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we stated that an "aggregate plan will include the quantity and timing of production for the intermediate future (typically 3-18 months ahead).” Some factors such as demand, pay rate, and the ability to use overtime or subcontract some of the production must be taken into consideration to keep the total cost of production as low as possible.
You have been asked to build the aggregate planning schedule for your factory for the next six months and to determine the best option.
This chart provides the variables and cost for each variable.
Variables Cost
Inventory carrying cost $6 per unit per month
Subcontracting cost $25 per unit
Average pay rate $12.50 per hour (8 hours per day)
Overtime pay rate $18 per hour (above 8 hours per day)
Labor-hours needed to produce one unit 1.5 hours per unit
Units per day produced 50
Beginning inventory 0
Planned ending inventory 0
Lost sales per unit $100
This chart provides the demand for the product and the number of production days per month.
Months Demand Production Days
January 1200 22
February 800 18
March 600 21
April 1500 21
May 1400 22
June 1300 20
Step 1: Prepare Your Aggregate Plan
Use the Excel OM Aggregate Planning spreadsheet and the data to prepare your aggregate plan. Produce a graph of your plan. The intent is to use a level strategy (or level scheduling) with no overtime, no safety stock, and no subcontractors.
Hint 1 - Need to consider that it takes 1.5 hours to produce a unit when determining your cost per unit for average and overtime pay.
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