Aggregate

Planning
 Aggregate Planning

Aggregate planning is an operational activity

which
 Does an aggregate plan for the productions
process
 In advance of 2 to 18 months.
 To give an idea to management as to what
quantity of materials and other resources
are to be procured and when.
 Aggregate Planning

Aggregate planning has certain prerequisite inputs which are inevitable.

They include:

 Information about the resources and the facilities available.

 Demans forecast for the period for which the planning has to be

done.
 Cost of various alternatives and resources. This includes;

(i) Cost of holding inventory,

(ii) Ordering cost,

(iii) Cost of production through various production alternatives

 The Planning Process
Long-range plans
(over one year)
Research and
Development
New product plans
Capital investments
Facility
Top location/expansion
executives Intermediate-range plans
(3 to 18 months)
Sales planning
Production planning and budgeting
Operations Setting employment, inventory,
managers subcontracting levels
Analyzing operating plans

Short-range plans
(up to 3 months)
Job assignments
Operations Ordering
managers, Job scheduling
supervisors, Dispatching
foremen Overtime
Part-time help

Responsibility Planning tasks and horizon

 Aggregate Planning Strategies

1. Use inventories to absorb changes in

demand
2. Accommodate changes by varying
workforce size
3. Use part-timers, overtime, or idle time to
absorb changes
4. Use subcontractors
5. Change prices or other factors to
influence demand
 Aggregate Planning Options-
Class Activity
List the Advantages and Disadvantages of Following Options

 Changing inventory levels

 Varying workforce size by hiring or layoffs

 Varying production rates through overtime or idle time

 Sub-contracting

 Using part- time workers

 Influencing demand

 Back ordering during high- demand periods

 Aggregate Planning Options

Option Advantages Disadvantages

Changing inventory Changes in human Inventory holding cost

levels resources. may increase. Shortages
may result in lost sales.

Varying workforce Avoids the costs of other Hiring, layoff, and training
size by hiring or alternatives. costs may be
layoffs significant.
 Aggregate Planning Options

Option Advantages Disadvantages

Varying Matches seasonal Overtime premiums; tired
production rates fluctuations without workers; may not meet
through hiring/ training costs. demand.
overtime or idle
time

Sub-contracting Permits flexibility and Loss of quality control;

smoothing of the reduced profits; loss of
firm’s output. future business.
 Aggregate Planning Options

Option Advantages Disadvantages

Using part- Is less costly and more High turnover/ training
time workers flexible than full-time costs; quality suffers;
workers. scheduling difficult.

Influencing Tries to use excess Uncertainty in

demand capacity. Discounts demand. Hard to
draw new customers. match demand to
supply exactly.
 Aggregate Planning Options

Option Advantages Disadvantages

Back ordering May avoid overtime. Customer must be
during high- Keeps capacity willing to wait, but
demand periods constant. goodwill is lost.
 Summary of Aggregate Planning
Methods

Solution
Techniques Approaches Important Aspects
Graphical Trial and error Simple to understand and easy
methods to use. Many solutions; one
chosen may not be optimal.
LP software available; permits
Transportation Optimization sensitivity analysis and new
method of linear constraints; linear functions
programming may not be realistic.
 Summary of Aggregate Planning
Methods

Solution
Techniques Approaches Important Aspects
Simulation Change Complex; may be difficult to
parameters build and for managers to
understand.