AGGREGATE PLANNING

College of Engineering, Trivandrum-16

1
 AGGREGATE PLANNING
Aggregate planning means planning based on all
related factors or parameters.
Normally applicable to the facility centers
(production or warehousing facilities).
Aggregate planning determines ideal level of
capacity, production and inventory over a
specified planning horizon.
 AGGREGATE PLANNING
Aggregate planning is for the best utilization of
facilities for maximizing profit.
AP strategies.
 Chase Strategy (capacity focused)
Varying m/c and Labor capacities as per demand
rate
 Capacity Strategy (utilization focused)
Utilizing excess capacities produce for future
 Level Strategy (constant inventory focused)
Constant m/c and labor capacities
 AGGREGATE PLANNING INPUTS
Demand Forecast
Production Cost
Labor Cost (regular/over time)
Subcontracting Cost
Cost of changing labor force
Cost of changing M/c capacity
Labor / M/c hours required per unit
Inventory Holding Cost
Stockout / Backlog Cost
Constraints: O/T limit, L/H limit, S/O Limit etc
 AGGREGATE PLANNING OUTPUTS
Production Quantities
Regular
Over time
Subcontracting
Inventory Held
Stock out / Backlog Quantity
Work force hired / laid off quantity
M/c Capacity increase / decrease quantity
 AGGREGATE PLANNING METHODOLOGIES
Aggregate planning is a process of deciding the
optimum level of capacity, production,
subcontracting, inventory, stockout etc. for a
specified time period.
Methodologies for AP
 Tabular Method
 Linear Programming Method
 Graphical Method
 TABULAR METHOD
• In the tabular method, a table can be prepared with each
column is for each period.

• Based on the demand we can decide and input the capacities

planned to use.

• The user can change the input values and compute the total
cost quickly.

• Though this method is an evaluative method and does not

guarantee the optimal solution, repeated trials can give a very
good solution with a less cost.
 TABULAR METHOD
Given the forecasted demand and available RT days
and OT days in the following table.
• Beginning inventory=1000 given
• Production shifts = 2 shifts (16 hours / day)
• No. of workers = 65
• Production time / unit = 10 hours
• RT Cost =Rs. 100/- per unit
• OT Cost =Rs. 130/- per unit
• Inv Cost =Rs. 20/- per unit
• Shortage Cost =Rs. 500/- per unit
Month January February March April May June
Beginning inventory 1000
Demand 3000 3000 2500 1500 2000 2500
RT days 22 18 22 19 23 20
OT days 4 4 5 4 5 4
RT capacity
RT production (?)
OT Capacity
OT Production (?)
Total Capacity
Total Production (?)
End inventory
RT cost
OT cost
Inventory cost
Shortage cost
 TABULAR METHOD - Solution
First find the output / day = ?????
For January,
• Beginning inventory =1000 given
• Production/day =104
• Total production =2700
• RT days =22(given)
• RT capacity =22X104=2288
• OT days =4 given
• OT capacity =4x104=416
• RT production =minimum (2700, 2288)
=2288
 TABULAR METHOD – Solution…..
• OT production=2700-2288
=412(less than 416 and hence
possible)
• Ending inventory=beginning
inventory+production-
demand
=1000+2700-3000=700
• RT cost =2280x100/100000
=RS 2.288 Lakhs
TABULAR METHOD - Solution……….

• OT cost =416x130/100000
=RS 0.5356 Lakhs

• Inventory cost =700x20/1000000

=RS 0.14 Lakhs
• Shortage cost =0
• Total cost (January) =RS 2.9636 Lakhs
The sum of total cost of all months should be
minimum for the optimum solution (see table)
Month January February March April
Beginning 1000 700 -50 250
inventory
Demand 3000 3000 2500 1500
RT days 22 18 22 19
OT days 4 4 5 4
RT capacity 2288 1872 2288 1976
RT production 2288 1872 2288 1976
OT days 416 416 520 416
OT capacity 412 378 512 374
OT production 2704 2288 2808 2392
Total cost 2700 2250 2800 2350
End inventory 700 -50 250 1100
RT cost 2.288 1.872 2.288 1.976
OT cost
Inventory cost 0.14 0 0.5 0.22
Storage cost 0 0.25 0 0
 AP USING LINEAR PROGRAMMING

Aggregate planning using linear programming

method is maximizing the profit while meeting
the demand within the resource constraints for
a specified time period.
Here an objective function is formulated to
minimize the total cost (equivalent to maximize
the total profit) subjected to the constraints.
The notations can be used as follows:
 Notations for Production/Cost parameters
URTC = Unit RT Cost (per hour cost x hours/day x number
of working days/month)
UOTC = Unit OT cost
UHC = Unit hiring cost
ULC = Unit layoff cost
UIH = Unit inventory holding cost
USOC = Unit stock out cost
UMC = Unit material cost
USC = Unit subcontracting cost
UPP = Unit period production
NOT = Number of OT hours required for unit production
MOT = Maximum OT hours
t = 1…..n is the time period
 Decision Variables
Dt = Demand during period, t
Wt = Work force size for the month, t
Ht = Number of workers hiring at the beginning of
the month, t
Lt = Number workers laying off at the beginning of
the month, t
Pt = Number of units produced in month, t
It = Inventory at the end of month, t
St = Stock out/back log unit at the end of the
month, t
Ct = Number of units subcontracted for month, t
Ot = Number of OT hours worked in month, t
 Cost Elements
• Cost of RT labor = n

∑U
t =1
Wt
RTC

• Cost of OT labor = ∑ U OTC Ot

n

t =1

n n
• Cost of hiring and layoffs = ∑U
t =1
HC H t + ∑ U LOC Lt
t =1

• Cost of holding inventory or stock out/back log

=
n n

∑ U IH I t + ∑ U SOC S t
• Cost of material and subcontracting
t =1 t =1

= n n

∑
U P+ U C
t =1
MC t ∑
t =1
SC t
 Objective Function

∑U
n

Min Z =
t =1
RTC Wt + ∑U t =1
OTC Ot

n n n n
+ ∑U
t =1
HC H t + ∑ U LOC Lt
t =1
+ ∑U I + ∑ U SOC St
IH t
t =1 t =1

n n

+ ∑ U MC Pt + ∑ U SC Ct
t =1 t =1
 Constraints / Subjected to
1. Work force (hire/layoff) constraints
Wt = Wt-1 + Ht - Lt
2. Capacity constraints
Pt ≤ Upp x Wt + Ot / NOT
3. Inventory balance constraints
It-1+Pt+Ct = It-1 + St-1 + It - St
4. OT Limit constraints
Ot ≤ MOT x Wt
5. Non negative constraints
all decision variables ≥ 0
5. No end backlog constraint St = 0
 DISAGGREGATION
A concept connected to aggregate planning
Applicable to the cases where different types
of products are produced during a planning
period.
Less inventory items will be produced first.
The ratio of available inventory to demand of
each product will be find out.
Plan the production from low ratio to high
ratio.
thank you