Aggregate Planning

Operations
Operations Management
Management
Prof. Nitin Kubde

Planning Sequence
Corporate
strategies
and policies

Economic,
competitive,
and political
conditions

Business Plan

Aggregate
demand
forecasts

Establishes production
and capacity strategies

Aggregate plan

Establishes
The quantities of resources

Master schedule

Establishes schedules
for specific products

Flow chart for planning at various

stages
Process Planning
Long term

Strategic Capacity Planning

Intermediate
Manufacturing

Aggregate Sales & Ops. Plan.

Master Production Scheduling

Services
Material Requirements Planning
Short term

Order Scheduling

Weekly Workforce &

Customer Scheduling

Daily Workforce &

Customer Scheduling

Planning Horizon
Aggregate planning: Intermediate-term capacity planning,
usually covering 3 to 18 months. In other words, it is
matching the capacity and the demand.
Long range

Short
range
Now

Intermediate
range

2 months

1 Year

Overview of Planning
Levels
Short-range plans (Detailed plans)- now
Machine loading
Job assignments
Intermediate plans (General levels)- 2 months
Employment
Inventory
Output
Back ordering and out sourcing
Long-range plans- 1 year
Long term capacity
Location / layout
Product/Process design

Aggregate Planning

To meet the demand at a reasonable cost

To effectively allocate firms resources.
To match the demand, the capacity and the supply.
It acts as a base for master scheduling plan and the
material requirement planning

Aggregate planning is prepared for product families.

It is prepared in aggregate terms such as total units or
standard labour hours.

Example
Suppose a computer company has 4
type of products:
Laptops
Desktops
Advanced, high technology machines
Game oriented pcs

 The aggregate production plan for this product

family
Aggregate Plan (Total Units)
Quarter 1
Jan

Feb

Mar

Quarter 2
April May June July

Quarter 3
Aug

Sept

2300 2200 2400 2200 2200 2400 2100 2500 2400

 Factors to be considered while making changes in inventoryIs it possible to store inventory?

The inventory holding cost
Factors to be considered while varying workforce
Cost
Company policies
Factors to be considered while using backordering to meet
demand
Is customer willing to wait?
how long?
the cost

Factors to be considered while

Outsourcing
Pluses

increased flexibility
increased quality (?)
decreased costs (?)

Minuses

decreased control
can be very expensive in certain situations
suppliers can become competitors

Aggregate Planning Inputs

Resources

Workforce
Facilities
Production Rate

Demand forecast
Policy statements

Subcontracting
Overtime
Inventory levels
Back orders

Costs

Inventory carrying
Back orders
Hiring/firing
Overtime
Inventory
changes
subcontracting

Aggregate Planning Outputs

Total cost of a plan
Projected levels of inventory

Inventory
Output
Employment
Subcontracting
Backordering

Basic strategies
Level production

Producing at a constant
rate and using inventory to
absorb fluctuations in
demand

Chase demand

Increasing or decreasing
working hours

Subcontracting

Let outside companies

complete the work

Hiring and firing workers to

match demand

Part-time workers

Maintaining resources for

high-demand levels

Backordering

Peak demand

Overtime and under-time

Hiring part time workers to

complete the work
Providing the service or
product at a later time
period

Level Production
Demand

Units

Production

Time

Chase Demand
Demand

Units

Production

Time

Aggregate planning
Strategies
Proactive

Alter demand to match capacity

Reactive

Alter capacity to match demand

Mixed

Some of each

Meeting Demand Strategies

Adjusting capacity

Resources necessary to meet demand are

acquired and maintained over the time
horizon of the plan
Minor variations in demand are handled with
overtime or under-time

Aggregate Planning Process

Key Linkages in Aggregate Planning

Strategic
Planning

Marketing
Planning

Demand
Management

Manufacturing Planning
And Control Boundary

Volume
Sales & Operations
Planning
Operations
Plan

Sales
Plan

Mix
Master
Production
Scheduling

Financial
Planning

Resource
Planning

Rough-Cut
Capacity
Planning
Front
End

The Sales & Operations Planning Process

STEP 5
EXEC
S&OP
MEETING

decisions
authorized game plan

STEP 4
PRE-S&OP
MEETING

recommendations and agenda

for Executive S&OP

STEP 3
SUPPLY
PLANNING
PHASE

capacity constraints
2nd-pass spreadsheets

STEP 2
DEMAND
PLANNING
PHASE

management forecast
1st-pass spreadsheets

STEP 1
RUN
SALES
FORECAST
REPORTS
end of month

statistical forecasts
field sales worksheets

Aggregate Planning for

Services
Most services cant be inventoried
Demand for services is difficult to predict
Capacity is also difficult to predict
Service capacity must be provided at the
appropriate place and time
Labor is usually the most constraining
resource for services

Objectives in Aggregate
Planning

Minimize Costs or Maximize Profits

Maximize customer service
Minimize inventory
Minimize changes in production rate
Minimize changes in the staffing levels
Maximize plant utilization

Quantitative Techniques

Pure Strategies
Mixed Strategies
Linear Programming
Transportation
Method

Pure Strategies
Example:

QUARTER
1st
2nd
3rd
4th

SALES FORECAST (LB)

80,000
50,000
120,000
150,000

Hiring cost = $100 per worker

Firing cost = $500 per worker
Regular production cost per unit = $2.00
Inventory carrying cost = $0.50 pound per quarter
Production per employee = 1,000 pounds per quarter
Beginning work force = 100 workers
Find: Cost of Level Production Strategy? Cost of Chase Demand Strategy?

Chase vs. Level

Chase Approach

Level Approach

Advantages

Advantages

Investment in inventory is low

Labor utilization in high

Disadvantages
The cost of adjusting output
rates and/or workforce levels

Stable output rates and

workforce

Disadvantages

Greater inventory costs

Increased overtime and idle time

Resource utilizations vary over

time

Mixed
Strategy

Combination of Level Production and

Chase Demand strategies
Examples of management policies

no more than x% of the workforce can be

laid off in one quarter
inventory levels cannot exceed x dollars

Many industries may simply shut down

manufacturing during the low demand
season and schedule employee
vacations during that time

Thanks for the

Participation & Cooperation