The Role of Aggregate Planning in a Supply Chain

Imagine a world in which manufacturing, transportation, warehousing, and even information capacity are all limitless and free. Imagine lead times of zero, allowing goods to be produced and delivered instantaneously. In this world, there would be no need to plan in anticipation of demand, because whenever a customer demands a product, the demand would

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The Aggregate Planning Problem in a Supply Chain

The objective of the aggregate plan is to satisfy demand in a way that maximizes profit for the firm. We can state the aggregate planning problem formally as follows: Given the demand forecast for each period in the planning horizon, determine the produc­tion level, inventory level, capacity level (internal and outsourced), and any backlogs

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Aggregate Planning Strategies in a Supply Chain

The aggregate planner must make trade-offs among capacity, inventory, and backlog costs. An aggregate plan that increases one of these costs typically results in reduction of the other two. In this sense, the costs represent a trade-off: To lower inventory cost, a planner must increase capac­ity cost or delay delivery to the customer. Thus,

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Aggregate Planning at Red Tomato Tools in a Supply Chain

We illustrate aggregate planning methodologies using Red Tomato Tools. Red Tomato’s products are sold through retailers in the United States. Red Tomato’s operations consist of the assembly of purchased parts into a multipurpose gardening tool. Because of the limited equipment and space required for its assembly operations, Red Tomato’s capacity is determined mainly by

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Aggregate Planning Using Linear Programming in a Supply Chain

As we discussed earlier, the goal of aggregate planning is to maximize profit while meeting demand. Every company, in its effort to meet customer demand, faces certain constraints, such as the capacity of its facilities or a supplier’s ability to deliver a component. A highly effective tool for a company to use when it

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Aggregate Planning in Excel in a Supply Chain

Next we discuss how to generate the aggregate plan for Red Tomato in Table 8-4 using Excel. We first do so by building a simple spreadsheet that allows what-if analysis and then build a more sophisticated model that allows optimization using linear programming. 1. Building a Basic Aggregate Planning Spreadsheet The aggregate planner must

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Building a Rough Master Production Schedule in a Supply Chain

From an aggregate plan, a planner must disaggregate the available information and build a rough master production schedule (MPS) that identifies the batches produced in each period at the level of each product family. We return to the Red Tomato example to illustrate a simple approach to disaggregate an aggregate plan. Although this approach

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The Role of IT in Aggregate Planning in a Supply Chain

Aggregate planning is arguably the supply chain area in which information technology has been used the most. The earliest IT supply chain products were aggregate planning modules, often called factory, production, or manufacturing planning. Some of the early modules focused only on obtaining a feasible production plan subject to constraints arising from demand and

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Implementing Aggregate Planning in a Supply Chain in Practice

Think beyond the enterprise to the entire supply chain. Most aggregate planning today takes only the enterprise as its breadth of scope. However, many factors outside the enter­prise and throughout the supply chain can affect the optimal aggregate plan dramatically. There­fore, avoid the trap of thinking only about your own enterprise when planning. Work

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Aggregate Planning of Kloss Planters and Harvesters in Supply Chain

Kevin Cho, general manager at Kloss Planters and Har­vesters (KPH), left the meeting with his strategic plan­ning team wondering whether it made sense to replace the separate plants for planters and harvesters with a single plant that could assemble both. 1. A Brief History of Planters and Harvesters Since humans started farming, they have

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Responding to Predictable Variability in the Supply Chain

In Chapter 8, we discussed how companies use aggregate planning to optimally plan supply. Demand for many products changes frequently from period to period, often because of a predict­able influence. These influences include seasonal factors that affect products (e.g., lawn mowers and ski jackets), as well as nonseasonal factors (e.g., promotions or product adoption

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Managing Supply in the Supply Chain

A firm can vary supply of product by controlling a combination of the following two factors: Production capacity Inventory In general, companies use a combination of varying capacity and inventory to manage sup­ply. In the following sections, we list some specific approaches that allow firms to reduce the amount of capacity and inventory required

Managing Demand in the Supply Chain

Supply chains can influence demand by using pricing and other forms of promotion. For exam­ple, John Deere offers a discount to farmers who are willing to take ownership of a planter during the off-season. The further from the peak that a farmer places an order, the larger the discount offered by Deere. The goal

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Sales and Operations Planning at Red Tomato in the Supply Chain

Promotion decisions are often made by retailers without taking into account the impact on the rest of the supply chain. In this section, our goal is to show how supply chain members can col­laborate on pricing and aggregate planning (both demand and supply management) decisions to maximize supply chain profitability. Let us return to

Implementing Sales and Operations Planning in the Supply Chain in Practice

Coordinate planning across enterprises in the supply chain. For a supply chain to manage predictable variability successfully, the entire chain must work toward the one goal of maximizing profitability. Every member of a supply chain may agree with this in principle. In reality, however, it is difficult for an entire supply chain to agree

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Sales and Operations Planning of Mintendo Game Girl in the Supply Chain

It is late June, and Sandra Huchim, head of operations at Mintendo, and Bill Smith, head of sales of We “R” Toys, are about to get together to discuss production and mar­keting plans for the next 6 months. Mintendo is the man­ufacturer of the popular Game Girl handheld electronic game that is sold exclusively

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Promotion Challenges at Gulmarg Skis in the Supply Chain

Management at Gulmarg Skis was surprised in the previ­ous season when a competitor, Kitz, discounted their skis by $50 in October. In a market in which discounting was rare, this was an unusual move by Kitz. As a result, Gulmarg saw a significant drop in sales between October and January. The company did not

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Lack of Supply Chain Coordination and the Bullwhip Effect

Supply chain coordination improves if all stages of the chain take actions that are aligned and increase total supply chain surplus. Supply chain coordination requires each stage of the supply chain to share information and take into account the impact its actions have on other stages. A lack of coordination occurs either because different

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The Effect on Performance of Lack of Supply Chain Coordination

The lack of coordination in a supply chain increases variability and hurts the supply chain surplus. We discuss the impact of the bullwhip effect on various costs in the P&G diaper supply chain. 1. Manufacturing Cost The lack of coordination increases manufacturing cost in the supply chain. As a result of the bullwhip effect,

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Obstacles to Coordination in a Supply Chain

Any factor that leads to either local optimization by different stages of the supply chain or an increase in information delay, distortion, and variability within the supply chain is an obstacle to coordination. If managers in a supply chain are able to identify the key obstacles, they can then take suitable actions to help