggregating an aggregate plan
• Shows quantity and timing of specific end
items for a scheduled horizon
 Rough-cut capacity planning (RCCP)
• Convert MPS into key resource requirements
• Test the feasibility of a master schedule
 Linear Programming (LP) finds optimal
plan
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Master Production Scheduling Process

Inputs
Outputs

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 Projected On-hand Inventory

Projected
Inventory from Current week’s
on-hand
previous week requirements
inventory

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 MPS - Inputs

Figure 12-6

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 MPS – Customer Orders

Figure 12-7

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 Example: MPS

Figure 12-8
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 Example: MPS

Figure 12-10
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 Example: MPS

Figure 12-11
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 Stabilizing the MPS: Time Fences

Points in time that separate zones or phases of

a master production schedule (planning horizon)

 Changes  Trade-off (vs.  Changes

discouraged sacrifice) managed
 Need top mgmt  Middle mgmt without mgmt
approval approval approval

Figure 12-12

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 Summary (1)
 Sales and operations planning (S&OP) is the process of
integrating sales forecasts with operations plans. Done
annually but updated monthly.
 Aggregate operations planning establishes general levels of
employment, output, and inventories for the next 12 months or
so. Intermediate-term planning/scheduling.
 Consider overall levels of employment, output, and inventories
for a family of products.
 Planning variables: using overtime, part-time/-temporary
workers, subcontracting, and carrying inventory.
 Planning strategies range from level output/workforce to chase
demand.
 Techniques: informal (trial-and-error) graph/table/worksheet
with trade-off analysis, or optimization techniques such as
linear programming and transportation model.
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 Summary (2)
 Services cannot use inventories and thus rely on chase demand
strategy. They also usually use the amount of workforce (hours or
FTE) as the equivalent unit.
 The aggregate plan is disaggregated into specific product
production plans to create a master production schedule (of planned
production quantities and timing).
 MPS inputs: on-hand inventory, forecasts of demand, committed
orders.
 MPS outputs: planned productions, projected on-hand inventories
and uncommitted inventories (available-to-promise).
 Rough-cut capacity planning determines load on the production
process of an MPS, thus checking its feasibility.
 Time fences are used to reduce last-minute changes to an MPS.
The near future is frozen unless an emergency occurs.

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 Learning Checklist
 Explain sales and operations planning and aggregate planning.
 Identify aggregate planning strategies and variables.
 Outline the inputs and outputs and major steps in the Sales and
Operations Planning Process.
 Describe & explain:
 Strategies for Adjusting Capacity
 Strategies for Managing Demand
 Quantitative techniques for aggregate planning and MPS
 Basic understanding of what exists
 Able to create a simple plan
 Explain and perform master production scheduling.
 Understand differences in aggregate planning for services:
 Yield management
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