Chapter 8

Question 1

Aggregate Planning

Answer 1

A process by which a company determines levels of capacity, production, subcontracting, inventory, stockouts, and pricing over a specified time horizon

Question 2

Goal of Aggregate Planning

Answer 2

build a plan that satisfies demand while maximizing profit

Question 3

Aggregate planning solves problems involving aggregate decisions rather than stock-keeping unit (SKU)-level decisions

Answer 3

Decisions made at a product family level (not SKU level)

Question 4

production rate

Answer 4

the number of units to be completed per unit time (such as per week or per month)

Question 5

workforce

Answer 5

the number of workers or units of labor capacity needed for production

Question 6

overtime

Answer 6

the amount of overtime production planned

Question 7

machine capacity level

Answer 7

the number of units of machine capacity needed for production

Question 8

subcontracting

Answer 8

the subcontracted capacity required over planning horizon

Question 9

backlog

Answer 9

demand not satisfied in the period in which it arises, but is carried over to future periods

Question 10

inventory on hand

Answer 10

the planned inventory carried over the various periods in the planning horizon

Question 11

the aggregate plan serves as a broad blueprint for operations and establishes

Answer 11

the parameters within which short-term production and distribution decisions are made.

Question 12

The aggregate plan allows the supply chain to

Answer 12

alter capacity allocations and change supply contracts.

Question 13

Aggregate Planning Problem

Answer 13

Given the demand forecast for each period in the planning horizon, determine the production level, inventory level, and the capacity level (internal and outsourced), and any backlogs (unmet demand) for each period that maximizes the firm’s (supply chain’s) profit over the planning horizon

Question 14

Planning horizon

Answer 14

the time period over which the aggregate plan is to produce a solution – usually between 3 and 18 months.

Question 15

Production quantity from regular time, overtime, and subcontracted time

Answer 15

used to determine number of workers and supplier purchase levels

Question 16

inventory held

Answer 16

used to determine the warehouse space and working capital required

Question 17

backlog/stockout quantity

Answer 17

used to determine customer service levels

Question 18

workforce hired/laid off

Answer 18

used to determine any labor issues likely to be encountered

Question 19

Machine capacity increase/decrease

Answer 19

used to determine whether new production equipment should be purchased or available equipment idled.

Question 20

the fundamental trade-offs available to a planner:

Answer 20

• Capacity (regular time, overtime, subcontracted)
• inventory
• backlog/lost sales because of delay

Question 21

aggregate planning strategies

Answer 21

• chase strategy
• flexibility strategy
• level strategy

Question 22

The strategy where the production rate is synchronized with the demand rate by varying machine capacity or hiring and laying off employees as the demand rate varies is the

Answer 22

Chase strategy.

Question 23

The strategy where workforce (capacity) is kept stable but the number of hours worked is varied over time in an effort to synchronize production with demand is the

Answer 23

time flexible strategy.

Question 24

The strategy where a stable machine capacity and workforce are maintained with a constant output rate, with inventory levels fluctuating over time, is the

Answer 24

level strategy.

Question 25

Most strategies that an aggregate planner actually uses are in combination and are referred to as the

Answer 25

mixed strategy.

Question 26

As capacity utilization increases,

Answer 26

it becomes more important to perform aggregate planning.

Question 27

The aggregate planner’s main objective is to identify 7 operational parameters over the specified time horizon:

WIMPSOB

Answer 27

Production rate
Workforce
Overtime
Machine capacity level
Subcontracting
Backlog
Inventory on Hand

Question 28

The aggregate plan serves as a broad blueprint for operations and establishes the parameters within which short-term production and distribution decisions are made.

Answer 28

The aggregate plan allows the supply chain to alter capacity allocations and change supply contracts.

Question 29

The Chase strategy results in

Answer 29

low levels of inventory in the supply chain
and
high levels of change in capacity and workforce.

Question 30

The chase strategy should be used when

Answer 30

the cost of carrying inventory is very expensive
and
costs to change levels of machine and labor capacity are low.

Question 31

The Time flexibility strategy results in

Answer 31

low levels of inventory but with lower average utilization.

Question 32

Time flexibility strategy should be used when

Answer 32

inventory carrying costs are relatively high
and
machine capacity is relatively inexpensive.

Question 33

A drawback associated with the Level strategy is that

Answer 33

large inventories may accumulate and customer orders may be delayed.

Question 34

the level strategy keeps

Answer 34

capacity and costs of changing capacity relatively low.

Question 35

the level strategy should be used when

Answer 35

inventory carrying and backlog costs are relatively low.

Question 36

The operational parameter concerned with the number of units completed per unit time (such as per week or per month) is

Answer 36

production rate.

Question 37

The operational parameter concerned with the number of workers/units of capacity needed for production is

Answer 37

workforce.

Question 38

the operational parameter concerned with the amount of overtime production planned is

Answer 38

overtime

Question 39

The operational parameter concerned with demand not satisfied in the period in which it arises, but carried over to future periods is

Answer 39

backlog

Question 40

The operational parameter concerned with the planned inventory carried over the various periods in the planning horizon is

Answer 40

inventory on hand.

Question 41

The operational parameter concerned with the number of units of machine capacity needed for production is

Answer 41

machine capacity level.

Question 42

The operational parameter concerned with the subcontracted capacity required over the planning horizon is

Answer 42

subcontracting

Question 43

Aggregate planning is concerned with determining

Answer 43

the production level, inventory level, and capacity for each period.

Question 44

Which of the following is a cost of changing capacity?

Answer 44

• Cost of adding machine capacity
• Cost of hiring workforce
• Cost of laying off workforce
• Cost of reducing machine capacity

Question 45

The fundamental trade-offs available to an aggregate planner are between

Answer 45

capacity, inventory, and backlog costs.

Question 46

forecasting errors are dealt with using

Answer 46

safety capacity.
and
safety inventory.