Aggregate Planning

Importance of Aggregate
Planning
✔Without sufficiently long-term view,
an organization may make short-term
decisions that hurt the organization in
the long-term
Aggregate Planning
– Key element of the Sales and
Operations Planning Process
– Game plan for
production/operations to meet
expected demand
Planning Horizon

Aggregate planning: Intermediate-range

capacity planning, usually covering 2 to 12
months.
Long range

Intermediate
range
Short
range

Now 2 months 1 Year

Concept of aggregation
Problem 1
✔ For the next session, come prepared with:
– Aggregate Planning Options
– Aggregate Planning strategies
• Pure and Mixed Strategies
• Relative advantages/disadvantages
– Aggregate Planning in Services
Planning Relationships

Business
or annual
plan
Aggregate
plan –
production
and
MPS or
staffing
workforce
plan
schedule
Aggregate Planning Inputs
✔ Resources ✔ Costs
– Workforce – Inventory carrying
– Facilities – Back orders
✔ Demand forecast – Hiring/firing
✔ Policies – Overtime
– Inventory changes
– Subcontracting
– Subcontracting
– Overtime
– Inventory levels
– Back orders
Aggregate Planning Outputs
✔ Total cost of a plan
✔ Projected levels of
– Inventory
– Output
– Employment
– Subcontracting
– Backordering
 Aggregate planning options: capacity

✔ Changing inventory levels

✔ Varying workforce size by hiring or firing
✔ Over and idle time
✔ Part time or temps
✔ Outsourcing
Outsourcing pluses and minuses

✔ Pluses
– increased flexibility
– increased quality (?)
– decreased costs (?)
✔ Minuses
– decreased control
– can be very expensive in certain situations
– suppliers can become competitors
Aggregate planning options: demand
management

✔ Directly influence demand

– promotions
– early bird specials and happy hour
✔ Back-orders
✔ Product mixing
 Pure Aggregate Planning
Strategies
✔ Level Production
– Equal amount produced each period
– Steady employment
– Inventory costs and risks
✔ Chase Demand
– Production matched to demand for the period
– Minimal inventory
– High overtime or hire/fire costs
The Extremes

Level Chase
Strateg Strate
y gy
Producti
Production on
rate is
equals
constant
demand
 Chase Approach

✔ Advantages
– Investment in inventory is low
– Labor utilization in high

✔ Disadvantages
– The cost of adjusting output rates and/or
workforce levels
 Level Approach

✔ Advantages
– Stable output rates and workforce

✔ Disadvantages
– Greater inventory costs
– Increased overtime and idle time
– Resource utilizations vary over time
Cumulative Graph
Cumulative output/demand

Cumulative
production
Cumulative
demand
1 2 3 4 5 6 7 8 9 10
Aggregate Planning in Services

✔ Services occur when they are rendered

✔ Demand for service can be difficult to

predict
✔ Capacity availability can be difficult to
predict
✔ Labor flexibility can be an advantage in
services
Aggregate Plan to Master Schedule
Aggregate
Planning

Disaggregation

Master
Schedule
Disaggregating the Aggregate Plan
✔ Master schedule: The result of
disaggregating an aggregate plan; shows
quantity and timing of specific end items
for a scheduled horizon.
✔ Rough-cut capacity planning: Approximate
balancing of capacity and demand to test
the feasibility of a master schedule.
 Master Scheduling Process

Inputs Outputs
Beginning inventory Projected inventory
Master
Forecast Scheduling Master production
schedule
Customer orders
Uncommitted inventory
Time Fences

Time Fences – points in time that

separate phases of a master
schedule planning horizon.
 Time Fences in MPS

Period
1 2 3 4 5 6 7 8 9

“frozen” “slushy” “liquid”

somewhat
(firm or firm (open)
fixed)