Aggregate Planning

By Mr. Khushnood Khalid

What is Aggregate Planning

 Aggregate production planning is a hierarchical planning process that

translates annual business plans and demand forecasts into a production plan
for all products.
 The aggregate production plan sets the aggregate output rate, workforce
size, utilization and inventory and/or backlog levels for an entire facility
 Aggregate production plans are typically stated in terms of product families
or groups.
Chase Production Strategy

 The pure chase production strategy adjusts capacity to match the demand
pattern
 Using this strategy, the firm will hire and lay off workers to match its
production rate to demand.
 The workforce fluctuates from month to month, but finished goods inventory
remains constant.
Chase Production Strategy
Level Production Strategy

 A pure level production strategy relies on a constant output rate and capacity
while varying inventory and backlog levels to handle the fluctuating demand
pattern.
 Using this strategy, the firm keeps its workforce levels constant and relies on
fluctuating finished goods inventories and backlogs to meet demand
Level Production Strategy

Use Inventory

Build Inventory
ATV Corporation Example

The ATV Corporation makes three models of all-terrain vehicles: Model A, Model
B and Model C. Model A uses a 0.4-liter engine, Model B uses a 0.5-liter engine
and Model C uses a 0.6-liter engine. The aggregate production plan is the twelve-
month plan that combines all three models together in total monthly production.
The planning horizon is twelve months. The APP determines the size of the
workforce, which is the constrained resource. The beginning inventory for
January is 100 units (30 units each of Model A and Model B, and 40 units of Model
C), and the firm desires to have an ending inventory of 140 units at the end of
the year. On average, one unit of ATV requires eight labor hours to produce, and
a worker contributes 8 hours, 5 days in a week and 4 weeks in a month. The
forecasted demand for 12 months given in below table
ATV Corporation Example
Demand data for twelve months
Period Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Demand 120 100 300 460 600 700 760 640 580 400 200 140

Required:
1. Prepare Production Schedule by chase strategy
2. Prepare Production Schedule by Level Strategy
ATV Corporation Example

Required:
1. Prepare Production Schedule by chase strategy
2. Prepare Production Schedule by Level Strategy
ATV Corporation Example

Total hours of one worker in a month:

One worker contribute 8 hours in a day, 5 days in a week and 4 week in a
month

Total hours = 8 x 5 x 4 = 160 hrs/month

ATV Corporation Example
Solution by Chase Strategy
Period Demand Production Hours Worker Ending Inventory
Jan 120 120 960 6 100
Feb 100 100 800 5 100
Mar 300 300 2400 15 100
Apr 460 460 3680 23 100
May 600 600 4800 30 100
Jun 700 700 5600 35 100
Jul 760 760 6080 38 100
Aug 640 640 5120 32 100
Sep 580 580 4640 29 100
Oct 400 400 3200 20 100
Nov 200 200 1600 10 100
Dec 140 180 1440 9 140
ATV Corporation Example
Solution by Chase Strategy
Period Demand Production Hours Worker Ending Inventory
Jan 120 120 960 6 100
Feb 100 100 800 5 100
120 x 8 = 960
Mar 300 300 2400 15 100
Apr 460 460 3680 23 100
May 600 600 4800 30 100
Jun 700 700 5600 35 100
Jul 760 760 6080 38 100
Aug 640 640 5120 32 100
Sep 580 580 4640 29 100
Oct 400 400 3200 20 100
Nov 200 200 1600 10 100
Dec 140 180 1440 9 140
ATV Corporation Example
Solution by Chase Strategy
Period Demand Production Hours Worker Ending Inventory
Jan 120 120 960 6 100
Feb 100 100 800 5 100
960/160 = 6
Mar 300 300 2400 15 100
Apr 460 460 3680 23 100
May 600 600 4800 30 100
Jun 700 700 5600 35 100
Jul 760 760 6080 38 100
Aug 640 640 5120 32 100
Sep 580 580 4640 29 100
Oct 400 400 3200 20 100
Nov 200 200 1600 10 100
Dec 140 180 1440 9 140
ATV Corporation Example
Solution by Chase Strategy
Period Demand Production Hours Worker Ending Inventory
Jan 120 120 960 6 100
Feb 100 100 800 5 100
Mar 300 300 2400 15 100
Apr 460 460 3680 23 100 100 x 8 = 800
May 600 600 4800 30 100
Jun 700 700 5600 35 100
Jul 760 760 6080 38 100
Aug 640 640 5120 32 100
Sep 580 580 4640 29 100
Oct 400 400 3200 20 100
Nov 200 200 1600 10 100
Dec 140 180 1440 9 140
ATV Corporation Example
Solution by Chase Strategy
Period Demand Production Hours Worker Ending Inventory
Jan 120 120 960 6 100
Feb 100 100 800 5 100
Mar 300 300 2400 15 100
Apr 460 460 3680 23 100 800/160 = 5
May 600 600 4800 30 100
Jun 700 700 5600 35 100
Jul 760 760 6080 38 100
Aug 640 640 5120 32 100
Sep 580 580 4640 29 100
Oct 400 400 3200 20 100
Nov 200 200 1600 10 100
Dec 140 180 1440 9 140
ATV Corporation Example
Solution by Chase Strategy
Period Demand Production Hours Worker Ending Inventory
Jan 120 120 960 6 100
Feb 100 100 800 5 100
Mar 300 300 2400 15 100
Apr 460 460 3680 23 100
May 600 600 4800 30 100
40 units Jun 700 700 5600 35 100 Ending
excess inventory
Jul 760 760 6080 38 100
production increase to
because we Aug 640 640 5120 32 100 140 due to
have to Sep 580 580 4640 29 100 excess
increase Oct 400 400 3200 20 100 production
ending Nov 200 200 1600 10 100 of 40 units
inventory Dec 140 180 1440 9 140
ATV Corporation Example
Solution by Chase Strategy
What is Backlog

Schedule of customer orders that have been received and processed, but not yet
shipped or fulfilled
Level Strategy ATV Corporation Example

Calculation for level production:

Total demand of 12 months = 5000
Opening Inventory = 100 units
Desired ending inventory on December 31 = 140 units
Total production in 12 months = 5040 units
Level Production per month = 5040/12
Level Production per month = 420 units/month
Number of hours required in each month = 420 x 8 = 3360
Number of Workers Required in each month = 3360/160 = 21 workers
Level Strategy ATV Corporation Example

How to calculate ending inventory:

ending inventory = opening Inventory + production - demand

Level Strategy ATV Corporation Example
Solution by Level Strategy
Period Demand Production Hours Worker Ending Inventory
Jan 120 420 3360 21 400
Feb 100 420 3360 21 720
Mar 300 420 3360 21 840
Apr 460 420 3360 21 800
May 600 420 3360 21 620
Jun 700 420 3360 21 340
Jul 760 420 3360 21 0
Aug 640 420 3360 21 -220
Sep 580 420 3360 21 -380
Oct 400 420 3360 21 -360
Nov 200 420 3360 21 -140
Dec 140 420 3360 21 140
 Level Strategy ATV Corporation Example
420 x 8 = 3360 Solution by Level Strategy 3360/160 = 21
Period Demand Production Hours Worker Ending Inventory
Jan 120 420 3360 21 400
Feb 100 420 3360 21 720
Mar 300 420 3360 21 840
Apr 460 420 3360 21 800
May 600 420 3360 21 620
Jun 700 420 3360 21 340
Jul 760 420 3360 21 0
Aug 640 420 3360 21 -220
Sep 580 420 3360 21 -380
Oct 400 420 3360 21 -360
Nov 200 420 3360 21 -140
Dec 140 420 3360 21 140
Level Strategy ATV Corporation Example
Solution by Level Strategy
Period Demand Production Hours Worker Ending Inventory
Jan 120 420 3360 21 400
Feb 100 420 3360 21 720
100 + 420 – 120 = 400
Mar 300 420 3360 21 840
Apr 460 420 3360 21 800
May 600 420 3360 21 620
Jun 700 420 3360 21 340
Jul 760 420 3360 21 0
Aug 640 420 3360 21 -220
Sep 580 420 3360 21 -380
Oct 400 420 3360 21 -360
Nov 200 420 3360 21 -140
Dec 140 420 3360 21 140
Level Strategy ATV Corporation Example
Solution by Level Strategy
Period Demand Production Hours Worker Ending Inventory
Jan 120 420 3360 21 400
Feb 100 420 3360 21 720
Mar 300 420 3360 21 840
400 + 420 – 100 = 720
Apr 460 420 3360 21 800
May 600 420 3360 21 620
Jun 700 420 3360 21 340
Jul 760 420 3360 21 0
Aug 640 420 3360 21 -220
Sep 580 420 3360 21 -380
Oct 400 420 3360 21 -360
Nov 200 420 3360 21 -140
Dec 140 420 3360 21 140
Level Strategy ATV Corporation Example
Solution by Level Strategy
Period Demand Production Hours Worker Ending Inventory
Jan 120 420 3360 21 400
Feb 100 420 3360 21 720
Mar 300 420 3360 21 840
Apr 460 420 3360 21 800
May 600 420 3360 21 620 720 + 420 – 300 = 840
Jun 700 420 3360 21 340
Jul 760 420 3360 21 0
Aug 640 420 3360 21 -220
Sep 580 420 3360 21 -380
Oct 400 420 3360 21 -360
Nov 200 420 3360 21 -140
Dec 140 420 3360 21 140
Level Strategy ATV Corporation Example
Solution by Level Strategy
Period Demand Production Hours Worker Ending Inventory
Jan 120 420 3360 21 400
Feb 100 420 3360 21 720
Mar 300 420 3360 21 840
Apr 460 420 3360 21 800
May 600 420 3360 21 620
Jun 700 420 3360 21 340
Jul 760 420 3360 21 0
Aug 640 420 3360 21 -220
Sep 580 420 3360 21 -380 340 + 420 – 760 = 0
Oct 400 420 3360 21 -360
Nov 200 420 3360 21 -140
Dec 140 420 3360 21 140
Level Strategy ATV Corporation Example
Solution by Level Strategy
Period Demand Production Hours Worker Ending Inventory
Jan 120 420 3360 21 400
Feb 100 420 3360 21 720
Mar 300 420 3360 21 840
Apr 460 420 3360 21 800
May 600 420 3360 21 620
Jun 700 420 3360 21 340
Jul 760 420 3360 21 0
Aug 640 420 3360 21 -220
Sep 580 420 3360 21 -380
Oct 400 420 3360 21 -360
0 + 420 – 640 = - 220
Nov 200 420 3360 21 -140
Dec 140 420 3360 21 140
Level Strategy ATV Corporation Example
Solution by Level Strategy
Period Demand Production Hours Worker Ending Inventory
Jan 120 420 3360 21 400
Feb 100 420 3360 21 720
Mar 300 420 3360 21 840
Apr 460 420 3360 21 800
May 600 420 3360 21 620
Jun 700 420 3360 21 340
Jul 760 420 3360 21 0
Aug 640 420 3360 21 -220
Sep 580 420 3360 21 -380
Oct 400 420 3360 21 -360
Nov 200 420 3360 21 -140
-220 + 420 – 580 = - 380
Dec 140 420 3360 21 140
Level Strategy ATV Corporation Example
Solution by Level Strategy
Period Demand Production Hours Worker Ending Inventory
Jan 120 420 3360 21 400
Feb 100 420 3360 21 720
Mar 300 420 3360 21 840
Apr 460 420 3360 21 800
May 600 420 3360 21 620
Jun 700 420 3360 21 340
Jul 760 420 3360 21 0
Aug 640 420 3360 21 -220
Sep 580 420 3360 21 -380 -140 + 420 – 140 = 140
Oct 400 420 3360 21 -360
Nov 200 420 3360 21 -140
Dec 140 420 3360 21 140
Level Strategy ATV Corporation Example
Solution by Level Strategy
Period Demand Production Hours Worker Ending Inventory
Jan 120 420 3360 21 400
Feb 100 420 3360 21 720
Mar 300 420 3360 21 840
Apr 460 420 3360 21 800
May 600 420 3360 21 620
Jun 700 420 3360 21 340
Jul 760 420 3360 21 0
Aug 640 420 3360 21 -220
Sep 580 420 3360 21 -380
Oct 400 420 3360 21 -360 Backlog
Nov 200 420 3360 21 -140
Dec 140 420 3360 21 140
Master Production Schedule

 The master production schedule is a time-phased, detailed disaggregation of

the aggregate production plan, listing the exact end items to be produced
 The MPS planning horizon is shorter than the aggregate production plan
Master Production Schedule
Available to Promise Quantities (ATP)

 In addition to providing time-phased production quantities of specific end

items, the MPS also provides vital information on whether additional orders
can be accepted for delivery in specific periods.
 This information is the available-to-promise (ATP) quantity, or the
uncommitted portion of the firm’s planned production (or scheduled MPS).
 The available-to-promise quantity provides a mechanism to allow the master
scheduler or sales personnel to quickly negotiate new orders and delivery due
dates with customers or to quickly respond to customers’ changing demands
Available to Promise Quantities (ATP)

Some properties:
 ATP is the difference of MPS and CCO
 If MPS is zero then ATP will also zero
 If ATP is negative then it will adjust from previous period ATP
 If beginning inventory is given, it will add in first period MPS
Available to Promise Quantities (ATP)
Available to Promise Quantities (ATP)
ATP1 = 30 + 10 – 10 = 30
ATP2 = 10 – 0 = 10
ATP3 = 20 – 28 = -8
ATP2 = 10 – 8 = 2 (Revised)
ATP3 = – 8 + 8 = 0 (Revised)
ATP4 = 0 – 0 = 0
ATP5 = 20 – 0 = 20
ATP6 = 0 – 20 = -20
ATP5 = 20 – 20 = 0 (Revised)
ATP6 = – 20 + 20 = 0 (Revised)
Available to Promise Quantities (ATP)
ATP7 = 0 - 0 = 0
ATP8 = 20 – 10 = 10
Assignment 2
Assignment 2
Assignment 3