Aggregate Planning

• The concept of aggregation

• Chase and level approaches
• LP approach
• Master Scheduling
Learning Objectives
• Explain what aggregate planning is and how it is useful.
• Identify the variables decision makers have to work with in aggregate planning and some of
the possible strategies they can use.
• Describe some of the graphical and quantitative techniques planners use.
• Prepare aggregate plans and compute the costs

Planning Horizon
Aggregate planning : Intermediate-range capacity planning, usually covering 2 to 12 -(18) months.
Short-range plans (Detailed plans)
– Machine loading
– Job assignments
• Intermediate plans (General levels)
– Employment, sub contracts etc
– Output
• Long-range plans
– Long term capacity
– Location / layout

Aggregate Planning Inputs

• Resources – Workforce – Facilities
• Demand forecast
• Policies
– Subcontracting
– Overtime
– Inventory levels
– Back orders
• Costs
– Inventory carrying
– Back orders
– Hiring/firing
– Overtime
– Inventory changes
– Subcontracting

Outputs
• Total cost of a plan
• Projected levels of inventory
– Inventory
– Output
– Employment
– Subcontracting
– Backordering

Aggregate/Production Planning Techniques

 Proactive – Alter demand to match capacity
• Reactive – Alter capacity to match demand
• Mixed – Some of each
Basic Strategies for Meeting Uneven Demand
• Maintain a level workforce
• Maintain a steady output rate
• Match demand period by period
• Use a combination of decision variables

Level capacity strategy/ Constant work force strategy : Maintain a level of workforce or maintain a
steady output rate while meeting variations in demand by a combination of inventories, overtime,
part-time workers, subcontracting, and back orders. Negative on employee morale, cost, paperwork,
risk of insufficient skilled workers, union resistance, and possible lost sales due to back orders.

Chase demand strategy: Match demand period by period. Maintain less inventory than the level
capacity strategy. Negative on the similar factors as level capacity strategy due to unstable supply.
Use a combination of both strategies.
Chase Approach
• Advantages
– Investment in inventory is low
– Labor utilization in high
• Disadvantages
– The cost of adjusting output rates and/or workforce levels is increased
Level Approach
• Advantages
– Stable output rates and workforce
• Disadvantages
– Greater inventory costs
– Increased overtime and idle time
– Resource utilizations vary over time

General procedure for aggregate planning:

Determine demand for each period.
Determine capacities (regular time, overtime, subcontracting) for each period.
Identify company or departmental policies that are pertinent (e.g., maintain a safety stock of 5% of
demand, maintain a reasonable stable workforce).
Determine unit cost for regular time, overtime, subcontracting, holding inventories, back orders,
layoffs, and other relevant costs.
Develop alternative plans and compute the cost for each.
If satisfactory plans emerge, select the one that best satisfies objectives. Otherwise, return to step 5.

Linear Programming

The goal is to minimize the sum of costs related to regular labor time, overtime, subcontracting,
inventory holding costs, and costs associated with changing the size of the workforce. Constraints
involve the capacities of the workforce, inventories, and subcontracting.

The main limitations of LP model are the assumptions of linear relationships among variables, the
inability to continuously adjust output rates, and the need to specify a single objective (e.g.,
minimizing costs) instead of using multiple objectives (e.g., minimize cost while stabilizing the
workforce).
Master Scheduling
• Master schedule
– Determines quantities needed to meet demand
– Interfaces with
• Marketing
• Capacity planning
• Production planning
• Distribution planning

Master Scheduler
• Evaluates impact of new orders
• Provides delivery dates for orders
• Deals with problems
– Production delays
– Revising master schedule
– Insufficient capacity