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Chapter 11:
In earlier chapters, we looked at certain problems that involve long-range planning such as facility location, layout, and major equipment purchase decisions. Aggregate planning involves medium-range planning. The planning horizon for medium-range plans varies from a couple of months to 18 months. A major component of aggregate planning is to plan aggregate production and inventory levels to achieve a desired level of customer service. In preparing the aggregate plan, a major consideration is to check the desired production plan against the estimated capacity. On the other hand, in determining the estimated capacity, we must take into account the expected demand and the resulting medium-range production plan. We use the term aggregate plan in lieu of medium-range production plan because it generally involves the production plan for a group or a family of products (aggregation of products) and over months or quarters rather than days or weeks (aggregation of time).
Even though the aggregate plan is a function of many different factors, the key factor is the forecasted demand over the length of the medium-range planning horizon. After an aggregate plan that is consistent with the forecasted demand and capacity is developed, it is disaggregated into shorter time periods. The process of disaggregation is the beginning of short-range planning using master scheduling and operations scheduling. Both master scheduling and operations scheduling are designed to implement the medium-range plan on the shop floor.
In determining the aggregate plan, integration and communication between various functions of the firm are vital. Expected changes in the workforce levels need to be communicated to the human resources department, while any major equipment purchases, layout changes, and capacity additions must involve the approval of the finance department. On the other hand, changes in anticipated inventory levels and, especially, expected stockouts must be discussed with the marketing department.
Chapter 13:
This is a fairly long and important chapter. Important points are:
- Good inventory management is important for successful organizations.
- The key inventory management issues are when to order and how much to order.
- Because all items are not of equal importance, it is necessary to establish a classification system for allocating resources for inventory control.
- EOQ models answer the question of how much to order. Variations of the basic EOQ model include the quantity discount model and the economic production quantity (EPQ) model.
- EOQ models tend to be rather robust: even though one or more of the parameters may be only roughly correct, the model can yield a total cost that is close to the actual minimum.
- ROP models are used to answer the question of when to order. Different models are used, depending on whether demand, lead time, or both are variable.
- Other models described are the fixed interval model and the single-period model.
- All of the models in this chapter pertain to independent demand.
The single-period model is used to handle ordering of perishables (e.g., fresh fruits and vegetables, seafood, and cut flowers) as well as items that have a limited useful life (e.g., newspapers and magazines). Analysis of single-period situations generally focuses on two costs: shortage and excess. Shortage costs may include a charge for loss of customer goodwill as well as the opportunity cost of lost sales or unrealized profit per unit. Excess cost pertains to items left over at the end of the period and is the difference between purchase cost and salvage value. There may be costs associated with disposing of excess items, which would make the salvage value negative and hence increase the excess cost per unit.
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