Chapter Three Aggr,ga,e Planning 125

graph of the cumulative net demand curve. If the goal ί5 to develop a level plan
(i.e., one that has constant production ΟΓ workforce levels over the planning
horizon), then one matches the cumulative net demand curve as closely as possible
with a straight lίne. If the goal is to develop a zero-inventory plan (i.e., one that
minimizes holding and shortage costs), then one tracks the cumulative net
demand curve as cl05ely as possible each period. While lίnear programming

Aggregate Planning provide5 ωει optimal 50lutions, the method does not take into account
management policy, such Β5 avoiding hiring and firing as much as possible. For
a problem with a Tperiod planning horizon, the linear programming formulation
requires 8Tvariables and 3Τ constraints. For long planning horizons, this can
Chapter Overνiew become quite tedious. Another issue that must be dealt with is that the solution to
a linear program ί5 noninteger. Το handle this problem, one would either have to
Purpose specify that the problem variables were integers (which could make the problem
computationally unwieldy) ΟΓ develop some suitable rounding procedure.
Το develop techniques for aggregating units of production, and determining 5. The /inear decision ru/e. The aggregate planning concept had its ωοιε ίη the
suitable production levels a nd workforce levels based οη predicted demand for
work of Holt, Modigliani, Muth, and Simon (1960) who developed a model for
aggregate units.
Pittsburgh Paints (presumably) to determine their workforce and production
level5. The model used quadratic approχimations for the costs, and obtained
Key Points
simple lίnear equations for the optimal policies. This work 5pawned the later
1. Aggregate units of production. Thi$ chapter could also have been called Macro interest in aggregate planning.
Production Planning, since the purpose of aggregating units ί$ to be able to 6. Mode/ing management behavior. Bowman (1963) considered linear decision rules
develop a top-down plan for the entire firm ΟΓ for some subset of the firm, such similar to tho$e derived by Holt, Modigliani, Muth, and Simon eχcept that he
as a product line ΟΓ a particular plant. For large firms producing a wide range of suggested fitting the parameters of the model based on management's actions,
products ΟΓ for firms providing a service rather than a product, determining rather than prescribing optimal actions ba$ed on ωει minimization. Thi$ is one of
appropriate aggregate units can be a challenge. The most direct approach is to the few eχamples of a mathematical model used to describe human behavior ίπ
eχpress aggregate units ίη some generic measure, such as dollars of sales, tons of the conteχt of operations planning.
steel, ΟΓ gallons of paint. For a service, $uch as provided by a consulting firm ΟΓ a 7. Oisaggregating aggregate p/ans. While aggregate planning is useful for providing
law firm, billed hours would be a reasonable way of eχpressing aggregate units. approχimate solutions for macro planning at the firm level, the que$tion is
2. Aspects of aggregate p/anning. The following are the σιοει important feature5 of whether these aggregate plans provide any guidance for planning at the lower
aggregate planning: levels of the firm. Α disaggregation scheme is a means of taking an aggregate
• Smoothing. (05tS that arise from changing production and workforce levels. plan and breaking it down to get more detailed plans at lower levels of the firm.
• Bott/enecks. Planning in anticipation of peak demand periods.
• P/anning horizon. One mU$t cho05e the number of period5 considered As we go througlllife, we tnake both Illicro and macro decisions. Micro decisions tnight
carefully. If too short, 5udden changes in demand cannot be anticipated. If Ιοο be \vhat Ιο eat forbreakfast, whatroute Ιο take towork, what auto service ιο use, orwhich
long, demand foreca5ts become unreliable. movie to rent. Macro decisions are the kind t!Jat change the course of one's life: where Ιο
lίνe, what Ιο major ίη, whicll job Ιο take, wllom Ιο marry. Α cotnpany also must make
• Treatment of demand. ΑΙΙ the mathematical model5 in thi5 chapter consider
both micro and macro decisions every day. Ιη this cllapter we explore decisions made at
demand Ιο be known, i.e, have zero forecast error.
the macro leve!, such as planning companywide workforce and production leνels.
3. Costs ίπ aggregate p/anning.
Aggregate planning, which might al50 be called macro production planning,
• Smoothing costs. The CO$tof changing production and/or workforce level5. addresses the problem of deciding how many employees the firm Sllould retain and, for a
• Ho/ding costs. The opportunity C05t of dollar5 inve5ted in inventory. manufacturing firm, the quantity and the mix ofproducts to be produced. Macro planning
• Shortage costs. The CO$t$associated with back-ordered ΟΓ 105t demand. is ηο! lίmίted Ιο manLIfacturing firms. Service organizations must determine employee
• Labor costs. These include direct labor costs on regular time, overtime, staffing needs as well. For example, airlines must plan staffing levels for flight attendants
5ubcontracting costs, and idle time cost$. and pilots, and !lospitals must plan staffing levels for nurses. Macro planning strategies
are a fundamental part ofthe firm's overall business strategy. Some firms operate οη the
4. So/ving aggregate p/anning prob/ems. Approχimate solutions Ιο aggregate
philosophy that costs can be controlled only by making frequent changes ίn tl1e size
planning problem5 can be found graphically, and eχact solutions via lίnear
andlor composition of the workforce. The aerospace industry ίη Califomia ίη the 1970s
programming. When solving problem5 graphically, the first 5tep is to draw a
adopted this strategy. As government contracts shifted fron1 one producer Ιο another, so

124
126 Chapter Three Aggregalι! Plαnning 3.1 Aggregar< UnitsofPrαlucιion 127

did the technical workforce. Other firιns have.a reputation for retaining employees, even"
ίη bad times. Until recently, ωΜ andAT&Twere two we1J-known examples.
Whether a firm provides a service οτ produces a product, macro planning begins
with the forecast of demand. Techniques for demand forecasting were presented ίη
Chapter 2. How responsive the firιn can be το anticipated changes ίη the demand de-
This chapter reviews several techniques for determining aggregate plaίIs. Some.6f
these ετο heuήstίό (i.e., approximate) and some are optimal. We hope tοcοήΎeΥ ιο the
reader ετι understahding of the issues involved ίη aggregate planning'i'a kή6wleage"of
the basic tools available for providing solutions, and an appreciation of the dif!icιJltίes
associated with imp(ementing aggregate plans ίτι the real world.
,~ ,,"0 ,

pends οιι several factors. These factors include the genera], strategy the firm may have , "
regarding retaining workers and ifs οοτυηιίτυισιιε-το existing empIoyees. AGGREGAtE
As noted ίη Chapter 2, demand forecasts afe generallY'wrong because there is aImost
always a random οοπιρουεφι ofthe demand that cannot be predicted exactly ίη advance.
The aggregate pIanning methodology discussed ίη this chapter requires the assumption
that demand is deterministic, οτ known ίη advance. This assumption is made Ιο simpIify
the analysis and alJow us το focus οτιthe systematic orpredictable changes ίη the demand
pattem, rather than οτι the unsystematic οτ random changes. Inventory management
subject to randomness is treated ίη detail ίη Chapter 5.
TraditionalJy, most manufacturers have chosen ιο retain primary production ίη-
house. Some components might be purchased from outside suppliers (see the discus-
sion ofthe make-or-buy problem ίη Chapter Ι), but the Ρήmary product is traditionalJy
produced by the firm. Henry Ford was one ofthe firstAmerican manufacturers το design Example3.1
a completely vertically integrated business. Ford even owned a stand of rubber trees so
ίι wouId υοι have το purchase rubber.for tires.
That philosophy is undergoing a dramatic change, however. Ιιι dynamic environments,
firms are finding that they canbe more flexible ifthemanufacturing is outsourced; that is,
ifit is done οτι a subcontract basis. One exampIe is Sun Microsystems. a Califomia-based
producer of computer workstations. Sun, a market leader, adopted the strategy of focus-
ing οιι product innovation and desigiJ rather than οιι manufacturing. It has developed close
ties ιο contract manufacturers such as San Jose-based Solecιron Corporation. winner of
the Βaldήge Award for Quaiity. Subcontracting its primary maηufactuήηg function has
allowed Sun Ιο be more flexible and Ιο focus οη innovation ίη a rapidly changing market.
Aggregate plaBning involves competing objectives. One objective is Ιο react quickly
ιο anticipated changes ίη demand, which would require making frequent and potential1y
large changes in the size ofthe labor force. Such a strategy has been called a chase strat-
egy. This may 1Jecost effective, but could be a ροοτ loηg-ruη business strategy. Workers
who are laίd off may ηο! be avaiIable when business tums around. For this reason, the firm
may wish Ιο adopt the objective of retaining a stable workforce. However, this strategy
often results ίη large bUΊldups of inventory duήηg Ρeήοds of low demand. Service firms
may incur substantial debt tomeetpayrolJs in slowperiods. Α third objective is Ιο develop
a production plan for the firm that maximizes profit over the planning hοήΖοn subject Ιο
constraints οη capacity. When profit maximization is the primary objective, explicit costs
ofmaking'changes mustbe factored ίηΙο the decision process.
Aggregate planning methodology is designed Ιό translate demand forecasts ίηΙο a
blueprint for planning staffing and production levels for the firm over a predetermined
planning horizon. Aggregate planning methodology is ηοΙ lίmίted ιο top-Ievel plan-
ning. Although generaJ]y considered Ιο be a macro planning ιοοl for determining
overalJ workforce and production leνels, large companies may find aggregate planning
useful at the plant level as well. Production planning may be viewed as a hierarchical
process ίη which purchasing, production, and staffing decisions must be made at sev-
erallevels ίn the firm. Aggregate planning methods may be applied at almost any level,
although tl1e conceptis one of maήagίηg grotιps of items rather than single items.
The inventory planning methods discussed ίη Chapters 4 and 5 are geared toward
single-item control.
.,0 '}' ,"~; \ "1" ,'~:r~"';CI'~::, :
ONITS'"OFpRobuttION.
The agg~ega:te planning approach is predicated οα the e~istence of an aggregate υηίι
ofproduction. When the types ofitems produced are similar, an aggregate production
υηίι can couespond Ιο 'aΠ "av~rage" item, but if many different·types of items are pro-
duced, ίι would be more ερρτορτίειε το consider aggregate units ίη terms of weight
(tons of steel), νοίυπισ (gallons of gasoline), amount of work required (worker-years
ofprogramming time), οτ dollar value (value ofinventory ίτι dollars). What the appro-
ρτίετε aggregating scheme, should be is πο! always obvious. Ιι depends ωι the context
ofthe'pafticular planning problem'and the leνel of aggregation required.
Α plant managerworking lor a large national appliarice lίrm is considering implementing an ag-
gregate planning system ιο determine the worklorce and production levels in his plant. This par-
ticular plant produces six models ΟΙ washing machines,The characteristics ΟΙ the machines are
Nlιmber of Worker-Hours
Model Number Required to Produce , SeIIing Price
Α5532 4.2 $285
Κ4242 4.9 345
Ι9898 5.1 395
Ι3800 5.2 425
Μ2624 5.4 525
Μ3880 5.8 725
The plant manager must decide οπ the particular aggregation scheme Ιο use. One possibil-
ίΙΥ is to deline an aggregate υπίΙ as'on'e dollar ΟΙ όυιρυΙ Unlortunately, the selling prices ΟΙ the
various models ΟΙ washing machines are ποΙ consistent with th·e number ΟΙ worker-hours re-
quired Ιο produce them. The ratio ΟΙ the,selling price.divided by the worker-hours is $67,86 for
Α5532 and $125,00 ΙΟΓ M::J880, (The company bas~s its pricing on the faet that the less
expensive models have a higher sales volume.) The manager notices that the percentages οΙ
the total number οΙ sales Ιοτ these si\<models have been fairly constant, with values οΙ 32 per-
cent lοr Α5532, 21 percent lοr Κ4242, 17 percent Ιοτ ~9898, 14 percent for L3800, 1Ο percent
lοr Μ2624, and 6 percent for Μ3880. He decides to define an aggregate uni! ΟΙ production as
a lίctίtίoυs washing machine requiring (.32)(4.2) + (.21)(4.9) + (.17)(5.1) + (.14)(5.2) +
(.10)(5.4) + (.06)(5.8) = 4.856 hours ΟΙ labor time. He can obtain ~ales forecasts for aggregate
produetion units ίπ essentially the same way by multiplying the appropriate Iractions by the
lorecasts lor υπίι sales ΟΙ each type ΟΙ machine.
The apptΌach used by the plant manager ίο Example 3.1 was possible because of the
relative similarity of the jJroducts prodtIced. However, defining an aggregate υη1ι of
production at a higher leνel ofthe firm is more difficult. Ιη cases ίη which the firrn pro-
duces a large νaήety ofprodncts, a natural aggregate υπίι is sales dollars. Althollgh, as
we saw ίη the' example, tl1ίs will 110!11ecessarily tral1slate Ιο tbe same nnmber of units
of prodnction 'for each item, ίι wiH generally provide a good approximatio11 for plan-
ning at tl1e highest leνel of a firm that produces a diverse product lίηe.
 128 Chapter Three Aggr,gaιc Planning
FIGURE 3-1
TI,e /1ierarchy of
produclion pIanning
dccisiol1S
Aggregate planning (and the associated problem of disaggregating the aggregate
plans orconverting them ίπΙο detailed master schedules) is closely related το hierarchical
production planning (ΗΡΡ) championed by Hax and Meal (1975). ΗΡΡ considers
workforce sizes and production rates at a variety oflevels ofthe nrm as opposed 10 sim-
ply the τορ level, as ίπ aggregate planning. For aggregate planning purposes, Hax and
Meal recommend the foJlowing hierarchy:
Ι. /tenls. These are the nnal products ιο be delivered to the οιιετοηιετ, Απ item is often
referred 10 as an SKU (for stockkeeping ιαιίι) and represents tl1e nnest leνel of detail
ίπ the ρτοοιιοτ είτυοιυτε.
2. FamiIie:,·. These are denned as a group of items that share a οοηιπιοη mantIfactιιring
setιιp cosΙ
3. Types. Types are groups of families with prodtIction quantities that are determined
by a single aggregate production ρlαη.
lπ Exalnple 3.1, items would correspond 10 individuallnodels ofwashing machines.
Α family might be all washing nJachines, and a type might be large appliances. Τhe
Hax-Meal aggregation scheme wiII πο! necessarily work ίη every sitιιation.ln general,
the aggregation method shotIld be consistent with the nrιn's organizational strιtcΙUre
and prodllCt Ιine.
[η Figure 3-1 we present a sCl1ematic of the aggregate planning fιlnction and its
place ίπ tl1e hierarchy ofproduction planning decisions.
3.2 OVERVIEW OF ΤΗΕ AGGREGATE PLANNING PROBLEM
Having now denned the appropriate aggregate ιιηίι [or the leνel of the firm [or which αη
aggregate plan is ιο be determined, we assume that there exists a forecast ofthe deInand
for a specined planning horizon, expressed ίη terms of aggregate prodtIction units. Let
DJ, D2, ... , Dr be the demand forecasts for the next Tplanning periods. [π most applica-
tions, a planning period is a month, altl10tIgh aggregate plans can be developed for other
3.2 Overview of the AggregaLe ]Jlαnning IJroblem 129
ροτίοσε of time, stIcb as weeks, quarters, ΟΓyears. An important featιιre of aggregate
planning is that the,de,mands are treated as known constants (that is, the forecast error is
assumed ιο be zero). Thereasons for making this assumption will be d,iscussed later.
The goal ofaggregate planning is το determine aggregate production qua.ntities and
the leνels of resources required το achieve these production goals. Ιτι practice, this
translates to nnding the number ofworkers that should be employed and the number of
aggregate tInits ιο be produced ίη each of the planning periods J, 2, ... , Τ. The objec-
tive ο[ aggregate planning is to balance the advantages of producing to tneet demand
as closely as possible against the disrtIptions caused by changing the levels of produc-
ιίοο and/or the workforce levels.
The primary issnes related ιο the aggregate planning problem include
Ι. SmooIhing, Smoothing refers το costs that resιιlt from changing production and
workforce levels from ουε period το the ηοχΙ Two ofthe key components of smoothing
costs ΗΓοthe costs that result frol11 hiring and nring workers. Aggregate planning
methodology reql1ires the ερεοίϋοειίοτι of these costs, which may be difficult to εειί-
mate. Firing workers could have fal'-reaching consequences and costs that may be dif-
ficult to evaluate. Firms that hire and nre freqtIently develop a poor public image. This
could adversely affect sales and discourage potential employees frOI11joining the com-
pany. Furthermore, workers that are laίd off might not simply wait around for busiiιess
ιο pick up. Firing workers can have a detrimental effect οη the futιιre size ofthe labor
force ifthose workers obtain employment ίτι other indusιries. Finally, tnost companies
ΗΤοsimply πο! at liberty Ιο hire and fire at will. Labor agreements restrict the freedom
of management το freely alter workforce leνels. However, ίι is διίll valtlable for man-
agement ιο be aware of the cost trade-offs associated with varying workforce leνels
and the attendant savings Ιτι ίnνentOlΎ costs.
2. Bottleneck probIenIs. We use the term bottleneck ιο refer το the inability of tl1e
system το respond το stIdden changes ίπ demand as a restIlt of capacity restrictions. For
example, a bottleneck cotIld arise when the forecast [οr demand ίη οιιε month is un-
usually high, and the ρΙΗΩΙdoes υοτ have slIfficient capacity το meet that demand. Α
breakdown of a vital piece of equipment also οοιιί« result ίn a bottleneck.
3. P/anlling horizon. TI,e number of periods for which the deI11and is to be fore-
casted, and hence the ntImber of periods for which workforce and inventory levels are
Ιο be determined, mlIst be specified ίη advance. The choice oftl1e value ofthe forecast
horizon, Τ, can be significant ίη determining the usefulness of the aggregate plan. If
Τ is 100 sI.nall, then cnrrent production leνels might ηο! be adequate for I11eeting the
demand beyond the horizon length. Jf Τ ίδ 100 large, ίι is likely that the forecasts far
ίηΙο the fιιΙUτo wiII prove inaccurate. If futιιre demands turn out Ιο be very different
from the forecasts, then clIrrent decisions indicated by the aggregate plan could be ίπ-
correcΙ Another isstre involving the planning horizon is the end-oJ-hoI'izon effect. For
example, the aggregate plan might recommend that the inventory at the end ofthe hori-
Ζοn be drawn to ΖοΓΟίη order to minimize 110lding costs. This cotIld be a ροοτ strategy,
especiaIIy if demand increases at that time. (However, this particIIlar problem can be
avoided by adding a constraint specifying mil1imnnJ ending inventory leνels.)
Ιπ practice, rolling schedules are almost always tIsed. This means that at the time of
the next decision, a new forecast of demand is appended Ιο the fornJer fΟΓecasts and old
forecasts ll1ight be revised Ιο reflect new information. The new aggregate plan may rec-
ommend different production and workforce levels fol' the cwTent period. than were
recomlnended one peTίod ago. When only the decisions fol' the CΙΙΓrentplanning period
need Ιο be illlplemented imJnediately, II,e schedule shotIld be viewed as dYl1anlic ra!her
than static.
130 Chapter Three Aggr,gaιe Ρ/αηηίηι
3.3 Co,ιs ίη Aggr,gaιe Plaηning 131

Although rolling schedules are common, ίι is possible that because of production

lead times, the schedule must be frozen for a certain number of planning periods. This
means that decisions over some collection of future periods cannot be altered. The
most direct means of dealing with frozen horizons is simply Ιο label as period Ι the first
period ίη which decisions are τιοτ frozen.
4. Treatment οι demand. As noted above, aggregate planning methodology requires
the εεειυυριίου that demand is known with certainty. This is simultaneotIsly a weak-
ness and a strength of the approach. Τι is a weakness because ίι ignores the possibiIity
(and, ίη fact, likeIihood) offorecast errors. As noted ίη the discussion of forecasting
techniques ίη Chapter 2, ίτ is virtually a certainty that demand forecasts are wrong.
Aggregate planning does αοι provide any buffer against unanticipatedforecast errors.
However, most inventory nιodels that allow for random demand require that the aver-
age demand be constant over ιίσιο. Aggregate planning aIIows tlle manager Ιο Ιοοιιε οη
the systematic changes that are generaJly αοτ present ίη models that assnme random
demand. ΒΥ assuming deterministic denland, the effects of seasonal fluctuations and
business cycles can be incorporated ίητο the planning function.

3.3 COSTS ΙΝ AGGREGATE PLANNING

As with most ofthe optimization problems considered ίη production managelnent, the .

goal ofthe analysis is to choose the aggregate plan that IIlinimizes cost. Ιι is important
to identify and measure those specific costs that are affected by the planning decision.
Ι. SI1700t!lil1g cσsfs. Smoothing costs are those costs that accrue as a result of
cllanging the production levels from one period το tlle next. Ιη the aggregate pIanning
context, the most salient snιoothing cost is the cost of changing the size of the work-
force. Tncreasing the size of the workforce requires time and expense to advertise ρο-
sitions, interview prospectiνe employees, and train new hires. Decreasing the size of
the workforce means that workers ιτιιιετ be laίd off. Severance pay is thus one cost of
decreasing the size of the workforce. Other costs, somewhat 11arder ιο measnre, are
(α) the costs ofa decIine ίη worker morale that lllay result and (b) tlle potential for de-'.·
creasing the size of the labor ροοl ίη tlle future, as workel"s who are laίd off acquire jobs
with otller firnlS ΟΓ ίη otller ίηdustΓίes.
Most of the models that we consider assume that the costs of increasing and de-
Cl"easing the size ofthe workforce are lίnear functions ofthe numbeI' ofemployees that
are hired οτ fired. That is, there is a constant dollar amount charged for each employee'
hired ΟΙ' fired. TIle assumption of linearity is probably reasonable ιιρ Ιο a ροίηι. As the
supply of labor becoInes scarce, there may be additional costs reqLIired 10 hire more
wοrkeΓS, and tlle costs of laying off workers may go ιιρ substantially if the nuιnber όf
workers la.ίd off is Ιοο large. Α typical cost function fol" changing the size of the
workforce appears ίη Figure 3-2.
2. Ho/ding costs. Holding costs are the costs tllat accrue as a Γesιιlt ofllaving capital
tied ιιρ ίη inventoI)'. Jf the firm can decrease its inventory, tlle money saved coLIld be ίπ-.
vested elsewJlere with a return that will vary witll tlle indnstry and with the specific
company. (Α more complete discussion ofholding costs is deferred to ChapteI" 4.) Hold-
ing costs are almost always assLImed Ιο be lίηear ίη the number ofunits being 11eldat a
partictIlar ροίηΙ ίη time. We will assunle for the Ρuφοses of the aggregate planning
analysis that the holding cost is eΧΡΓessed ίπ terms of dollars per ιιηίι held per planning
period. We also will assume that Ilolding costs are charged against the inventorY..
remaining οη hand at tlle end of the planning ΡeΓίοd. This assLI1Ilption is Inade fqr'
convenience onJy. Holding costs could be charged against starting inventory ΟΓ average
inventory as well.
3. Shortage costs. Holding costs are charged against the aggregate inventory as
long as ίι is positive. Ια some situations ιι may be necessary to incuI" shortages, \vhich
ετο represented by a negative level of inventory. Shortages can occnr when forecasted
denland exceeds the capacity of the production facility ΟΓ when denlands are higher
than anticipated. For the purposes of aggregate planning, ίτ is generally assunled that
excess demand is backlogged and filled ίη a future period. Ιπ a highly competitive sit-
uation, however, ίι is possible that excess demand is lost and the customer goes else-
wllere. This case, which is known as lost sales, is Inore appropriate ίη the management
of single items and is more common ίη a retail than ίη a manufacturing context.
As with holding costs, shortage costs are generally assumed to be lίnear. Convex
fllnctions also can accllrateIy describe shortage costs, but lίηear flInctions seem Ιο be
the most common. Figure 3-3 shows a typical holding/shortage cost function.
4. Regular time cost~·. These costs involve tlle cost of prodLIcing one nηίι of output
during regular working hours. Included ίη this category are the actual payroll costs of
regular employees working οη Γegular time, the direct and ind.irect costs ofmateriaJs,
and other mannfactιIring expenses. When aII production is carried οιι! οη regular time,
reguIar payroII costs become a "slInk cost," because the number ofunits produced lllust
equal the number ofunits demanded over any planning horizon ofsufficient length. Jf
there is ηο overtime οτ workeI" idIe time, reglllar payroll costs do ηο! have Ιο be
included ίη the evaluation of different strategies.
5. OIIeI·tinze al1d .S1Ibcontracting costs. Overtime and subcontracting costs are the
costs of production of units ηο! produced οη regular time. Overtime refers Ιο produc-
ιίοη by regular-time eInployees beyond the normal workday, and subcontracting I'efers
Ιο the production of iteIns by an outside SUΡΡlίeΓ.Again, ίι is generally assumed that
botll of these costs aJ'e lίηear.
6. ldIe time costs. The complete formulatioIl of the aggregate planning problem
also includes a cost for underutilization ofthe workforce, οτ idle tifRe. Ιη most contexts,
,132 'Chapter Three Aggregαιe PIαnning ,,3.4, "Α j>rororyp<.prρblim 133

FIGURE-3=3 5. :A'large-manufacturer ofhousehold.consumer goods ίιι considering ihtegτating ετι-

Holding and back- aggregateop!anning nΊodel ,ίηιο its rήanιJfacturing 'strategy. Twe· of th.e, company
order costs -νίοε presitlehtsdisagre~ strongly' astot~e'~atΊie ofthe ~pproach. What arguments
. m'ighteach 'of the'Yide:presi'dents',use'fo'sUpport 'his or'Her 'ροίιιτ of view? '
~ '-, :~ ι" j~\ T'~ _c(_"----·;"Ξ{·.;;;(ι,j""v~.. .• Ά,; '·"ί"'ί);;::Jι~-' .;.' , "
6. .Descrioe' th~ follqwing costs and discu'ssΊhe difficu1ties.that arise ίη attempting 10
'measure them in area1 operating enviromnent. '
" )~, . .- ~;;':-
α.: Smοοthίl1gιcosΙs
b.' Hdldirig costs
σ, ,PayroJ[ costs
7. OiSCtIS§tJle followiiig statenienl: '''Sirlce''we ιise a roiling production schedιtle, Ι
really doii'theed το know tlIe demaridbey~nd'next πιοητίι,"
8, St. Clair County Hospital is attempting το asse~k iis needs [or nurses over the com-
ing four montbs (January to April), The need for nurses depends οη both the
riumbers aηd',tneΊΥΡes of patients ϊη the hospita1. Based οο a study conducted by
constIltants, th§nosp1tal has determined that the following ratios of nurses ιο
pati en ts are required:

Patient Forecasts
'Numbers of'Nurses ."',1'"

Patient Type (Required per Patient '·i·Jan. Feb. ,Mar. 'ΑΡΓ, ";'
the idle time cost is zero, as the direct co~ts of i'dle 'time wbϋld' be taken into account ϊη Major surgery 0.4 28 21 16 18
labor costs and lower production levels, However, idle titιie could have other conse- ΜίηΟΓ surgery 0,1 12 25 45 32
quences' for the firm. For exaIi1ple, i,fthe aggregate units aτe ίπρυτ to another process, Maternity 0,5 " 22 43 90 26
idle time οτι theliIie cott1d, resul!'in hi'gher'costs ιο tlle subsequent ρτοοσεε. Ιτι such C ritical care 0,6 75 45' 60 30
cases, one woUld exp!icitly include εροείυνο idle οοει. Other 0.3 80 94 73 77
When plannitιg is dohe ata re!ativelY'high Ieve! ofthe fiτm: the effects of intangib!e
factors are mbre ρτουοιιαοεο. Any sο!utίόή td the aggregate p!anning prob!ern obtained
a. How many nurses shollld be working eachmonth το most close!y match patient
from'a cos't-based ιποde!'musΙbe considereίI carefully in'the context of.companypol-
'icy. Απ optimal so!ution to a t1iathematica!Ίri.ode!'migHt resultin a policy that requires forecasts? "ψ"ι 'ι:11
fTequent hiring and' firing of p~rsoimel. Such a po!icy may' be infeasib!e because of b, Suppose the hospita1 does not want το change its'policy of πο! increasing tlle
prior contract agreements, οτ uiJdesirab!'e~because of the potential negative effects οτι nursing staff slze by more than 1Ο percentjn any montll'. Suggest.a sehedule, of
the firm's public image. nurse staffing over the four months that meets this requirement and a1so meets
the need for n\Jrses each month.

Problems for Sections 3.1-3.3. ι

Ι. What does the term aggregαte unit ofpl-oduction mean? 00 aggregate production 3.4 Α PROTOTYPE PROBLEM
units always correspond to actual items?,Oo they ever? Discuss,
'Ι,,, "" '" , " : ",
2. What isthe aggtegation scheme recominended by'Haxarid Meal? One can obtairi adeiIl\hte,,,sollltions for many aggregate pla.ιining problems by hand or by
3, Oiscuss the following terms and their re!ationship το the aggregate planning using relativel'y straightfoτwaτd graphical techniques. Linear progranuning is a means
problem: ' of ob!aining (nearly)·optimal solutions. We illustrate the different solution techniques
with the'fo]Jowing examp!e. '
a. Smoothing
b, Bottlenecks Example3.2 Densepack is Ιο plan workforce and production levels for the six-month period January ΙΟ June,
The firm produces a lίη-e of disk drives for mainframe computers that are plug compatible with
c. Capacity
several computers produced by major πianufacturers, Forecast demands over the' next siχ
d. Planning horizon months for a ρartίcύ(ar lίne of drives produced ίη the Milpitas, California, plant are 1,280, 640.
4. iA local macHine shop eIllploys 60 workers whb have a Y'ariety of skills, The shop 900, 1,200, 2,OOO,and.1 ,400, ..There are currently(end of December) 300 workers employed
accepts one-time orders and a!SΟ'maίήtaίη's a nuTnber ofregu1ar clients, Discuss some ίη the Milpitas plant. Ending inventory'in December is eχpected to be 500 units, and the firm
ofthe difficulties with using the aggregate p!anning methodology in this context. would Iike to have 600 units οη hand at the end of June,
 134 Chapter Three AggregQte Plιtnning . 3.4 Α Prow,:Ype'Probwn 135

There are several ways ιο incorporate the starting and,the eriding inventory constraints ίη Ιπ order to illustrate the costtra.dg,offs οΙvarίρ.u.s ρ(ος!ucψ<n plans, ,we V\(ίΙΙassume' il!1·,the
the formulation. The most convenient iSsimply το modify the values οΙ the predicted dema example that there are~only three.cos'ts to be considered: costof hiring workers, cost ol'fi-ring
Define net predicted demand ίπ period'l ·as.the predicted demand minus initial inventor:y. workers, and cost οί holding inveniory. De.fine· .
there is a minimum ending inventory constraint, then this .amount should be added Ιο the ,c
mand ίπ period Τ. Minimum buffer inventorie.s also can be handled by modifying the predicte (Η = Co~t.of, hi~ing οοε worker = $500,
demand. ΙΙ there is a minimum buffer inventory ίπ eve'r'yperiod, this amount should be added't, t; (F = C;st6ffiring o~J,w~rker = $f':ooo"
the first period's demand. Ιι there is a minimum buffer inventory ίπ only one period, this amourit
should be added το that period's demand and subtracted from the next period's demand. Actual. , (, = Cost.of holding oπ~. unit οΙ inventory for one month = $8Ό.
ending inventories should be computed using the original demand pattern, however. . We require a means()f translating ~~gregate production ίπ units to wo'rkforce levels. B~c'ause
Returning to ουΓ example, we define the net predicted demand for January as 780 (1,>280.'"", ποΙ all months have an equal number οΙ working days, we will us.e a day as an indivisible υπίί of
500) and the net predicted demand for June as 2,000 (1,400 + 600). ΒΥconsidering net de~ measure .arid define '
mand, we may make the simplifying assumption that starting and ending inventories are both
zero. The net predicted demand and the net cυmulative demand for the six months January to Κ = Number οΙ aggregate. units produced by one .worker ίπ one day.
June are as follows:
In the past, the plant manager observed that over 22 working days, with the workforce level
cbnstant at 76 workers, the firm produced 245 disk drives. That means that οπ average the ΡΓΟ-
Net Predicted Net CumuIative duction ratewas 245/22 = 11.1364drives per daywhen there were 76 workers employed atthe
Month Demand Demand plant. It follows that one .worker produced an'average'of 11.1364/76 = 0.14653 drive ίπ one
January 780 780 day. Hence, Κ = 0.14653 lοr this example:
February 640 1,420
March 900 2,320 We will evaluate two alternatiνe plans ,[ΟΤ managing the. worl<.force that represent
ΑΡΓίl 1,200 3,520 two essentially opposite management strategies. Plan Ι· is to change the workforce
May 2,000 5,520 eacll month iη order Ιο produce enough un.its to most closely,matcll tJ1e demand pattem.
June 2,000 7,520 This is known as a zero il1vel1tory ρΙαη. Plan 2 is το maintain the minimun1 constant
workforce necessary to satisfy thenet demand. This is known as the constant wοrkjΌΙ'ce
The cumulative net demand is pictured ίπ Figure 3-4. Α production plan is the specification ρΙαη.
ΟΙ the production levels for each month. ΙΙ shortages are not permitted, then cυmulative
production must be at least as great as cυmulative demand each period. Ιπ addition Ιο the
cumulative net demand, Figure 3-4 also shows one feasible production plan. Eνaluation cίf a Chase Strategy (Zero Inνentory Plan)
Here, we will deνeIop a 'production, plan Ιοτ Densepack that minimizes the leνels of
inνentory the firnl must hold during the six-month planning horizon. Table 3-1 sum-
FIGURE 3-4 Illarizes the ίιιρυι ίηίοτυιειίωι [or the calculations al1d Sl10WStl1e minimum number of
Α feasibIe aggregate workers required ίη each month.
plaη for Densepack Ol1e obtail1s the entries ίη the final cOll1mn ofTable 3-1, the m.inimum number of
workers required each Illonth, by dividing the forecasted netdeIlland by the number of
units produced per worker. The νalue of this'ratio is then rounded tιpwαrd ιο tlle next

5 6

~Ι;{
 3.4 Α P,oto<ype P,oblem 137
136 Chapter Three Aggreg",e Pi<ιnning

ΤΑΒΙΕ 3-3
Computation ofthe
Minimum Workforce
Required by
Densepack

ΤΑΒΙΕ 3-4
JIIventory Lcvels for
higher integer. We.mustround upwardtoguarantee that shortages do πο! occur. As an ex- Constant Workforce
Schedule
ample, consider the month ofJanuary. Foτming the ratio 780/2.931 gives 266.12, which
ίε τottnded ιιρ Ιο 267 workers. The number of working days each month depends ιιροο a
variety of factors, such as paid holidays and worker schedules. The reduced number of
days ίπ June is due το.a planned shutdowη ofthe plant ίη the last week of Ιυτιε.
Recall that the nttmber'ofworkers employed at the end of December is 300. Ηiήηg .
and fiήng workers each month το match forecast demand as close!y as possible resttlts
ίπ the aggregate plan given ίπ Table 3-2.
The number of units prodLIced each month (τοίυαιυ F ίπ Table 3-2) is obtaίned by
the following formula: 'ι

Number of Number Average number of .

of workers χ aggregate LInltSproduced ιτι
units ρτοσυοοσ
a month by a slngle worker
rounded το the nearest integer.
The tota! cost of this ρτοοιιοιίοη p!an is obtained by mtt!tip!ying the totals at the
bottom of Table 3-2 by tbe ερρτορτίειο costs. Ροτ this example, the total cost of hίήng,
firing, and .ho!ding is (755)(500) + (145)(1,000) + (30)(80) = $524,900. This cost
must now be adjusted το ίnc!LIdethe cost ofholding Ιοτ the ending inventory of 600 units,
which was netted ου! of the demand for Ιιιυε, Hence, the tota! cost of this plan is .
524,900 + (600)(80) = $572,900. Note that the initial inventory of 500 units does τιοτ
enter ίηΙο the ca!culations because ίι will be netted ουι dttring the month of January.
Ιι is usually impossible το achieve zero inventory at tl1e end of each planning period
because i(is ποΙ possible το employ a fractiona! number of workers. Ροτ this reason:,
there will almost always be some inventory remaining at the end of each period ίπ
addition Ιο the inventory required Ιο be οτι hand at the end of the planning horizon.
Ιι is possible that ending inventory ίπ one οτ more periods could bui!d ιιρ to a ροίυτ
w.here the size of the workforce could be reduced by one οτ more workers. Ιτι this
example there is sufficient inventory οη hand ιο reduce the workforce by one worker ίπ
the months of both March and May. Check that the resu!ting plan hίΓes a total of
753 woτkers and fires a tota! of 144 workers and has a total of on!y 13 units of inven-
tory. The cost ofthis modified plan comes Ιο $569,540.
Evaluation of the Constant Workforce Plan
Now assume that t!le goa! is ιο e!iminate complete!y the need for hiring and firing
during the planning horizon. !π order to guarantee tI1at sl10rtages do ποΙ occur i,n any
period, ίι is necessary Ιο coιnpute the minimum workforce required for everγ month ίη
the planning horizon. Ροτ January, the net cumulative demand is 780 and there are
2.931 units produced per worker, resulting ιτι a τυίυίπιιυ» workforce of267 ίη JanLIary.
There are exact!y 2.931 + 3.5 Ι 7 = 6.448 units produced pel" worker ίη January and
February combined, which have a cumulative demand of 1,420. Hence, !,420/6.448 =
220.22 = 221 workers are required to coverboth January and February. Continuing to
form the ratios of the cumulative net demand and the cumulative number of units
prodLIced per worker for each month ίιι the horizon results ίη Table 3-3.
The minimum number of workers required for the entire sΊX-month planning period
is the Π1aΧίmum entry ίη coluι'nn D ίτι Table 3-3, which is 411 workers. It is on!y a
coincidence tl1at the maximum ratio οccuπed ίη the final period.
Becatlse tllere are 300 wo.rkers employed at the end of DeceΠ1ber, the constant
workforce plan requires hiring 111 workers at the beginning of January. Νο further hiring
and firing ofworkers are required. The inventory leνels that resu!t from a constant work·
force of 411 wo.rkers appear ίη Table 3-4. The monthly production leνels ίη column C ΟΙ
the table are obtained by mtIltiplying the number ofunits prodnced perworker eacll Π10ntt
by the fixed workforce size of 41 Ι workers. The total of the ending ίnνentoΙΊ leνels ί~
5,962 + 600 = 6,562. (Recall the 600 units that were nette<1οιι! of the deιnand for JlIne ..
Hence tl1e total inventory costofthis plan is (6,562)(80) = $524,960. Το this we add t11(
cost of increasing the workforce froιn 300 ιο 411 ίn JanLIary, which is (Ι 11)(500) =
$55,500, giving a total costofthis plan o.f$580,460. This is sσmewhat higherthan the cos
oftlle zero inventory plan, which was $569,540. Howeνer, because costs ofthe ιwo plan
are close, ίι is like!y that the coιnpany would prefer the constant workforce plan ίη orde
to avoid any unaccounted for costs of making freqLIent changes ίn the workforce.
138 Chapter Three Aggregare Planrtίng 3.4 Α Pro",rype,ProbJem 139

Mixed Strategies and Additionalfonstraints - <. .~ ,:i-tπ!~: Η,1 ;4;' 'ι: ~,:ι !-\..-

'~·ι Η; _ ί"l-' "1 ,~-,~I :τι 'J •• \;t~iT ;~;{)

The zero inventory plan ana constant workforce strategies just treated ate l?uie,.strafe1
, 9,. Harold Grey QWΠS)i sm3lI fann ίn .the Salinas Valleythat grows apricots. The. apri-
gies: they are designed to achieve one objective: With τυοτε flexibility,sιhal1'm6dific~-
; ;"cots,are·dried -οιι the .premise,s and sold· to a ,number,of large supermarket chfiins.
tions can result ίή, dJamaticaliy lower. c6.8t~:;One -migbt que~tion tbe interest }Ίι ίiiιinιrai
",·1 ·Based οτι past,~xperϊe\lce,and comllli,tted contracts,h'e,esiimates that s<ilesΌver the
calculations cbnsidefing tbat aggregate~planhing 'prohlems can be formuJafJd "and
next five years ihthotlsanos of',I'ackages wil\be as follows:
solved optimally by Jinear programming.". ... '. ,.'. .' . . " ;:, "ι . .ι.,· ,~
Ι; i.~'· ''1';'': ';, ,Ι,' . ,'Γ ,

Manua). ,αi\cιi1atίοns· eiίhance ίntuitίοrίandιihderstandίήg. Cbmj:>liters aredumb. It ~\./ ~ ,ι

easy to overlook a critical constraint (π objectlve when using a computer. Ιι 's inιportant Ιρ , jf.
ιω\ , 'j:or;~asted Deman,d'
a
bave feel for the rίght soJution beforesolvmg a probJem οτι a computer, so that gJaring' , (t~ousands of, packages)
mistakes are obvious. Απ important skiH, largely ignored these days, is being able to do'a '1 300,
ballpark calculation ίn one's Ilead before pulling ου! the calculator οτ computer. 2 120
Figure 3-4 shows the constant workforce strategy for Densepack. The hatched area 3 20o'
represents tbe inventory carried ίη each month. Suppose we alJow a sίngJe change ίη the 4 110
production rate during the six months. Can you identify a strategy fi:om the figύre tI1at 5 135
substantially reduces inventor)ι without pennitting shortages? ' , ",ι,,·, '
Graphically, the problemis το cover ihe cuΊnulative net demaήtl clIrve with ~ό , ,A'ssume that ea,ch wοrker,staΥsΌη.the.,jόb, for at!IEast one year, and that,Grey
straight lines, rather than one straigbt JiJ;1'e.This can be accompJished by driving'fbe net 'currently has three workers οα the payroiI. Heestimates that he wψ have 20,000
inventory ιο zero at the end of perίod 4'(April). Το do so,we'need ιο produce enolIg]j , .packages on'lfantl'at',the end
ofthe ς:urrent y~at: A:ssuiiι~'that, οε theaverage, ach ι::
ίη each oftbe months January through Αρτll ιο meet the cumuJative net demand each worker i,spaid $25,000 per year and is r~s'poiιsible for prodlIcing 30~000 packages.
month. 'Πιετ means we need το produce3,~20/4 = 880 tJnits ίη each of the .first four In"elitO'ry' .costs 'havevl)eeh 'estiInated td"be" 4"ce'ιιts pei package per year, and
months, Ιπ Figιιre 3-4, the line connecting'the origin το 'the cumulative net dem'and in' shortages fι~e'1)ot aI10\Ved;f' η .:<, "Ι ' i .
Aprillies wholly above the ουιυιιίειίνε net detnand curve:for tl1e ρτίοτ rtιonths. Ifthe Base<;loiι' the effort( of interνiewing and, training new workers, Farmer Grey εε-
g.raph is accurate, that means that there shouJd be τιο shortages occurring ίη these timates tha.t ίι ,costs $,500 for, each worker hired, Severance pay amounts to $1,000
lnonths, The May and Ιιυιε production is then set το 2,000, exactly matching the net
per worke,r. " _
demand ίη these lnonths, With this policy we obtain
.. α" Assutning, that sho'rtages are ηοί allowed, determine the minimum constant
workforce that he will Jieed over the next five years.
Cumulatiνe Cumulatiνe
Month NetDemand Production b. Evaluate tbe cost of the pJan found ίη part (α), ,
tl"
10, F,0r'the datagi~eh ίη ProbJem 9, ιraph the cumulative net demand.
January 880
February 1,760 α. Graphically detennine a production plan that changes the production rate exactly
March 2,640 once during tp.e five years, and evιΗuate the cost of that plan.
ΑΡΓίl 3,520
b, Graphicany deter,mine a product~on plan. that changes the prodlIction rate
May 5,520
June': 7,520 exactly twice dlIrίng the five years, and evallIate the cost of that plan.
11. Αη ilnplicit assurnption made in Problem 9 was that dried aprίcots unsold a( the
end of a year couJd be sold ίη subsequ~nt years, Suppose that apncots unsold at the
As we will see ίη Section 3.5, this poJicy .turns·out ιο be optimal for the Densepack
end of any year π;ιust be discarde,d, Assume a disposal· cost of $0.20 per package.
problelll, :.,
The graphical solution method also can be used when additional constraints are pres-;, Resolve Problelll 9 under these conditions.
ent. For exanΊPIe, suppose that the production capacity ofthe plant is only 1,800 units "._.... ' 12. The personnel departrnent of the Α&Μ Corporation wants to know how many
per montb. Tben the policy is infeasible in May and June. Ιη this case the constraint ;1Ω\ΊΙ.' Ι,;"~ Γ workers will be needed each month for the next six-month production period, The
means tl1at the slope of the cumulative· ,production curν,e is bounded by ] ,800, One following is a monthly demand forecast for the six-month peribd.
solHtion ίη this case would be to produce 980 ίη each of tlTe first four months and
1,800 units ίη each of the last two months. Another constraint might be that the maxi- Month Forecasted' Demand
mun1 change fromone τηοηΙlι ιο the next be ηο more than 750 units. Suggest a produc-
ιίοη plan ιο meet this constraint. July 1,250
, TlTes,eare a,few'examp.les of constraintsthat mighι.arise ίη using aggregate planning August 1,100
methodology, As. the constraints become:. more compJex, finding good solutions September 950
graphically becomes tnore difficult: Fortunatelyl·most cbnstraints of this natl1re can be' October 909
November 1,000
incorporated easily into the lίιιear programming formuJations of aggregate planning
December' 1,150
probJeJns.,
 3.5 Soi"rionσ{Aggregaιe PlanningProblems.1ry ΙίneΙJi"ΡrΟgTamrhίng ~41
140 Chapter Three AιweRaι, PlanninR

α. DeterrniI\e. the mίnίmιιm ..constarit:workforGe:i,t)Ίat",will meet the predicted

The lnventoτy οτι harid at tlJe endΌf Ιιπιε was 500 units ..:τheocompany, wants 10
demand fot the comlng ~e&r·,i";.,,, ; , ";,,
malntaln a mlnimum inventory of 300 tInits each month 'and w~~ld ΊίΊce to have
b. Evaluate.the cost όftheρlan deterh1ined Ια -part (αΙ. . ,Ι'
400 unlts 'οη hatιd at the end of Deeember.!.Each ιιηίί requires five employee-honrs " ';~', ;'1- ,\1'":-' 'r,' ,ί 'τ,'·,·'.:".-'" -,

to ptodnce .•.thereare'20 workingdayseach mbilth,iιnd each emp1oyeeyνorks an ] 5. Fot the datainProblem~14, determine the cost oftheplaiιthat changes theworkforce
eight-honr day. Tlie workforceat the end·of June was'·35 workers. size each period to most '~lb!ie1y;n~tch the demaιid. >" .
16. Graph the cumιι1atίve,net'delnand fofthe SUΡerchίΡ data of.Problem ]4. Graph-
α, Determine,a minimum ίηv~~!ότy jxoduction plan (i.e., one that al10ws arbitrary
ically deterrnin"e' a, Ρrοdιιctίοή;ρ1aπ'that changes production levels υο mόre that!
hiring andfiring). 'ο

tllree tirnes, and deterrnlne the tota1cost of that p1an,

b. Determine the' prodnction plan that' meets demand but does αοι hire οτ fire
workers dύπng the six-monih period.
13. Mr. Meadows Cookie COJnpany makes a variety of chocolate chip cookies ίη tbe 3.5 SOLUTlON OF ΑGG~~,G~Τ~,~ΡίΑΝΝljΝGPRO'B,LEMS
plant ίη Albion, Michigan. Based ωι orders recelved and forecasts ofbuying babits, Βγ LINEAR PROGRAMMING
ίτ ls estimated that the demand for the next [οιιτ months is 850, 1,260,51 Ο, and 980,
Linear prograJI)ffii.ng ί5,a τοσο uS,e<!.
to ,de~cribe a generaJ,class of optimization problems.
expressed ίη thousands of cookies. During a 46-day period when there were
The objecti:ve is tp,determine va1ues 9fn n.onnegative rea~variables ίη order το maximize
120 workers; the-company produced 1.7 mil1ion cookies. Assume that the'ntImber '
ΟΓminlmize ε.Ιίαεετ .function of these.yariab1es ψat ls subject.to m lίnear constralnts of
of workdays over the [οιιτ months are respectively 26, 24, 20, and 16. There are
,ιηese variab1es.1 Th,e primary ~dvanta.ge iniformulating a,problem as a 1inear program ls
currently 100 workers employed, aiid thete ls υσ startlng inventory of cookies., _ι~, \f
that ορτίπιε! so!tItlons can be found 'Very efficiently QY'the'si:nιplex method.
α. What' ls the' minimum constant workf~rce r~;quired to meet demand over the When all costf\mctions are lίnear, there ls a linear programming formulation of the
next four months? Ά
g~ne~a1:aggregat~IPlanning problem.· Because of the efficie)lcy of commerclal 1inear
b. Αεειισιε that CΙ, = ω cents pec cο(}kίe'Ρer,ιmοnt11;,cΗ = $100, and cF = $206. ' ,ΡrοgramΠ1ίng οοαοε, this means t4aι'(essentίaIlΥ) optima1 sqlutions can be obtained for
Eva1uate the cost ofthe p1an detlved ·ίη part (α), 2
very large problems
14. Α local semlconductor firm, Superchip, ls p.1anning lts workforce and productlon Cost Parame~ers and Given Information
1evels ονετ' the ne~t year. Tlie firm' fnakes a'vIιribty όf'm'icrΟΡrocessοrs and uses sa1es .
The following νείιιεε ar~ asslImed to'be known:
doJlars as lts aggregate ρτοσυοιίοιι measure: Βεεοο ση orders recelved and sales ,. τ

forecasts provided by the marketing department, the estlmate of dol1ar sales for the ,CH = ~ost'of,hiring one.worker,,,",
next year by month is as follows: ,C,p = ,Cost:of firing ουε worker; πΙ"
C[ = Οοει of holding one υηίι of· stock for one period,
.Production Predicted Demand cR = Cost Ο[ΡrοducίηgC;~eΉ~ίt~~ re~lar time,
Month Days (ίπ $10,000)
Co = lncr~nie,htal cost of,prod~cing o'η~ unit οτι oyertime,
J'anuary 22 340 Cu = Idle cost per unit,o~prodtIctjon, .. ,"
February
March
"6
21
380
220 Cs = Cost to subcontriιct one υηίι ofproduction, '.,
ApriI 19; 100 ηι = Number οfΡrοdιιctiοn daΥs.lrtΡeι'iορ.I",
[ΊΛaΥ 23 490 Κ = Number of aggregate units produced by oIίe worker ίη one day,
June 20 625
July 24 375 10 = 1nitial;inyentory οη haI)d,atthe.start o~ the p.lannipg 110τίΖΟΠ,
August 12 310 Wo = !nitia1 workforce at the start of the planning horlzon,
September 19' 175
Dt = Fοreca'stΌf demand ίη period t.
October 22 145
November 20 120 The cost parameters a1so may be tirne dependent; thatls, they may change wlth t.Time-
December 16 165 dependent costparameters could be ύsefυ1 for Π10deiing changes ίη thecosts οfhίήng
or firing due, for example, to shortages ίπ tl1e labor ροοl, οτ changes ίη the costs of ρτο-
]nventory holding costs are based οη a 25 percent anntIal lnterest charge. !t'is' duction and/or storage due to slJortages ίη tiie supply of resources, οτ cllanges ίη interest
anticipated that there will be 675 workers οη the payroll at the end of tlle cnrrent rates.
year and inventories will amοunΙlο $120,000. The firm wotIld like to 11aveat least
$100,000 of inventory at the end of December next year. 1I is estimated tllat eabll
, An overνiew of Iinear programming can be found ih Supplement 1, which foIIows this chapter.
WΟΓkeraccounts for an average of$60,000 ofproduction per year (asstIme that one·
2 The qualifier is intluded because rounding ma{ιjive suboptimal solutions. There wiII be more about this
year conslsts of 250 working daYs). The cost of hirlng a new worker ls $200, and
point Iater.
the cost of !aYlng off a worker ls $400.
142 Chapter Three Aggrcgatf Planning 3.5 Soluιion of Aggre~αte PIanning Problems.by Linear Ρrο.ι:rammίη,(!' 143

Problem Variables lη addition Ιο these constraints, lίnear programming requires that all problem variables
The following are the problem variables: be nonnegative. These constraints and the nonnegativity constraints are the minimum that
must be present ίη any formtllation. Notice that (Ι), (2), and. (3) οοτιετίιιιιε 3 Tconstraints,
WI = Workforce ]eve] ίη period ι, rather than 3 constraints, where Tis the length ofthe forecast horizon.
Ρι = Production Ιενεί ίη period Ι, The formu]ation also reqnires specification of the initial inventory, 10, and the ίηί-
Ιι = Inventory leve] ίη period ι, tia] workforce, Wo, and may inc]ude specification of the ending inventory ιτι th.e final
period, lτ.
Ηι = Number ofworkers hired ίη period ι,
The objective function inclndes all the costs defined earlier. 'Πιο lίnear programming
FI = Number ofworkers fired ίη period ι, forιnll]ation is to choose values ofthe probleIn variables W" Ρι, 1" Η" Ft, Ο" ι, and S,lo υ
ΟΙ = Overtime production ίη units, τ
υι = Worker idle time ίη units ("undertime"), Minimize Σ (cHH I + cpF, + ctl, + cRP, + coOI + cυU, + C8S,)
'=1
SI = Number of units st1bcontracted from ontside.
snbject 10
The overtime and id]e time variables are determined ίη the following way. The W, = W,_ 1 + Ηι - F, for Ι :s t :s Τ
(Α)
term Knt represents the number of units produced by one worker ίη period t, so that (conservation of workforce),
Kn,W, would be the number ofunits produced by the entire workforce ίη period ι. How-
Ρ, = Kn,WI + Ο, - U, for Ι :s t :s Τ
ever, we do υοι require that Kn,W, = Ρ,. If Ρ, > Kn,Jflt, then the number of υυίιε ρτο- (Β)
(production and workforce)
dnced exceeds what the workforce can ρτοσυοε οη regular time. This Ineans that the dif-
ference is being produced οη overtime, so that the number ofunits produced ωι overtime 1ι = Ιι- ι + Ρ, + SI - Dt for ] :s t:s Τ (inventory balance), (C)
is exactly ΟΙ = Ρ, - KntW,. If Ρι < KntWt, then the workforce is producing less than ίι
shotIld be οη regular time, which means that there is worker idle time. The idle time is Η" F" Ι,, Οι, U" S" W" Ρι ~ Ο (nonnegativity), (D)
υ
measured ίη units ofproduction rather than ίη time, and is given by ι = Kn,W, - Ρι.
ρίιιε any additiona] constraints that define the values of starting inventory, starting
workforce, ending inventory, οτ any otheI' variab]es with νείιιεε that arefixed ίη advance.

Problem Constraints Rounding the Variables

Three sets of constraints are required for the ]jnear programming formιιlation. They are
Ιn general, the optimal values ofthe problem variables wiII τιοτ be integers. However,
included το ensure that conservation of labor and conservation of units are satisfied.
fractional va]ues for many of the variables do ιιοι make sense. These variables include
Ι. Conservation of workforce constraints. tlle size of the workforce, tlle number of workers hired each ρειίοτί, and the number of
workers fired each period, and είεο may include the ηUΠ1ber of units produced each
WI = Wt-1 + Ηι - Ft for Ι :s t :s Τ. period. (Ιι is possible that fractional numbers of units could be produced ίη εουιε
Number = Number + Number - Number applications.) One way Ιο deal with this problem is το require ίη advance ιίιετ some οτ
of workers of workers hired fired aII ofthe problem variab]es assume οηlΥ integer values. Unfortunately, tlliS makes the
ίη t ίη Ι - Ι ίη Ι ίη Ι solution algoritllm considerably more CΟΠ1Ρ]eχ.The resulting ΡrοbleΠ1, known as an ί η-
2. Conservation of units constraints. teger lίnear ΡrοgraΠ1Π1ίηg prob]em, requires mtIch Π10re computational effort Ιο solve
than does ordinary Jinear prograInming. For a moderate-sized pΓOb]em, solving the
Ιι = lι- ι + Ρι + SI Dt for 1 :s ι :s Τ. prob]em as an integer ]jnear program is certa.inly a reasonabJe alternative.
[nventory = Inventory + Number + Number - Demand Ifan integer programming code is l1navailable οτ ifthe problem is simply Ιοο Jarge
ίη ι ίη ι - Ι ofunits ofunits ίη ι Ιο solve by integer programlning, linear programmingstill provides a workable solu-
produced subcontracted tion. However, after the lίnear programIning soltItion is obtained, some of the problem
ίη Ι ίη ι variables must be rounded Ιο integer valtIes. Simply rounding off each variable Ιο the
closest integer may lead Ιο an infeasibJe solution and/or one ίη which prodllction and
3. Constraints relating production levels Ιο workforce levels.
workforce levels are inconsistent. It is ηο! obviolls wllat is t]le best way to round the
Ρ, = KntW, + Ο, - U, fol' ] :s ι :s Τ. variables. We recotnmend the following conservative approach: rollfid tlle values ofthe
Nuιnber = Number + NuInber - Number numbers of workers ίη each period ι to W" the next ]arger integer. Once the va]ues of
of units of units of units of units W/ are determined, the va]ues ofthe other variables, Η/, Ft, and Ρι, can be fOl1nd along
prodtIced produced prodtIced of idle with the cost of the resulting plan.
ίη t by regtIlar οη over- production Conservative rounding will always result ίη a feasible sollltion, but will ΓarelΥ
workforce time ίη t ίη t give the optimal soltItion. The conservative solution generally can be improved by
ίη ι trial-and-error experimentation.
144 Chapter Three Aggrcgaιe Plann,ng 3.5 SQluιionο[ Aggregare Planning Problems by Unear ProgramminR 14!

There iS τιο guarantee that if a problem can be formulated as a lίnear program, the
final solution makes sense ίη the context of the problem. Ιτι the aggregate planning.
problem, ίι does αοι make sense that there should be both oνertime production and idle
time ίη the same period, and ίι does τιοι make sense that workers should be hired and.
fired ίη the same period. This means tllat either one οτ both of tlle variables ΟΙ and U;
must be zero, and either one οτ both of the variables Η, and F, must be zero [οτ each t/:.
Ι ,s; t ,s; Τ. This [eqnirement can be included explicitly ίη the probleIn formtIlation by ~i,
adding the constraints ' .

O,U, = Ο for Ι ,s; t,s; Τ,

H,F, = Ο for Ι ,s; ι,,;; Τ,

since iftlle prodnct oftwo νariables is zero ίι means τίιετ at least one ηιυει be zero. Un-
fortunately, these constraints are τιοι Ιίαεετ, as they involve a prodnct of probleni
variables. However, ίι turns ου! that ίι is αοτ necessary Ιο explicitly inclnde thes~
constraints, becanse the optimal solntion ιο a lίπear programming problem always οο-
curs at an extreme ροίτιτ oftlle feasible regioll. It can be showll that every extreme pdint .
solntion autotnaticaIIy has tlliS property. Ifthis were ιιοτ the case, the lillear prograrrt:
ming solution wotIld be Il1eaningless. '.

Extensions
Linear programming also can be used to solve somewhat more general νersions ofthe
aggregate planning problem. Uncertainty of demand can be acconnted for indirectly by
asstIming ιίιετ there is a minilllnm bnffer illventory Β, each period. lπ that case we
wotIld include the constra ints
[,~B, for Ι ,s; ι,,;; Τ.
'Πιε constants Ξ, would have ιο be specified ίπ advallce. Upper bonnds ου the num-
ber of workers hired and the nutnber of workers fired each period could be included in',;t.C!
a similar way. Capacity constraints οπ the amount of production each period cduld'
easily be represented by the set of οοηειτείτιιε:
P,,s; C, for Ι ,s; t ,s; Τ.
The lίπear programming formnlation introduced ίπ tlliS section asstIIned that inνen-:~j'
tory leνels wotIld neνer go negative. However, ίn some cases ίι Inight be desirable oτ~
even necessary to allow demand Ιο exceed slIpply, [οτ example, if forecast demand :
exceeded prodnction capacity over some set of planning periods. lπ ol'der ιο treat
backlogging όf excess demalld, the invelltory level [Ι must be expressed as the djffer:
ence between two nonnegatiνe variables, say [,+ and 1,-, satisfying
[Ι = [/ - [,-'
1/ ~ Ο, ζ ~Ο.
The holding cost wonld 1l0Wbe charged against [/ and the penalty cost for back οτ'
ders (say cp) agaillst [,-. However, notice that for the solIItioll to be sensible, ίι mnst be
true that [/ and 1,- are ηοΙ botll positive ίη the same period t. As witlJ the oνertitne and
idle tilllC and the hirillg alld. firing variables, the properties of lίπear programming wil1
guaralltee that this holds wi Ιπου! having Ιο explicitly illclude the constraint [/ ς = ο:
ίπ the fOI·mlIlation.
lπ the developmellt ofthe lίπear programming model, we stated the requirement that
all the cost functions ηιυετ be lίπear. This is ιιοι strictly correct. Linear programming
also can be nsed when the cost flInctions are C017vex piecewi8e-li17ear !ul1ctions.
Α οουνοκ function is one with an illcreasillg slope. Α piecewise-linear function is
one that is composed of straight-line segments. Hence, a convex piecewise-linear
functioll is a function composed of straight lίnes that Ιιενε increasing slopes. Α typical
exalnple is presented ίπ Figure 3-5.
[η practice, ίι is likely that some ΟΓ all of the cost Ιιιαοιίωιε for aggregate planning
are convex. For example, if Figure 3-5 τερτοεεητε the cost of hiring workers, then tlle
marginal cost of IJiring οιιε additiollal worker increases with the number of workers
that Ιιενο already οεετι Ilired. This is probably more accnrate than asstIIning that the
cost of hiring ουε additional worker is a οοπετωιτ jlldependent of tlle nnmber of
workers previously hired. As more workers are hired, the available labor ροοl shrirιks
and lnore effort mIIst be expended Ιο hire tlle remailling available workers.
lη order Ιο see exactly how convex pίecewίse-~jllear functiolls would be incorporated
ίnΙο the lίnear ΡrοgΓaιnιnίπg formlllatioll, we wil1 consider a very silnple case. Snppose
that the cost oflliring new workers is represented by the function pictured ίπ FίgUΓe3-6.
Accordillg Ιο the figure, ίι costs CHI Ιο Ilire each worker υπιίΙ Η* workers are hired, and
ίι costs C/12 for each worker hired beyond Η* \vorkers, with CHI < Cfl2. The variable Η"
the number ofworkers hired ίll period ι, mnst be expressed as the stlln of two variables:
Η, = Ηι, + Η2,.
Interpret Ηιι as the nUlllber ofworkers hired up Ιο Η* and Η2, as tlle llutnbeI' of
workers hired beyolld Η* ίπ period Ι. The cost οΓ hiring is now reΡΓesented ίη the
objective fUllction as
τ
Σ
I=Ι
(CI'IIHII + CInH2'),
 3.6 SoI<ing Aggregαte Planning Problemsby,Lineαr Progrcmm'ng' Ah. EXDmple 147
146 Chapter Three ."'κgregare Plαnning

be.J;Iloreefρcient for)argeproblem~ aηq <eOUldpI9y,idesoMions whep, some ofthe cost

FIGURE 3-6
functions are nonlinear. Α paper that details a transportation-type procedure ιυοτε. effic
Convex piecewise-
Iinear- hiring cost cient than thesimplex method for solving aggregate planning problems is Erengιic and
function Tufekci(1988>':
SOιVING AGGREGATE Pi:.ANNiNGPROBLEMSBYLINEAR
PROGRAMMING: ANE~AMPΙE
We ,wiHdemonstrate the use oflinear programming'by:(Jnding theoptimal solution ιο
the example presented ίn Sectlon 3.4. As there is υο subcontracting,.overtime, στ id1e
time aHowed, and the cost coefficients are constant with respect το time, the objective
function is simply
" ·6 6 .,. 6
Minimize. ( 500
,t=l
Σ Ηι + 1,000Σ ι=\
Ρ, +80 ΣI
ι=ι
t).

The boundary conditions .comprise .the specifications of .:the initial inventoτy οί

500 unlts, .theinitlal wprkforce of 300 work:ers, and. the. ending inventory of 600 units.
These are besthanp1edby including a separate additional constralnt for each boundary
condition.
The constraints are~.όbtaίηed by substltutlng t "=1, ... , 6 ίηΙο Equations (Α), (Β).
and.(C). The·fuH set:qf.constraints expressed ίη st~ndard Ιίτιεετ programmίng forma1
and the additional constraints (with all problemvariables σηthe 1eft-hand side and nonnegatlve constants ση thε
right-hand side) is as fol1ows:
Ht ='Ηιι + H2t
Ο :5 Ηιι:5 Η* W1 - Wo - Ηι + Fι ·= Ο,
Ο :5 H2t W2 - Wl - Η2 + F2 .= Ο,
must also be included. W] - W2- Η] + F3\=0,
(Α
Ιη order for the final solution (α make'sense, itcan never be the case that Ηιι < Η*, W4 - W3 - Η4 + F4 = Ο,
and H2t > Ο for Some t. (Why?) Ηοινενοτ; because lίnear programming searches for ιΜ Ws - W4 - Hs + F'i;= Ο,
minimum costsolution, ίι will force Ηιι ΙΟ its maximum value before aIIowing H2t Ιο
become positive, since CHl < CH2' This is the reason that the cost functions must be W6 - Ws - Η6 + Ψ6 = Ο;'
convex. This approach can easily be extended το more than two linear segments and to
any of the other cost functions ρτεεέιιι ιιι the objective function. 'Πιε technique is Ρι - I1 + 10 = 1,180,
known as separable convex programming and is discussed ίη greater detail ίn Hillier Ρ2 - /2 + I1 =640,
and Lieberman (1990). . .'
Ρ3 - Ι] + 12 = 9ΡΟ,
(Β
Ρ4 - 14 + /3= 1;200,
Other SοlutίοnΜetl1όds
Ps - 15 + 14= 1,000,
Bowman (1956) suggested a transportation form.ulation ofthe aggregate planning prob-
lem when back orders are ηοι permitted. Several authors have explored solving aggregate Ρ6 - 16 + 15 = I?~OO;
pIanning problems with specially tailored algorithms. These algorithms could be faster
[ατ solving large aggregate planning problems than a generallinear programming code Pj - 2.931 Wl = Ο,
such as υΝΟο. Ιτι addition, some of these formulations allow for certain types of non- Ρ2 - 3.517W2 = Ο,
linear costs. For example, if there are economies of scale ίn production, the production
cost function is likely Ιο be a concave function ofthe number of units produced. Concave
Ρ3 - 2.638W] = Ο,
(C
cost Ιϊυιοιίοηε are not as amenable το linear programming formnlatio11s as convex funcc Ρ4 - 3.81Or1l4 = ο,
tions. We believe tllat a general-purpose linear programrning package is sufficient for Ρ5 - 3.224W5 =0,
most reasonable-sized problems that one is likely ιο encounter ίη the real wOl·ld. Ηοιν-
ever, the reader sho.uld be aware that there are alternative solution techniques that conld Ρ6 - 2.198W6 = Ο;
148 Chapter Three ΑglζΓeφιe Plonning 3.6 SoIving Am,rregate [)!anning Problems b-yLinear Programming: An ExαmfJle 149

WI,· .. , W6, Ρι,· .. , Ρ6, lι,· .. ,/6, FJ, ••• , F6, Ηι, ... ,Η6;ΞΞ: Ο;

Wo = 300,
10 = 500,
/6 = 600.

We Ιιενε solved this lίnear progranl using the LlNDO system deve]oped by Schrage
(Ι 984). The output ofthe LINDO program is given ίη Table 3-5. Ιη the ειιρρίοηιεητ οο
linear programming, we a]so treat so]ving linear programs with ExceJ. The Exce!

ΤΑΒΙΕ 3-5 Linear Programming Solution of Densepack Problem

Solver, of course, gives the same resυlts. The value of the objective function at the ορ-
timal solution is $379,320.90, Wllich is considerably less than that achieved with eith.eI"
the zero inventory plan ΟΓ the constant workforce plan. Ηωνενετ, this cost is based ου
fractional values ofthe variables. The actnal cost wiJJ be slightly higher after rounding.
FoJJowing the τουικίίιη; procedure recommended earlier, we will τοιιικί alJ the val-
ιιοε of W, το the next higher integer. That gives WI = ... = W4 = 273 and Ws = W6 =
738. This determines the νείαοε ofthe other problem variables. This means that the fίrm
shonld fire 27 workers ία JanlIary and hire 465 \vorkers ίη May. The complete solution is
given ίη Table 3-6.
Again, because co!umn Η ίη Table 3-6 corresponds το net demand, we add th.e
600 ιυυτε of ending inventory ίη June, giving a total inventory of 900 + 600 = 1,500
units. Hence, the total cost ofthis plan is (500)(465) + (1,000)(27) + (80)(1,500) =
$379,500, \vhich represents a sHbstantial savings over both tlle zero inventory plan and
the constant workforce plan.
'Πιε restIlts of the !inear programming ana!ysis suggest another plan that might
be more suitable for the company. Βεοειιεε the optimal strategy is το decrease the
workforce ίη .fanuary and blIild ίι back ιιρ again ίη May, a reasonab]e alternative
might be to πο! fire tlle 27 workers ίπ JanlIary and ιο Ιυτε fewer workers ίη May.
]η this case, the most efficient method for finding tJle οοσεοι nl1mber of wοrkeΓS
to hire ίπ May is ιο simp]y re-solve the lίnear pτogram, bl1t without the variables
FI, ... , F6, as αο firing of workers means that these variables are forced ιο zero.
(lf νου wish το avoid reentering the problem ίπΙο the computer, simply append the
old formυlation with the οοηετιείατε Ρι = Ο, Fz = Ο, ... , F6 = Ο.) The optima!
nl1mber of workers to hire ίη May turns οιιι το be 374 if ηο workers are fίred, and
the cost ofthe plan is approximately $386,120. This is only slightly more expensive
than the optimal plan, and has the important advantage of ποι requiring the firing of
any workers.

Problems for Sections 3.5 and 3.6

17. Formnlate Problem 13 as a Jinear program. Be sure ιο define aJJ variables alld
include all tlle reql1ired constraints.
1 SO Chapter Three Aggre~αte ΡΙαπnίιιι 3.6 SoI'Iinf:" Aggregαιc I)kInning ΡrοblCΠL~by Uneαr Programfning: Απ Example 151

18. Problem 17 was solved οα the computer. The lίnear ΡrogΓammίng ουιρυι of the α. Write down tl1e complete lίnear programnling 'forιntIlation ofthe revised
ΡrοgΓam is as follows: problem.
b. Solve the revised problem using a lίηear programming code. What difference
does the new 11iringcost function make ίn the εοίυτίοη?
LΡ ΟΡΤ1ΜυΜ FOUND ΑΤ STEP 14
{~:~.{~)~~1;:,
.~~:;: *22. Leather-AII ρτοσιιοεε a lίne of handmade leather ρτοσυαε. Αι the present time,
the company is producing οηlΥ belts, handbags, and attache cases. 'Πιε predicted
OBJECT1VE FUNCT10N VALUE demand for tl1ese three types of items over a six-montll planning horizon is as
1) 36185.0600 follows:

VAR1ABLE VALUE REDUCED COST

Η1 6.143851 .000000 Number of
Η2 64.310690 .000000
Month Working Days Belts Handbags Attache Cases
Η3 .000000 300.000000
Η4 116.071400 .000000 1 22 2,500 1,250 240
F1 .000000 300.000000 2 20 2,800 680 380
F2 .000000 300.000000 3 19 2,000 1,625 110
F3 87.662330 .000000 4 24 3,400 745 75
F4 .000000 300.000000 5 21 3,000 835 126
11 .000000 59.415580 6 17 1,600 375 45
12 .000000 189.285700
13 .000000 31.006490
W1 106.143900 .000000
w2 170.454500 .000000 The belts reqιIire an aνerage of two Ιιοιιτ» to ρτοοιιοο, the handbags three
W3 82.792210 .000000 Ιιουτε, and the attache cases six hours. ΑΙΙ the workers have the skill ιο work ση
W4 198.863600 .000000 any itetD. LeatheΓ-ΑlΙ11as 46 employees who each has a share ίη the firm and can-
Ρ1 850.000000 .000000 σοι be fired. There are an additional 30 locals that are available and can be hired
Ρ2 1260.000000 .000000 for short periocls at higher cost. Regular employees earn $8.50 per hour οιι reglI-
Ρ3 510.000000 .000000 lar time and $14.00 per hoιIf ου overtime. ReglIlar time comprises a εενεη-Ιιουτ
Ρ4 980.000000 .000000 workday, and the regular employees will work as much overtime as is available.
14 .000000 120.292200 The additional workers are hired for $11.00 per Ιιουτ and are kept οτι the payrol\
for at least one flIll mOI1t11.Costs of hίι-ίηg and fiι-ίng are negligible.
Because of the competitive natnre of the indlIstry, LeatheΓ-ΑIΙ does τιοτ want
to incur any demand back orders.
α. ΒΥ rounding the values of the variables using the conservative approach de-
scribed ίη Section 3.5, find a feasible solution το the problem. Determine the α. Using worke!" hours as an aggregate
measlIre of ρτοτίυοτίοη, convert the fore-
cost of the resulting plan. casted demands ιο demands ίη terms of aggregate units.
b. Determine another plan that achieves a lower cost than that determined ίη b. What wotIld be the size of the workforce needed το satisfy the deInand for
part (α) while still retaining feasibility (tl1at is, having a nonnegative amount the coming six months οη Γegular time only? Would ίι be to the conιpany's
of inventory οη hand at the end of each period). advantage το bring the permanent workforce ιφ to this level? Why οτ WllYτιοι?
19. α. Formulate Problem 9 as a lίnear program. c. Determine a production plan that meets the demand lIsing only regular-time
employees and tl1e total cost of that plan.
b. Solve the problem usi.ng a linear programming code. Round the variables ίη
the resulting solution and determine ιίιε cost of tl1e plan you obtain. d. Determine a ρτοοιιοιίοιι plan that ιιιίίίεσε only additional employees to absorb
excess demand and the cost of that plan.
*20. α. Ροιπιιιίειε Ρτοοίεπι 14 as a linear program.
*23. a. Formulate the problem of optiIllizing Ιeather-ΑIΙ's hiring schedule as a lineaI·
b. Solve the problem using a lίηear programlning code. RolInd off the εοίυιίωι
program. Defil1e all problem variables and includ.e whatever constraints are
and determine the cost oftl1e resulting plan.
necessary.
21. Consider Mr. Meadows Cookie Company, described ίη Problem 13. Suppose that b. Solve the problem formulated ίη part (α) using a lίnear progran1m ing
the cost ofl1iring workers each period is $100 for each worker ιιηιίl20 workers are code. Ronnd all the relevant variables and detern1ine the cost of the
hired, $400 for each worker when between 21 and 50 workers are hired, and $700 reslIlting plan. Compare Υουτ restIlts with those obtained ίη Problem 22(c)
for each wot·keI"hired beyond 50. and (ά).
152 Chapter Three Aggτegaιe Pkιnning 3.8 Mod,/ingManag,ment Bεhαoίor 1S3

3.7 ΤΗΕ LINEAR DEClSION RULE ofhiring a given number ofworkers must be the same as thecost offiring the same num-
ber ofworkers, and tIle cost ofprodllcing a given nlllflber ofunits οη overtime τιιιιετ be
Ατι interesting alternative approach το solving the aggregate planning problem has been ιίιε same as the cost attached το the same number ofunits ofworker idle time. The prob-
suggested by Holt, Modigliani, Muth, and Simon (1960). They assume that all the rele~ Iem can be overcome somewhat by υοι setting the center of symmetry of the cost func-
vant costs, including inventory costs and the costs of changing production leνels and ιίοη at ΖθΓΟ, but the basic problem of symmetry still prevails.
numbers of wοrkeΓS, are represented by quadratic functions. That is, the total cost over The most appealing feature ofthis approach is the simple form ofthe optimal policy.
the T-period plannil1g 1101'ίΖοηcan be written ίη the form For exanιple, the optimal production level ίη period t, Ρ" has the form
κ
τ
Σ [clW, + C2(W, - W,_t)2 + C3(P, - Kn,W,)2 + C4P, + cs(l, - C6)2)
Ρ, = Σ (a"D +
n=O
I II + bWt-t + cJ,-l + d).
,=ι
The terms απ, b, c, and d are constants that depend οτι the cost parameters. WI has a είπι-
ilar form. The οοωριιιετίοαεί advantages of the lίηear decision rule are less itnportant
subject το
now than they were when this analysis was first done because of the widespread avail-
/, = J,_I + Ρ, - D, for 1 s t S Τ. ability of comptlters today. Because lίnear programming provides a much more flexible
framework foτ formulating aggregate planning probleIns, and reasonably large Ιίιιεετ
The valtIes of the constants Ct, C2, ... , C6 must be deteτmined for each parιicιιlar ΡΓοgrams can be solved even οτι persohal computers, one would have ιο conclude that
application. Expressing the cost functions as quadratic functions rather than sitnple lίηear programming is a preferable solution technique.
lίnear fUl1ctions has some advantages over the lίnear programming approach. As quad- . Ιιshould be recognized, however, that the texl by Holt, ModigJiani, Muth, and Simon
ratic functions are differentiable, the standard ruIes of calct1lus can be used ιο represents a laηdmark work ίη the application of quantitive methods ιο production plan-
determine optimaI solutions. The optimal solution will occur where the first partiaJ ning problems. The authors developed a solution method that reslllts ίn a set of for.mu-
derivatives with respect to each of the probIenl variables are zero. When quadIatic las that are easy το iIllplement, and they actually undertook the implementation of the
functions are differentiated, they yield first-order equations (\inear εσιιετίοαε), which method. The work details the application of the approach 10 a large manufacturer
are easy ιο solve. Also, quadratic functions give a more εοοιιτετε ερριωωηετίοιι ιο of hotIsehold paints ίη the Pittsburgh area. The analysis was actually implemented ίη
general nonlinear functiol1S than do lίηear functions. (Any nonlinear flInction may be the company, but a subsequent visit Ιο the firm indicated that serious problems arose
approxinJated by a Taylor series ωφετιείοιι ίη Wllich the first two terms yield a qlIad- Wllen tlle lίηear decision nlle was foIIowed, primarily because ofthe fiτm's policy of ποι
ratic approximation.) firing workers when the model indicated that they should be fiΓed. (See Vollmann,
However, the quadratic appIΌach aIso has one serious disadvantage. It is that Berry, and Whybark, 1992, ρ. 627.)
qIIadratic fllnctions (that is, parabolas) are symmetric (see FiglIre 3-7). Hence, the cost
MODELING MANAGEMENT BEHAVIOR
FIGURE 3-7
Quadratic cost functions lIsed ίη deriving t!le Iίnear decision ru!e Bowman (1963) developed θη ίηteΓestίηg technique for aggregate planning that should
be applicable Ιο otheI' types of problems as well. His idea is Ιο construct a sensible
model [οτ controIIing prodllction leνels and fit the ΡaraΠ1eters of tlle lnodel as closely
as possible Ιο the actllal ρτίοτ decisions made by management. Ιη this way the model
reflects the judgment and the experience ofmanagers and avoids a number ofthe prob-
lems that arise when using more traditional modeling methods. One such problem is
deternlining the accllracy of the assumptions required bythe lnodel. Another problem
that is avoided is the need to deteflfline vaIues of ίηριιι par31nelers that could be
diflicult to meastlre.
Let us consider the problem of producing a single product over Τ planning periods.
Suppose that Dt, ... , Dr are tlle forecasts of demand [or the next Τ periods and Ihat
production levels ΡΙ, ... , Pr must be determined. The silnplest I'easonable decision
, Number-- rule is
units held
Ρ, = Dt [οτ Ι ,;; ι s Τ.
(01 Cost of chonging (bl Cost of chonging
Trying Ιο match prodllction exactly Ιο demand will generally result ίη a production
workforce leνels ίπνθηΙΟΓΥleνels
sClledule that is 100 enatic. Production smootlling can be accomplished tIsing a deci-
sion rule of the form
Ρι = Dt + α(Ρι-ι - Dt),
154 Chapter Three Aggrega", Ρ/αππίππ 3,9;])jsαggregaIing,Aggτeg~ιe pian; 155 ~;
1,\";'1

whefe α iS a'sϊl1οΌthίng fa'ctor for pToduction,lτav.iJi'gthe property Ο S α S ι, (The,

effect of smoothing here ί5 the sameias,that of exptJnential.smoothing, di,scus5ed ίη 111'{, f

detail ίη Chapter 2.) When α equals zero, this rule is 'identical to tlIe, -οτιε jU5t,pre- 24. .Πισ fΟrm,οfΦe bptίmal prod\1ction rule derived bY,Holt, Modig]iani, Muth, ii1ι~
senti:d, When α =; Ι, the ρτοσυοτίοη. iJf,period ι'ί); exactly the 'same as the ρτοάυοιίοτι ,11." SinlfJI!( 196Q) fόr,-the case; pK):hepaint coIηpanY,indicates that the ρτοτίυοιίοη Ιενο!
ίπ period ,Ι -' Ι. 'Πιε choice of α provides a meanS'ο[φΙacίng a relative weightootι ",';.,," inper;cid t ShofiTd,be computed from the'formula ό

matching production with' demand Verst!'S'holdingproduction constant from period . . η= :463D;,+"'.':Δ4DΜ+;111Dι!t{+,Ο46Dι+':j'+

h -, . , <"_",
.013Dt + 4
το perJod. i' - , . ,-Ι f

- ,022D,+s:'" :008D,+6 -.OIQDI+7 - ,009D'+8

Ιη addition το smoothing production, the firm al50 mJght be interested ίπ keeping ίτι-
ventory leνels near εοτυε target leνel, say ΙΝ. Α model that smooths both inventory and
- .068b,t9~:Ob7D;tlO'~:005Di+11 .
+.993W,rl - .46411_,1,+ 153,
production simultaneously is
and the w6rkfofce level ί~ -peHod Ι froin the foclιu]a
Ρι ='0,' + a(Pt-I""D,) + β(IΝ - 1,-1), ,
W,
. ~,~.Γ ~'-~_
.".
= .οιαο, + .0088Dt+J.+
' .' ..i'.'
:007.1DH2,+ ,0054D'+3
'ι " .

+ ,0042D'+4
+ .003IDt+5 + ,0023D,+6 + ,0016D'+7 + ,0012DH8
where Ο S β S Ι measures the
relatlve ~~ight pl~ced o~ ~m~CΊthing of inventory. +, ,0009Dt+9 + 1,0006Όι+Ίο +.0005'Dt+ 11'
Finally, the model should incorporate ctemand forecasts., Ιιι this way, productίon
+ ,743W,_1 ...: ,0111-1 - 2,09:'
leνels can be increased ,στ decieased.ίή :anticipation of ε. change ίn the pattem of I~" ,"~ , ~" ::",>'1 <.1, i:''-' Ά ;,,'1·1; ';~"J>,j;' ~.'r ',(;
demands. Α rule that includes smoothirig' of production' 'and inventory as well as fore- ..Suj>pose tfιat Ιοτεσεετ demands for the corning months are 150, L64, 185,
casts of future demand is 193, 167, )43,,\26,93,84,72,50,66. Th,r current nιunber of employees is ]80,
and the cnrrent in~entory .Ievel ls 45 aggregate units,
Ι+" α. Compute the "alues όf the aggregate productionleνeland the number ofworkers
Ρι = Σ αt-i+ID
ί=!
j + α(Ρι-1 - D,) + β(ΙΝ -/'-1), that the company should be usiηg ίη the curtent ρετίοά.
b, Repeat the οείουίετίου you performed ίη part (α) bnt ignore a1l terms with a
,ι coefficient ιίιει Ιιεε an absolute va]ne·less thiιn οτ equal to ,01 when calculatlng
This decision rule is arrived at by ,a straightforward common-sense analysis of P,,-and less than στ
equal to ,005 when calculating W" How much difference
what a good production rule should be. It is interesting ιο note how similar this rule is' dbyou obSerνe ίη th'e,ariswer?-- ι, '
to the lίnear decislon rule discussed ίn Section 3.7, which was derived from a mathe- σ. Siίppose thatthe cιίrreίιtdem~ήd is re~lized ιο be Ι ~~"and the new forecast one
matical model. Undoubtedly, the previous work οα the lίnear decision rule insplred ""year ahead is ,72'.'Usirig tlie approxim~tidn suggestediti part (b), deterlnίne'the
the form ofthis rule, Ιι.ίε often the case.that-the most-valuable feature οί-ε model ,js, new values fQ,!the aggregate productίop ievel and the-nιιmber of workers. [Ηίιιι:
lndicating the best !oi'm' of ah optiriιal ;i:rategy, and ηΌι necessariΙΥ tli~ jj~sr
stra'feg~ ί:
Yoil'fiίιist cΌm'ρute ,the'he~ι:'-QaΙUeγ,..:'{and 'assume1:h1it'the new value of Wt-I is
itself, thevaΙuecόΜΡutedίnΡart'(a):], ',γ,' ι,

This particulat model for Ρι requires determina!ion of αl, , , , , αn, α, β, and [Ν' 25" Usirigthe f6116wίήg ν~lίΙ~~&[fuanagenieJι{~όefficίeiitSj'i'οr Bowman's smoothed
<,' • '.:',' "ι"." ';;'_~/' \ ','" , --'---',." . ι
Bowman suggests that the νa]ues ofthese paranιeter~ be deterriιined by retrospectively , , . ,. -' ('Ι' ,t" ,~)I

Ρ'i'οd!!'ctίοήmodel, ~.eteilniiJe the pl'Oductί?iilevel for which Harold Grey (described

obserνing the system for a'reasonable period of time, and fitting the parameters το the in Problem, 9) shoίlld plan ίη the cοmiήg year: .A:.ssumetHat the cunent production
actual history of management actlons di.ιiil1g th~t tinιe bsing a'technique such as least level i~ Ί :Sb;Odbpackag~~,' / ,,' 'Ι,ι,"
squares. Ιη this way the model,becomes a reflectioiι ofpast management behavior,
Bowτnah cbmpares the 'actiJal experience' of 11 'nuffiber of companies with the ,οι ';" ,3416,; α2 =,Ι2l.1"α3 = .0?56", α4 = .0663,
experience thaΊ they wόuΙd' have had ιising his approach, and shows that ίη most cases ~" αs,= ,0023,' . α = ;6", β = 3, ,!j ΕΝ = 40,000,
there would have'been 'a substantial cost f~diJction, The modei merely emnlates man-~'· 26, α, Discnss the similarities and the differences betwee~ th'e linear decislon rule of
agement behavior, so why shonld ίι outperform actu<il mariagement experience? The Holt, Modiglianl, Muth, and Simon and Bowman's management coefficients
theory is thata πIodel derived ίη this 'manner ί!>a reflection of managemeiιt making " approach, '
ratlonal decisions, as most of the tlme the system Is stable, However, if a sudden un-
b. Discuss the relatίve advantages and disadvantages of linear decision rules
l1sl1alevent oc'curs, such as a fuuch~higher-than-anticipated demand οτ a su,dden decline
versus lineaτ program,ming for solving aggregate planning problems,
ίη productlve capacity due, for example, ιο the breakdown of a machine οτ the loss of
key personηel, ίι ί5 likely that many managers would tend Ιο overreact. However, the
model would recommend production leνels that ar~ consistent,with past declsion mak- DISAGGREGATlNG AGGREGATE PLANS
ing, Hence, the use of a simple but coηsistent model {οτ making decisions would keep
management ποιή paiιicking ίη an unusuaT situation. Althougli' the approacllis concep- , As we saw earlier ίη ,this chapter, aggregate p]anning Inay b" done at several leνels of
tually appealing, there are few reports ίη the literatιireof successful implementations of the fiπn. Example 3,] considered a single plant, and showed how one might define
such a techniqne, an aggregate unit to includ,e the slx different items produced at that plant. Aggregate
 ~·!·rl, .,.-,~.----~

156 Chapter Three Aggregate P/anning

planning might be done for a single plant, a product family, a group of families, οτ fl
the firm as a whole..
There are two views of production planning: bottom-up οτ ιop-down. The bott~
υρ approach means that one would start with individual item production plans. Th
plans could then be aggregated up the chain of products το produce aggregate plans.
The top-down approach, which is the one treated ίπ this chapter, is ιο start with an ag-
gregate plan at a high leνel. These plans would then have Ιο be "disaggregated" Ιο pro-
συοε detailed production plans at the plant and individual item leνels.
Ιι is σοι clear that disaggregation is an ίεευε ίη a11οίτοιυυετεηοεε. [f the aggregate
plan is tIsed only for πιεοτο planning purposes, and τιοτ for planning at the detaillevel,
then one need υοτ worry about disaggregation. However, ifit is important that individ-
tIal item ρτοάυοτίοιι plans and aggregate plans be consistent, then ίτ might be necessary
to consider disaggregation schemes.
The disaggregation problem is similar to the classic problelJl of resource allocation.
Consider 110W resources are allocated ίη a university, for example. Α tIniversity re-
ceives τενευυεε from τιιίιίοτι, gifts, interest οπ the endowment, and research grants,
Costs include salaries, maintenance, and capital expenditures. Once an annual budget ,"
is determillecl, each school (arts and science, engineering, business, law, etc.) and each
btIdget center (staff, maintenance, buildings and grotInds, etc.) woLIld have Ιο be allo-
cated its share. Budget centers would have to allocate funds Ιο each oftheir stIbgrotIps.
For example, each school would allocate funds το individual departments, and depart-
ments wotIld allocate funds ιο faculty and staff ίη that department.
Ιη tlle manufacturing context, a disaggregation scheme isjLIst a means of allocating ag-
gregate units to individtIal items. JtIst as funds are allocated οιι several leνels ίη the uni-
versity, aggregate units might have το be disaggregated at severallevels ofthe firm. This
is the idea behind hierarchical ρτοουοτίου planning championed by several researchers at
ΜΙΤ and reported ίπ detail ίη Bitran and Hax (1981) and Hax and Candea (1984).
We will disctIss one possible approach ιο the disaggregatioll problem from Bitran ",
ρ. ;π
, ':Ι:ii;i<,-: ':.""
and Hax (1981). StIppose that Χ" represents the numbel' of aggregate υυίιε οί ρτοουο-
τίοιι [οτ a particular planning period. FtIrther, ευρροεε that Χ* represents an aggrega"
ιίοτι of η different items (Υι, Υ2, ... , Υιι)' The qtIestion is how το divide up (i.e., disag-
gregate) Χ* anlong the n items. We know that holding costs are already included ίη the
determination of Χ", so we need τιοτ incltIde them again ίπ the disaggregation scheme. The upper and lower bounds οη Yj account [οτ possible side constraints οη the produc-
Suppose that Kj represents the fixed cost of setting υρ Ιοτ ριοοιιοιίου of~, and λ) is the τίοιι leνel [οτ itemj.
annual usage rate for item j. Α reasonable optimization criterion ίη this context is το Α number of feasibility issues need ιο be addressed before the family τυη sizes Υί
choose Υι, Υ2, ... , Yn το millimize the average annual cost of setting up [οτ ρτοοιιοιίοη. are further disaggregated ίυτο lots for individual ίτειυε. The objective is ιο schedule
As we will see ίη Chapter 4, the average annual setup cost [οτ item j is KjA/~. the lots for individtIal itelns within a family so tllat they run out at the scheduled setup
Hence, disaggregation requires solving the following mathematical programming time for the family. Ιη this way, items within the same family call be produced within
problem: the same productioll setup.
The concept of disaggregating the aggregate plan along organizational lilles ίn a
J KjAj fashion that is collsistent with the aggregation SC!lenle is an appea.1ing one. Whetller ΟΓ
Minimize ΣΥ ηοΙ the methods discussed ίn this section provide a WΟΓkable link between aggregate
j=1 } plans and detailed item schedules remains to be seen.
Anotheτ appτoach Ιο the disaggregation problem has been explored by Chung and
subject to Krajewski (1984). They develop a mathem.atical progra.mming fOllnulation of the
J problem. lnputs Ιο the program include aggregate plans [οΙ' each product [ωηίΙΥ· This
Σ~=x* includes setup time, setup status, total production leveI for the family, inνentory leνel,
j=I
workforce leνel, overtime, and regular time availability. Tlle goal of the analysis is to
and
specify lot sizes and timing ofpJ'Oduction runs [οτ each individual item. consi.stent with
ajs,~s,bi [οτ Ι s, j s, J. the aggΓegate information [οτ the product family. AltllOUgh sllch a fOlllll1latiol1
158 Chapter Three Aggr'gaIe Planniiιg
•.~,.).,:\;;1'
Ρrόνid~s"~'~οt~~tίaJ link between the aggregate plan and the master production SChi
ule, the resulting mathematical program requires many inputs and can result ίτι a very "
large mixed integer problem that could be very time-consuming to solve. For these re~:.;
sohs, firms are unlikely to use such methods when there are large numbers of ίndίνΓd-
ual items ίη each product family.
Problems for Section 3.9
27. What does "disaggregation of aggregate plans" mean?
28, Discuss the following quotation made by a production manager: ''Aggregate plah-
ning is useless ιο me because the results have nothing to do with my master
production schedule."
3.1 Ο PRODUCTlON PLANNING ΟΝ Α GLOBAL SCALE
Globalization of manufactu.ring operations is commonplace. Many major οοτροτε-"
tions are now classified as multinationals; manufacturing and distribution activities
routinely cross intemational borders. With the globalization of botl1 sources of pτo~
duction and markets, firms must rethink production p!anning strategies. One issue ex-
plored ίη this chapter was smoothing of production plans over τίηιε; costs of increas~
ing οτ decreasing workforce levels (and, hence, production leve!s) play a major τοίο '
ίπ the optimization of any aggregate plan. When formu!ating g!obal production
strategies, other sJnoothing issues arise. Exchange rates, costs of direct labor, and tax .
structure are just some of the differences among οουτπτίεε that πιιιετ be factored ίηΙΟ
a global strategy.
Why the increased interest ίπ global operations? [η shorι, cost and competitiveness.
According to McGrath and BequiI!ard (Ι 989):
The benefits of a properIy executed international manufacturing strategy can be νΟΓΥ
substantial. Α well deνeloped strategy can haνe a direct impact οη rhe financiaI performance
and uitimateiy be reflected ίη increased profirability. Ιη Ihe elecIronic industry, rhere are
exampIes of companies attributing 5% Ιο 15% reduction ίη cosI of goods sol<l, 10% Ιο 20%
increase ίη saIes. 50% Ιο Ι50% improνement ίη asset UΙilizaIion, and 30% Ιο 100% increase
ίη inventory tu.rnover Ιο their intemationaIization ofmanufacturing.
Cohen et al. (1989) outline some ofthe issues that a firm must consider when planning
production leve!s οπ a wor!dwide basis. These inc!ude
Τπ order ιο achieve t!1e kinds of economies of sca!e required Ιο be competitive
today, mlIltinationa! plants and vendors must be managed as a g!obal systen1.
Duties and tariffs are based οη material flows. Their impact n1ust be factored ίπιο
decisions regarding shipments of raw lηaterίal, intermediate prodllct, and finished
product across national boundaries.
Exchange rates fllIctuate randomly and affect production costs and pricing decisions
ίπ countries where the product is produced and sold.
Corporate tax rates vary widely from one country to another.
Global sourcing ιηust take ίηΙο account longer lead tίιηes, lower unit costs, and
access to new technologies.
3.11 PrαccicαlConsideranons 159
Strategies for market penetration, local content rules, and quotas constrain product
flow across borders.
Ρτοουοι designs n1ay vary by national market.
Centralized control of n1ιιltinationa! enterprises creates difficlllties [οτ several rea-
sons, and decentralized control requires coordination.
CtIJtural, language, and skil1 differences can be significant.
Determining optimal globalized manufacturing strategies is clearly a daunting prob-
lem for any multinational firm. One can formulate and so!ve mathematical models
similar το the lίnear programming formulations of the aggregate planning mode!s
presented ίπ this chapter, but the results of these models must always be balanced
'ί'
against judgment and experience. Cohen et al. (1989) consider such a model. They as-
sume multiple products, plants, markets, raw materials, vendors, vendor supply CO!l-
tract alternatives, τίιηε periods, and countrίes. Their forn1ulation is a large-scale mixed
integer, nonlinear program.
One issue τιοι treated ίη their model is that of exchange rate fluctuations and their ef-
fect οη both pricing and production planning. Pricing, ίη parιicu!ar, is traditional1y
done by adding a πιετκιιρ το υπίι costs ίπ the home maΓket. This cornpletely ignores
the issue of excl1ange rate fluctuations and can lead. 10 unreasonable prices ίο sorne
countries. For example, this issue has arisen at Caterpillar Tractor (CaterpillaI" Tractor
Company, 1985). [π this case, dealers all over the WΟΓldwere bil!ed ίπ U.S. dollars
based οη U.S. production costs. When the dol1ar was strong relative ιο other cιιrrencies,
ΤΟΙθίΙprices cl1arged το overseas customers were ιιοι competitive ίπ local markets.
Caterpil1aI" folInd itself losing market share abroad as a result. Ιη the early Ι980s the
firnl switched το a 10caΙΙy cornpetitiνe pricing strategy το counteract this problern.
The ηοιίοιι that l11anufacturing capacity can be used as a hedge against exchange
rate fluctuations 11as been explored by several researchers. Kogut and Kulatilaka
(Ι 994), [οτ example, develop a rnathematical model [οτ determining when ίι ίδ optirnal
Ιο switch prodllction frorn one locatίon to another. Since the cost of s\vitching is
assuIned to be positive, there mnst be a snfficiently large difference ίπ exchange rates
before switching is recoll1mended. As an example, they consider a situation where a
firl11can produce ίΙδ product ίη either the United States οτ GerιηaπΥ. Ifproduction is
clIrrently being done ίπ οπο locatίon, the model provides a lηeans of detern1ining if ίι
is econon1ical ιο switch locatίons based οη tlle ΓeΙatίνe strengths ofthe eUIΌand dollar.
Wllile stIch lηοdels are ίn the early stages of developlnent, they provide a n1eans of
("ationalizing international prodnction planning strategies. SiIl1ilar issues have been
explored by Ηucl1ΖeΓιneίer and Cohen (1996) as \vel1.
PRACTlCAL CONSIDERATIONS
Aggregate planning can be a valuable aid ίπ plaoning prodlIction and workforce levels for
a company, and provides a Ineans of absorbing deιηand fluctuations by srnootlling work-
force and plΌduction leνels. There are a number of advantages for planning οπ the aggre-
gate lονοΙ oveI"the detai! level. One is that the cost ofpreparing forecasts and deteΓInining
productivity and cost ΡaraιηeteΓS οη an individllal iten1 basis can be prohibitive. T11ecost
of data collection and ίnρυ! ίδ probabJy a 1110ΓΟ significant drawback of ]aΓge-scale Il1ath-
eιηatίcal ΡlΌgΓaιηmίng fΟΠl1l1latίοns of detailed production plans than is the cost of
actllally perfoΓIl1iI1gtl1e COIl1plltations.Α second advantage of aggΓegate planning is the
relative improvement ίη forecast aCCUΓaCΥ that cal1 be achieved by aggregating items. As
 160 Chapter Three Aggregalc P"'""ing
\ve saw ίη Chapter 2 οα forecasting, aggregate forecasts are generally more accurate than
3
indivi<lual forecasts. Finn.lly, an aggregate planning tramework allows the manager, ΙΟ
see the "big picture" and υοι be unduly influenced by specifics.
With all these advantages, one would think that aggregate planning would have an
important place ίη the planning of the production activities of most companies. How.:,.
ever, this does ηοι appear το be the case. 'Πιετε are a ntImber of reasons for tl1e lack or
interest ίη aggregate planning methodology. First is the difficlIlty of properly defining art
aggregate ιιηίι οί ρτοσιιοιίοιι. There appears το be ηο simple way ofspecifying how ίη-
dividtIal itenls shotIld be aggregated that will work ίη all situations. Secolld, once an ag- .
gregating scheme is developed, cost estimates and demand forecasts for aggregate units
are required. It is difficult enough το obtain accurate cost and deInand information for
real units. Obtaining such information οα θη aggregate basis cotIld be considerably
more difficult, depending ου tl1e aggregation schetne tbat is used. TlΊίrd, aggregate plan-
ning models rarely reflect the political and operational realities of the environnlent ίη
which the company is operating. Assuιning that workfoioce levels can be changed easily
is probably αοι very realistic for most companies. Finally, as Silver and Peterson (Ι 985)
suggest, managers do τιοι want ιο rely οη a mathematical Inodel for answers ιο the
extremely sensitive and important issues that are addressed ίη this analysis.
Another issue is whether ΟΤ αοι the goals of aggregate planning analysis can be
achieνed through methods other than those discussed ίη this chapter. Schwarz and
Johnson (Ι 978) clainUhat the cost savings achieved lIsing a lίηear decision rL1lefor
aggregate planning could be obtained by improved Inanagement ofthe aggregate inven-
tory alone. They substantiate their hypothesis using the data reported ίη Holt, Modigliani,
Muth, and Simon (Ι 960), and show that fortl1e case ofthe paintcompany virtual1y all the
cost savings ofthe lίηear decision rule were a result ofincreasing the bIIfFer inventory and
ηο! ofmaking major changes ίη the size oftl1e labor force. This single comparison does
ηοΙ verify the authors' 11ypothesis ίη general, but suggests that better inventory manage-
ment, using the methods Ιο be discussed ίη Chapters 4 and 5, could return a large portion .
ofthe benefits that a company might realize with aggregate planning.
Even with tlΊίs loηg lίst of disadvantages, the mathematical models discussed ίη this
chapter can, and should, serve as θη aid to production planners. AlthoLIgh optimal solu-
tions Ιο a mathematical model may ηοι be true optimal solutions Ιο the problenl that they
address, they do provide insight and could reveal altel'natives tl1at would ηο! otl1erwise
be evident.
3.12 HISTORICAL NOTES
The aggregate planning problem was conceived ίη ηη important series οΓ papers that ap-
peared ίη the mid-1950s. The first, Holt, Modigliani, and Simon (1955), discussed the
structLIΓeoftl1e problenl and introduced the quadratic cost approach, and tl1e later sttIdy
ofHoJt, Modigliani, and Muth (Ι 956) concentrated οη the coInplltational aspects ofthe
model. Α complete description ofthe metl10d and its npplication Ιο production planning
Γοτ a ρηίηι coInpany is presented ίη Holt, Modigliani, Muth, and Simon (1960).
That prodIIction planning problems could be formIllated as linearpΓOgrams appears Ιο
have been known ίη the early 1950s. Bowman (1956) discussed tl1euse οΓa transportation
model for production planning. The particular lίηear programming forιnlIlation of tlle
aggregate planning problem discllssed ίη Section 3.5 is' essentially tl1e same as the one
3 More precisely. ίl the individual lorecasts are πο! perfectly correlated, then the standard
lorecast error lor the aggregate will be less than the sum ΟΙ the standard deviations ofthe
forecast errors.
3.13 Summary 161
deνeloped by Hansmann and Hess (Ι 960). Otl1er lίηearprogrammίηg formulations oftl1e
production planning problem generally involve nlu1tiple products ΟΓmore complex cost
structures (see, for example, Newson, Ι975η and Ι975b) ..
More recent work ου the aggregate planning problem has focused οιι aggregation
and disaggregation issues (Axsater, 1981; Bitran and Hax, 198 Ι; and Ζοίίει, 1971), the
incorporation oflearning curves ίnΙο lίnear decision rules (Ebert, 1976), extensions ιο
al10w for multiple prodncts (Bergstrom and Smith, 1970), and inclusion of marketing
and/or financial variables (Damon and Schramm, 1972, and Leitch, 1974).
Taubert (1968) considers a tecllnique he refers Ιο as the search decision rule. 'Πιο
method requires developing a computer simulation model ofthe system and searcl1ing
the response surface using standard search techniques Ιο obtain a (υοι necessarily ορ-
timal) solution. Taubert's approach, which was described ίη detail ίη BlIffa and Tanbert
(1972), gives results that are comparable Ιο those of Holt, ModigJίani, Μιιιο, and
Simon (1960) for the case ofthe paint company.
Kamien and Li (1990) developed a mathematicalInodel ιο examine the efFects of
subcontl'acting ου aggregate planning decisions. The authors show tllat under certain
circumstances ίι is preferred το producing in-house, and proνides an additional πιεεηε
of smootl1ing production and workforce levels.
Determining οριίωε! production levels Γοι'all products Ρrοdιιced by a large firm can be ηη
σιοτυιουε undertaking. AggI'egate pIannil1g addresses this problem by assuIning that indi-
vidIIal items can be grouped together. Ho\vever, finding an effective aggregating scheme can
be difficult. The aggregating scheme chosen must be consistent with the structure of tlte
organization and the natιιre of the products produced. One particular aggregating scheΠJe
that 11asbeen sttggested is itenIs,jamiIies, and types. ltems (or stockkeeping ttnits), repre-
senting the finest leνel of detail, wοιιld be identified by separate part numbers ..Families are
groups of items that share a commollIllanufacturing setιιΡ, and types are natural grΟΙιΡίngs
of families. This particular aggregation scheme is ΓθίΓIΥgeneral, but there is ηο guarantee
that ίι wiJl work ίη every application.
/η aggregate planning one assun1es deteπιιίnίstίc den,and. DeIlland forecasts over a
specified planning hOI'izon are required ίηριιΙ This assLImprion is ηο! made for the sake of
realisIll, bllt ιο allow tl1eanalysis ιο focus οη the changes ίη the demand that are systematic
rather than random. Tl1e goal of the analysis is to determine the nllmber of workers tl1at
should be employed eaCI1peI'iod and the nunlber of aggregate lInits that SI10uldbe produced
each period.
Theobjective is to Ininimize costs ofproduction, ρηΥΓΟΙΙ, holding, and cl1anging the sizeof
the workforce. The costs ofmakillg changes are generaIIy referred Ιο assnlOoI/,il1g C08tS.Most
ofthe aggregate planning Inodels discussed ίη this chapter assume that all the costs are Iineaι"
jitnctions. This means tl1at tl1e cost of hiιing an additional worker is the same as the cost of
hiring the previous work.er,and the cost ofholding αη additional ιιηίι of inventory is the same
as the cost ofholding the previous ιιηίι ofinvenιory. This assttmption is probably a reasonable
approximation for Inost real systems. Jt is unlikely that the primary probleIn with applying
aggregate planning metllodology Ιο a real sitIIation will be tllat the shape ofthe cost functions
is incorrect; ίι is more likely thatthe primary difficulty will be ίη corτectly estimating the costs
and otl1errequired ίηριιΙ information.
One can fίnd approximate solutions ιο aggregate planning problems by gΓaΡΙ1ίcaΙ
nletl1ods. Α prodLIction schedule satisfies demand ίΓ the graph of cIImulative prodlIction
lίes above the graph of cumulative dCΠland.As long as all costs aI'e lίηear, optimal sol-
deviation ΟΙ the
ιιtίοns4 can be found by lineaι' pl'lJg1'OrιIIning. Because solIItions of lίηear programIning
indlvidual
4 That is. optimal subject ιο rounding errors.
 162 Chapter Three AggτegaIe I'lιιnning

probIems may be fractions, some ΟΓ all oftbe vaήabΙes must be rounded ιο integers. The best
way ιο round the variables ίε αοι aIways obvious. Once an οριίοιεί solution ί$ found, its
appropriateness must be considered ίη the context of the pIanning probIem, as there are
intangibIe οοετε and constraints that might be difficult ΟΓ impossible ίο include directiy ίη
the probIem formulation.
Linear programming also can be used το determine optimai. ρτοσυοιίοιι ievels at the
individual item levei, but the size ofthe resulting problem and the ίnρυι data requirements
Inight Inake such an approach unreaIistic for large οοιυρεηίεε. However, detailed Iinear
progranlming fornJuiations could be used at the faΠ1ίΙΥ level ratller than the individual item
level for Iarge firms.
EarIy work by Holt, Modigliani, Muth, and Simon (1960) required that the cost
fUl1ctions be quadratic functions. With quadratic costs, the form of the resulting optimal
ροΙίCΥ is a simple lίnear function, known as the lineαI' decision πι/e. However, the
assumption of quadratic cost functions is probably ιοο restrictive το be accurate for πιοει
reaL ρτοοίσιηε.
Bowman's lnanαgenIent coefficients modei fits a reasonable matllematical model of the
system το the actual decisions made by management over a period of time. This approach
Ilas the advantage ofincorporating management's intuition υιτο the model, and encoLIrages
managemel1t ρετεοτυιεί to be COl1sistent ίπ future decision making.
ρίωιε will bc of lίttle ιιεο ΙΟ the fim) if they cannot be coordinated
Aggregate witli
detailed (ί.ε., the master ρτοτίιιοτίου schedllle). The probLcm of dis'agg,.,i"
item schedllles
gαting aggregαte ρ/απ!>' is a difficu1t one, bllI one that must be addressed, ί f the aggregate
pIans ετε ιο have νείιιε το the firιn. There Ιιενε beel1 some mathematical programnling
formlIIations of the disaggregating problem suggested ίπ tl1e lίterature. but these disaggre-
gation schenles have yet το be proven ίη practice.

\. /' •.-. ~ ::t; :/.," ~,ι ~~,;

·':ι,ι::. ': :4' ι ι~':,ι:~I
. ,1 'Ι" ;(> ι. . ' j

Additional 29. ,An aggr'~gil\e, planning P,10de( j.s"beifJg"c~?~i,ίle!~d f9r the follo\,:!ng' applicaiions.
Suggest an agg'regate measιire Όf Ρrόductiοi:ι and discuss tl)(: difficulties ofapplying
Problems ου:
. Agg'l-egate ) f Ά 'aggl'eg,\~e pLaruling in~ach'c~~e',:,::,~':,K~' ';'~>';~';,'",ι} :'-' ,,'Ι, .
11
'; '.d.' Planhing for tlιeΆsίΖe 0'ft11e',facult),i'jh:a university:';1 ,
Pla:,rt~iiig:1H ,. ίΊ:,·Η
·1). "DeteΙ'li1ίηίng<\ί15rkfοr6eΨeqiiιre'i"'~J1'tg'fδr 1i'trave! ii'geilcy.'!/
. c. Planning workt;orc$, a~d ~rodUc\t}?,~.,!~y~ls ,ί~~,~sn;~~D\:e's'sing plant ihat proctuces
,.7 ::. ~" ;iI' " ":'>,1
_ canned sardiιi.e~; ~c~ovies, kippers,a~~'Smbk!;d b);'sters. _
,.<'.' Η,,' '; j' "'_l: '_,:1
~ ';' .• ,;:ζ~.:~.J_ ' .."J~~' ι, ι •• ,[:' . ..'
J ΙΛ ι., \Ί.- 30. Α plan! )ηanager ,emploxed bya 'I1ational ;produ~er of kitc!)en; products is 'planning
.rI, wοι;kfοrceleveΙs f,or the' next three monihs. Αιι .aggregate un,j,t of ρτοτίιιοτίωι requires '
ιιη average of [our labor hours. ηοreC,astdernaίιds' [οτ th,e thι;ee-mοί1tli 110τίΖοη 'art: as
follows:
)jΙ,.Ί

Forecasted
, ~, ', , Demand
(ίn aggre-
gate units) ,iI ,Ι
1"Ι, ' ;,',
,(1,2;400
\1
;..ι

,; ,,~;.
 Additi011αl Problcms οη A,ggreJ.:"are l'/anηing 165
164 Chapter Three Aggregace Pωηηίη,~

Assume that Parls currently has 80,000 gaJlons ofpaint ίη inventory and wou]d
ιο end the year with a11lnventory of at ]east 20,000 gal1()ns.
σ, Deteπnine the mlnlmuln constant workforce p]anfor Parls Palnt atid the cost
p]an, Assume that stock-outs arc υοι al1o\ved.
b. Determinc the zcro invetιtdry p]an thathiresaιid fires wοτkers eac]l
match deInand as c]osc]y as ,possib]e and thc cost of that p]an.
δ, Assuιne cI = $0.1 Οper cookie per month, cll = $] 00, al1d cp = $200. Add colulnns
that give t]le ουυιυίετίνε on-h.and invenlory and invel1tory cost. W]lat is the total
cost of the constnnt workforce plan?
c. Construct a ρlηη that changes the Ιενε! 01" ιίιο workforce το ιυοει montl11Y
del11and as c]osely as possible, Ιη designing the logic for your calcu]atiol1s,
be sure that invcntory does υοι go negative ίη any month. Dctermine the cost of

c. If.Paιis were able 10 back-order excess den1and al a οοει of$2 per ga]]on pe~ //~ t]1is ρίεη.
ter, detcrιnlne a mi~imuln constant workforcep]an that Ιιοκίε Ιοεε lnventory t }\υΙ- (37, 11eYeasty ΒΓe\viηg Coιnpany produces ε popular Jocal beeI· known as Ιτοη Stomach.
the,plan you foundinpati (α), but incurs stock-outs iηquaΓteΓ 2. Detcrminc the' \,'- Becr saJes are solnew]lal seasonal, and Yeasty is planl1ing its ρτοουοϋοη and worktoI·ce
of Ilte new plan. levels οο MarcJ1 3 J for the next six ll1onths. The dell1and forecasts aI'c as follo\vs:
33. Consider the problem of Parls Palnt presented inProblem 32. Suppose that the
Ιιεε the capacity ιο elnploy a maxlmum of 370 workers, Suppose that regu]ar,ti Production Forecasted Demand
employee costs are $12.50 per Ιιοιιτ, Assume sevcn-hour days, five-day wceks, a Month Days (ίπ hundreds of cases)
four-week months. Overtime is paid οη a time-and-a-ha]f basls. Subcontracti~g ΑΡΓίl 11 85
avai]able θ! a cost of$7 per gallon ofpaint produced. Overtlme is ]imited Ιο three ho May 22 93
per employce per day, and πο more than 100,000 gaJlons can be subcontracted. June 20 122
any quarter. Deteτmine a policy that mects the demand, and the cost of that ρ()Ιί July 23 176
(Assume ειοοκ-οιιιε are nο! aJlowed.) August 16 140
September 20 63
34. G. Foπnu]ate Ρτοοίεηι 32 as a ]jnear program, Assume tl1at stock-outs
al1o\ved,
'~"'!;X As of ΜaΓcΙ131, Yeasty 11ad86 workers οη the payroll. Over a pcriod of 26 WΟΓk-
b. So]ve the linear program, Round.the variables and determine the cost ofthe resιJlti ing days \vhen tl1ere were 10Οworkers ου tl1e payrol], Yeasty produced 12,000 cases
plan. .
οfbeCΓ. 'Πιο cost ιο hirc each \vorkcr is $125 and tl1e cost of laying off each \vorkeI"is
35, σ, Formulate Prob]cln 33 as a linearprogram. $300. Holding costs ευιουυι Ιο 75 cents per case per ηιοητίι.
b. S()lvc the ]inear progra111.Round the variables arid determlne the cost oftlte reslJlt As of Marclt 31, Yeasty cxpccts ιο have 4,500 cases ofbecI" ίη stock, and ίι i'ants to
plan, ' maintain Η nlininnlm bttffer invcntory of ] ,000 cases each month. Ιτ plans Ιο start
Ι:,:
Οοιοοετ with 3.000 cases οη hand.
36, The Μτ, Meadows Cookie Company can obtain accurate forecasts fOr 12.tn
based οη fιrm οπίετε. These forecasts and the nnmber of workdayspermon\h a α. Based οτι tl1iSintorιnatlon, find the ιιιίηίωΙΙΙl1 constant workforce plan for Yeasty
fol1o\vs: over the six l11ontI1s,and detcrmine I1iring, firing, and holding οοειε associatcd witl1
that ρίεα,
Demand Forecast b. Suppose tl131ίι takes 01lCηιοιιι]: to ΙΓαίη a nclv WΟΓker,How \νίΙΙ that affect youι·
Month (ίη thousandsofcookies) Workdays solution?
1 850 26 ('. Suppose tl1at the maxiI11tI111
numbeI" ot' WΟΓkerstl1at the colnpany can expcct to
2 1,260 24 bc able 10 hire ίn one ιηοηιΙ1 is 10. How wil1 that Hffect youl" solution to
3 510 20 ρπτΙ (α)?
4 980 18 c!. DeΙeΓnJiηe the zcro invcl1tolOY ρΙπη and t11Ccost of that ρΙηη. [Υοιι ΙΙΙΗΥ ignoI·c tl1C
5 770 22 I~ conditions ίη pHrts (b) and (c').)
6
7
850
1,050
23
14
Ρι vt' \ 38. α) Fonl1tIlHtc 111CΡΓοblenι of p]anning Ycasty"s procluction leve]s, as dcscribed ίn
8 1,550 21 ''-..J' PΓOb1em37, as a linear prognlll1. [Υοιι ιηaΥ ignΟΓCthe conditions ίη parts (b)
9 1,350 23 and (ι-).)
10 1,000 24
6, Solvc tllCrcstIltlng JincaI"ριυgram. RotIIld tl1Cnppropriat.e vHriabJes Hnd detcrn1inc
11 970 21
13 tl1Ccost οΓ ΥΟΙΙΓsoltItion.
12 680
c. Suppose Yeasty does ηο! wish to .fire3l1Y\Vorkers. \Vl1at ls IJ1Coptimal Ρ]ΗΙΙ sub.iect
During a 46-dayperiod when there \vere Ι 20\vorkers, the fir111 1001is cOl1stralnt?
1,700,000 cookies. AssunJc tl1at there arc 100 workers employed at the hMinninO" 39. Α local canning COll1fJanyselJs c3nned vegelables to a supermarket chain ίn tl1C
IJ10nth 1 and zero startlnginventory, Minneapolis al'ea, Α typical case ot' canned vegetables reqtIlres an average οΓ 0,2 clay
ά.. Fίnd the minlmum constant workforce needed ιο meet montl1]y denland. of labor to pJ"Oducc. The aggregate inventory οη hand "ι 111eend of .func i5
166 Chapter Three AIW<garc ['lanning
Appendix 3-Α 167

800 cases. The demand for thc vegetables can be accLIrately predictccl for about
18 I110nths based ΟΙ1 o,-ders received by the firn1. The predicted demands for the Actual New
next 18 months arc as foIIows: Month Demand (1996) Forecast (1997)
February 148 160
March 200 175
Forecasted Forecasted ΑΡΓίl 190 120
Demand Demand May 180 190
(hundreds (hundreds June 130 230
Month of cases) Workdays Month of cases) July 95 280
August 120 210
July 23 21 April 29 20 September 68 110
Augu5t 28 14 May 33 22 October 88 95
September 42 20 June 31 21 Novelnber 75 92
October 26 23 July 20 18 December 60 77
November 29 18 Augu5t 16 14
December 58 10 September 33 20
January 19 20 October 35 23
February 17 14 November 28 18
March 25 20 December 50 10

Glossary of Notation for Chapter 3

Tl1e ΓΊτη1currently has 25 \vorkcI·s. The cost ofhiring and training a new worker is
$ 1,000, and ιίιε cost το lay off onc worker is $1,500. The firn1 cslin1ates a cost of$2.80 " = SIll00111iI1!!const,IIlI fOl"JJl"OCIUCliOIl
"'1d clcIllanc] usccl ίη BOWHl<II1'sl11odel.
Ιο store a casc of vegetables for a ηιοηιίι. Tl1ey woLIld like ιο have 1,500 cascs ίη β = SIllootl1in!! COI1stant [οι· ίΙ1veη1ΟΓΥtlSccI ίη 80"'Ι11:1Ι1'5 ιυοοε].
inventoIOYat the cnd oftl1C 18-ιηοηιl1 planning horizon.
ΙΊ.· = Cost" οΓ ΙίΙ'ίηι; one WΟΓΙCCΓ.
a. Develop a spreadsheet ιο find the minimum constant workforce aggregate plan and .., ('11 = Cosl οΓ 11ίΓίηι;one \vol·kcI·.
detcrmine the total cost oftl1at plan.
('1 = Cost οι' 110lding one ιιηίι ο! stock fOΓουε [1CI·iod.
b. ΟενεΙορ a spreadsheet ιο find a ρlηη that hires and. fi[es workers I110nthly ίπ
ordcr το n1inimize inventory costs. Dctern1ine the total cost of ΙΙ13Ι Ρl3η as Ι'() = Cosl οί' ριυdιιcίηg onc Lιπίι 011ονειιίιυο.
\veII. ('1' = Pcnalty σοει ·foΓbacl< o,-dcr5.
c. Graph ιΙ1' ctImulativc nct deI11and and, using thc grapl1,find ,1ΡI,lη that cl1anges (he ('Ι( = Cost οί' ιποcJιιcίng OI1C ιιnίι οιι I'egLII.H ιίυιο.
workforce level exactly once during tl1e 18 l110nths and 11as" 10,,'e1"cost than either
(".Ι' = Cost 10 sιιbcοηlΓΠCI ουε ιιnίι οί ρ.οοικιίωι.
0[t11C plans considcI'ed ίπ parts (11) and (b).

::f~ 40. Consider tl1e lίnear ρτοοικιίοη rule of Ηοίι, Modigliani, Muth, and Sil11on, appcaring
ίη Problem 24. Design 3 spreadsheet το οουιρυιο Ρ, and W, [ΓΟΙ11deI11and Ιοτοοοετε. Ιηζ
particular, supposc that ει tl1e end ofDccember 1995 the workforce \Vas ΗΙ 180 and the
('ΙΙ = I(ile cost ]JCI'ιιηίι (1Ι'

D, = FΟΓCC'lSΙοΙ" (lcInal1ll ίη JJCI'ioclι.

]JI"OCltICriOI1.

F, = NUInbel' οΓ wOl"kcrs fiI'cd ;η JJeriod r.

inventory was ει 45 aggregate units.
Ν, = NlIIllbcI" of ,vorkcl's 11il'ccIίη pcγjod ι.
a. Using the forecasts of demand for the nlOnths J"Hnuary tllfolIgh DeccIllber 1996
given ίη ProblcIll 24, find tl1e recommended levels of aggregate production and.: Ι,. = Il1vcnt"ory Icvel ίl1 (JCI'iod ι.
workforce size for January. ', Κ = Nun1ber o]',tggreg<1te units lποdιιccd Ι'Υ OI1C\VOI"kCI'ίl1 OI1Cday.
*b. Design ΥΟΙΙΓ sprcadsheet so tl1al ίι can cffίcicntly tIρdate recoI11I11cnded.· λl = ΑηηΙΙ<11dCIl1Hnc!ΙΟΓt':1I11ily.i(rcfcI' to Scclion 3.9).
levels as demands ετο realizcd. Ιη partictIlar, ειιρροεο ιίιετ the dCI11l1ndfo;'
17, = NtllllbcΓ σΓ IJΓOdtIct"iOJldnys ίl1 I,eriod /.
JantIary was aCttIally 175 and tl1e forccast for January 1997 was 130. WJlat
are the I'ecoI11Illcndcd levels οΓ aggregate ρτοουοτίο» and wοrkfΟΓCC size for Ο, = OvcrtiIllC 1"'oclιrctioI1 ίη units.
February? (Ηίαι: Stol"C the denland forccasts and coetΊicicnts ίη separate, Ρ, = Ριυουοιίο» levcl ίη I'CΓίοcl ι.
οοίιυυτιε and modify ιίιο conlptIting formtl1a as nc\v data a1"C appcnded Ιο
;), = NtIInbcI" οΓ ιιηίι, SlιbCΟΠΙΓacle(1lίΌΠ1otIlsidc.
the old.) .
*c. Πιε actιιal realizations of dCll1and and new forecasts of demancl for tl1CreI11ainder' r = Νυιιιίιο. οΙ" I'C,-iocls ίη 111C111,1Ι1nίlψ110ΓίΖοη.
of 1996 are given ίη the followiI1g table. Detcrmine updatcd valnes fOΓ Ρ, and W, U, = \VΟΓkCΓi(llc tiI11Cίη ιιηίι, ("lII1CICI·tiI11C").
each Inonth.
Η/, = 'ΝΟΓkΓΟΓCCIcvel ;n pCI'iocl ι.
 168 Chapter Three "'\~σr('~αιι>Ρlnηl1ίη~

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Κεηυεη, Μ. Ι., and L. Ιί. "SubcontI'acting, Coordination, ιίου οΓ 11 Γeal variables subject to 111 constraints. One can fOΓllll1late ,Ind solve a IΗΓg
ιίοιι Mctllod of Lil1ear Programl1lil1g." Opel'OIions nlJtllber ofreal problems with lίneaΓ ΡωgΓaιιιιιιίηg. Α ΡaΓιίallίst includes
Flexibility, and Production Smoot'hil1g ίπ Aggregate
ΠΡ.,.ιll'ι!ι 4 (Ι 956). ρρ. 100-103. I'lanning.·· MaIIαgeIJ1el7I S"C"ίeIIl'e 36 ( 1990). ΙΨ )352-63.
Βο\\ιιηί1l1. Ε. Η. "CUl1sistcncy <JIld ΟΡιίlηalίtΥ ίn Ι. SClledLIling οί ρειεοιιυε].
Koguι, Β.. ill1d Ν. KIIlatilaka. "'Orerating Flcxibility, Global
M~lIHlgeri,11 D~ι:ίsίοl1 M"lkil1g." Mal111genIel1f $ι:;eιιι'e 9
ΜΗnιιfactυrίng. ancl tI1C Option VnlLlc οΓ[l MLlltillationa!
2. SeveΓal varieties of blending pΓObleIlls incllIding cattle feed, salIsages, ice crean
Ι 19(3). ρρ. 310-2 Ι. and stecl nlaking.
Net\vork." Mαlla.fζειιιoιιι S'cieII('e 40 (Ι 994). ρρ. 123-39.
Βιι !ΤΗ, Ε. S .. ί:llld W. Η. TalIbcrt. Ρι-υdιιc:!;υη-lιινentOl:\} 3. Inventory σοιιιιο! and ριυοιιοιιοι: planning.
Ιοίιεl1, R. Α. "M,trkcting St"IIcgy al1dΟριίιηηl ProdtIction
::':ω'ιel/ιχ: PlallIIing αll(1 Cοιι"υ/. Rev. ed. Νειν York: SchccilIlc.'· .ι,'/αιιαgeιιιeιιι S'l'iellc:e 20 (1974). ρρ. 903-1 Ι. 4. Distribution and logistics ρτοοίεηιε.
McGrH\\·-Hill/lI"\vil1. 1972.
McGratll, Μ. Ε.. "n(1 R. Β. Boqιιίllηrιl. "lnterl1atiollal 5. Assigtltllenl problems.
"Cωcφίllal' Τπ:lctΟΓ CοιηΡί1nΥ." f-Iarvard BllSil1CSSSCl1001
Μaπιιfactιιrίng Strategies [ιl1ιi InfrastnlcfιII'al C'onsidcrations
("cIse :1~5-·276 ( 1985). ProbleIlls witll thousands οfvaΓίables and tllous,ιnds οΓ constraints are easily solvab
ίπ ιίιο Electronics InιΙιlstlγ" Ιη Μallagiιl,Ι!.ΙlΙf~ΠΙafίΟl1α!
(ΊH!Π~, ΙΌ, HJld L. J. Knljcwski. "Plnnning Horizol1s fol' Μαnιι{aι·ιιιι·ίιιg. cd. Κ. Fc"lows, ρρ. 23-40. AIllsterdam: οιι οοιηρυιειε ΙΟΙΙΗΥ.Linear pΓOgnll11Illing was developed to solve !ogistics ρτοοίεη
M:.I.stcl· Ρωιluctίοn SClleιiuling.·' '/ollI-naΙ (!f'OfJf!I-ali()n.~· ΝΟΓΙΙ,Hollal1d, Ι9R9. cillI'ing World War 11.George Dantzig, a Illatl1enllttiCi<1n etllployed by the RAND (.οφ
Μ"ιιageιιι<'ιιι. August 1984, ρρ. 389-406. Νοννεοη. Ε. F. Ρ. "Μulιί-Ιιοιl1 ΙΟΙ Sizc SclIclIlIlil1gby nΙΙίοη Η! the tiIIle, c!eveloped a εοίυιίοη pΓOcedore 11Clabeled the Sitllplex Method. 'Πι
C\)11CI1, Μ. Λ.; Μ. Ι. Fisllcr: UI1(1.1. J~likΙlJllar. ''InteJΊ1HtiOIl:II Heuristic, Part Ι: \ινίιlι Fixctl ReSΟΙIΓces." IVlal1a,r;efl/f!1I1 tl1C nletl10d tuΓηed ου! 10 be so efficient ΓΟΓsolving l<trge probleIlls qιtick ΙΥ W,IS a $ΙΙ
ΜnnΙIΙ:1CΙΙΙl,ίl1g <lllιl Distl'iblItioll Nct\\lorks:' [η j\ιIΙΙlla~ι:ίJ1g .)("/·eιιce 21 (1975a), ρρ. 1186-93. prise evetl (ο its developer. That fact, οοιιρίαί \vith tl1e sitllltltaneolls developIllent of"!!
111!(!1'11ι.ιιίοI1ΙΙI Λ4UΙΙΙψΚ!ll1'ίl1g, ed. Κ. FCΓdο\νs, ρρ. 67-93.
Νεινεοιι, Ε. F. Ρ. "Multi-ItClll ί.οι 5ize ScIleduling by electronic οοπιριιτει, established lίneaΓ progt'atllJ11ing as .111ίιυροτιωιι 1001 ίη 10gisti
Am,rcrιl,IIn: Nl)I·th Ηοίίεικ], 1989.
ΗeΙΙΓίstic, Ρ,ιη 2: \ViIh Fixed RCSΟllΓCCS." :'vIl1na~ψηllenι n1anagemeni. The εικσοεε oflinear ΡΓΟgΓanιιιιίng in indLIstry spa\vned the cleveloptlle
Dnmon. \\1. \\/.. ""'1 I~.SCllΓanll11."Λ SimIIltnneotιs 8"ί(,1κρ 2 Ι ( Ι975b). ρρ. Ι Ι94- 1205. oJ"tlle disciplines οfΌΡeratίοns t'eseat-c11 (InC!IllHnageIllent science. "Πιο Sirnplex Metlll
ίφη
l)cι:ί ...• Μοοο! 1'01' Ρωιίικηοη. Markcting. nn<1 r-Inrll1ce,"
SCllr<.1gC, Ι. LineaI: Inf(!gc'l; υιιιl Q/((,/llnlfic: Ρ,-Ο,Ψ'(l1ΙΙJl1ίrιg 11,IS\Vitl1Stoocl tl1e test oftime. Only ίπ recent ΥeaΓS 113SHnotller Illetllod been clevelop,
Μalιagt'll/(:IΙΙ.5"C"ίι:Iι,ι: 19(1972).ρρ. 161-72.
,,·ίι!ι LlNDo. ΡηΙο ΑJtο, (Α: Scicntillc PI"ess. 1984. ιΙ1ηΙ potentialIy could be n10re efficient 111<1n the Sίιιιρleχ Metl10d ΙΟΓ solving very lar~
E.l1ert, It. J. ·Άgl:.!l'\~g<\ιl' PI~ltlning \vith Le;Πllilι~ (ΊIΓve
Sch,v"rl, Ι. Β.. ,tnd R. Ε.. lol,n50ll. ''Απ Apρl"ais,,1οΓ tllc specially stt"UctLIred, lίnear prograIlls. TI1iS Illethod, known as Κ,ΙΤΙΙΙθrkar's Algoι'itllll1,
f}!'()ιΙιιcιίvίΙΥ·" :HCII1ί1J.ξeIIIι..,II 5"L'it:l1C'(! 23 (1976),
Elnpir.icnl Perfol'nlaI1ce οΓ Il1C Lillcal' Decisioll RLIle tor natlled Γοι' tl1e Bell Labs Il1atl1etllatician Wl10 conceivec! ίι
IΨ 171-82.
Aggregate Planning." IvfolllIgenIenl $ι-ίell('(! 24 ( Ι 978), lη Section S 1.2 we consider a typical tll,ltllIfactlIt'il1g ΡΙΌbΙem ιlιηΙ 've f'OΓIlllII,1te ΗΙ
Εn:ιιgιιc. S., ,111(1S. ΤιιΓckcί. '".Δι ΤrίιtlSΡοrtaιίοl1 ΤΥρε ρρ.844-49.
solve lIsing lίne,ιι' prograIlln1ing. Later \ve CΧΡIΟΓe110\VOl1e solves sn1aII probletlls (ti"
-"gHreg:.lιc "IΌ(IlICtiOI1 Mo(Iel with Bounds 011 Ιl1vellιulγ
SiIver, Ε. Α .. :ll1d R. PCIeι-sun. O('ι'ί,~'ί()1/ 5:\'.\'T(~nι.\-.ι;)I' is, having ι:xnctly two llecisiotl vaΓίables) grapI1ic<tlly, ΗηιΙ 110W one solves Ι,ΙΓ
ΙΙΙι! (3:Ick.onlel·ill,g." ΙΊιnφt'οn JυΙΙΠJa! (?(OfJ(!I'CII;OIl.'"
•.
Λιfalιagι!171ι1111 Οllι! Ρι'οι!lι('/ίΟ/1
117\'enfOJ:I' P/lIllIIillg. 211(1 ed.
!ic.'·"(f/"("!' 35 (Ι ')~X). [ψ 414-25 pI'obletlls using a COIllplIter.
Ne,vYork: JOlll1Wilcy & SOI1,. 19R5.
Ηanslη:ll1l'J. Ε, ,11)(1 S. W. Hcss. "Α Lillcar Progrίlll1lnillg
THubert. \ν. Η. ".ι\ Searcll rJCCiSioll f.ιιιιc f('II'II1C AggrcgaIe
AjJpl'();Icll tu Ρωι!ιιctίοn <ll1d EmploYIl1cnI Sclιcdιllίlψ.'·
SCIlc(Iolillg Pr()blclll." Λ4ωΙ(Ψ.i!IIΙΡΙΙ! S'ι'ίι.:ιιι:e 14 (1968). Α PROTOTYPE LlNEAR PROGRAMMING PROBLEM
Μalιa~ΨJΙΙΙ(!ΙΙΙ Τ(!ι'/ιιιοl(ψ,.\' Ι (Ι ~(0). ρρ. 46-5 Ι .
ρρ. Β343-59.
51.2
Hax, Α. C .. :.1llιiD. ('3nLlcu. PJ-ol!lfuion Οl1ι!lnl'ΡΙΙfOl'11
νΟΙΙΙll"ηl1.Τ. Ε.. \V. Ι. ΒοιτΥ; ,,"d D. <.:. Wllyb"I"k. Μωιιι/;ιι'- ExampleS/.I Sidneyville manufactures household and commercial furnishings. The Office Division produr
MUl1agelIIellf. Eng!c\vo()(I Clifl's, NJ: Prelllice 1-1:.111, 19R4.
III,.ίιlJ~, fJIGfJl1ing, ΙΙΙΙ(! ('ΟI/IΙ'ο! ,~\'.\'!(,IJI'.\'. 31'(1 α!. Nc\\' York: two desks, ΓΟllΙορ and regular. Sidneyville constructsthe desks ίπ Its plant outside IVledfo
Βαχ, Α. ( .. and Ι-Ι.C".Mc"l. "HienIΓcI1ic,,1IlItcgI'atioll of McGrn,v-Hill/lrwin, Ι~92. OregoΓl, from a selection οΙ woods. The woods are cut ΙΟ a uniform thickness οΙ 1 IncrI. For t
ΡrοcΙιlctiοlι Ρlut1l1ίιψ 311(1 SCI1C(!IIling." Ιπ ΤIΛιf8 ,)'/lI(/ίι~<"; ίπ
Zollcl', Κ. "ΟριίΙl1ίΊ! r)ίsa~gΓCΗα.ιίοιι oJ'Aggn:gίJte Ρrοdοctίοll reason, one measures the wood ίπ unlts of square feet. One rolltop desk requires 10 \quare ιι
Μα.ncιgel1ιeI115'ι'ίeΙl(·Ι'. V()llIIllC Ι, ΙοχiΔ·lίc.\·, cd. Μ. GeisleI·.
P/"I1S:' /\ι/αιια.ψιIιCI1Ι &ί",,('(' 17 (Ι 971). [ψ Β533-49. ΟΙ pine, 4 square leet ΟΙ cedar, and 15 square feet οΙ maple. One regular de\k requI
Ne\vYork: EIsevicr. 1975.
ι "