Aggeragate Planning

Erin’s Energy Plan The discussion was getting heated. A brightly colored chart at the front of the room told the story all too well. At Waylan Industries sales were up, profits down. “Larry, there’s no way we can hit our profit objective with your high cost of production. You’ve got to cut back.” “Why pick on me? We’re running bare bones as it is. Last winter’s energy prices really killed us. How can you cut costs with a 250% increase in energy prices? Everyone stared at Erin. Erin swallowed hard and spoke up. “You know, we’ve never had to stockpile fuel before and I’m not sure how far we can go in managing demand, but I’ve been collecting data on purchase options....” “Well, let’s see it then.”

Tuesday, April 30, 13

“Although it’s not how we purchase energy, I’ve converted the prices to millions of BTUs for comparison. Coal costs $8 per million BTUs. Coal and natural gas can be stored for later use at a holding cost of 30 percent of purchase price per quarter. The cost of electricity also varies considerably by season of the year, as do our energy needs. We can save some money by contracting with the utilities in advance of the season. I’ve summarized the options. What I need now is some help analyzing the data. Larry, could you...” Before Erin could finish, Tom spoke up. “Yes, Larry - you and Erin work up an energy plan - like those aggregate production plans you’re always bringing in. And have it ready by Thursday.”

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PRODUCTION AND OPERATIONS MANAGEMENT

Aggregate Planning

Istanbul University

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Tarik Kucukdeniz, Ph.D.

Aggregate Planning (Aggregate Scheduling) determines the resource capacity that a company will need to meet its demand over an intermediate time horizon (6-18 months).

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Adjust:

•Production rate •Labor level •Inventory level •Overtime •Subcontracting

to meet the forecasted demand.

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We adjust these parameters to,

•minimize costs...