Aggregate Planning

You should be able to:

1. Explain what aggregate planning is and how it is useful.
2. Identifythevariablesdecisionmakershavetoworkwithinaggregateplanning.
3. Describe some of the strategies that can be used for meeting uneven demand.
4. Describe some of the graphical and quantitative techniques planners use.
5. Prepare aggregate plans and compute their costs.
6. Describe the master scheduling process and explain its importance.
7. Disaggregate an aggregate plan.
AGGREGATE PLANNING

• Aggregate planning
• Intermediate-rangecapacityplanningthattypicallycoversatimehorizon of 2 to 18months
• Useful for organizations that experience seasonal or other variations in demand

Goal:
• Achieve a production plan that will effectively utilize the organization’s resources to satisfy demand.

Sales and operations planning (S&OP)

Is an integrated business management process through which the executive/leadership team
continually achieves focus, alignment and synchronization among all functions of the organizations.
• The Planning Sequence
• Why we used Aggregate Planning?
• Why do organizations need to do aggregate planning?
Planning
It takes time to implement plans.
Strategic
Aggregation is important because it is not possible to predict with accuracy the timing and
volume of demand for individual items.
It is connected to the budgeting process.
It can help synchronize flow throughout the supply chain ; it affects costs, equipment utilization;
employment levels; and customer satisfaction.

AGGREGATION
The plan must be in units of measurement that can be understood by the
firm’s non-operations personnel.
• Aggregate units of output per month
• Dollar value of total monthly output
• Total output by factory
• Measures that relate to capacity such as labor hours
Dealing with Variations
• Most organizations use rolling 3, 6, 9 and 12 month forecast
• Forecasts are updated periodically, rather than relying on a once-a-year forecast
• This allows planners to take into account any changes in either expected demand or expected
supply and to develop revised plans.
• Strategies to counter variation:
• Maintain a certain amount of excess (buffer) capacity to handle increases in demand.
• Maintain a degree of flexibility in dealing with changes.
• Hiring temporary / retired workers
• Using overtime / under (idle)time
• Wait as long as possible before committing to a certain level of supply capacity.
• Schedule products or services with known demands first.
• Wait to schedule other products until their demands become less uncertain.
     Forecast of
aggregate demand
for the intermediate
range
Develop a general
plan to meet
demand
requirement
Update
the aggregate
plan periodically
(e.g., monthly)
 Demand and Supply
• Aggregate planners are concerned with the;
• Demand quantity
• If demand exceeds capacity, attempt to achieve balance by altering capacity, demand, or both.
• Timing of demand
• Even if demand and capacity are approximately equal, planners still often have to deal with uneven
demand with in the planning period.

Aggregate Planning Inputs

• Resources
• Workforce/production rates
• Facilities and equipment
• Demand forecast
• Policies
• Work force changes
• Subcontracting
• Overtime
• Inventory levels/changes
 • Backorders
• Costs
• Inventory carrying
• Back orders
• Hiring / firing
• Overtime
• Inventory changes
• Subcontracting

Aggregate Planning Outputs

• Total cost of a plan
• Projected levels of ;
• Inventory
• Output
• Employment
• Subcontracting
• Back ordering
Aggregate Planning Strategies
• Pro active
• Alter demand to match capacity
• Reactive
• Alter capacity to match demand
• Mixed
• Some of each

Demand Options
• Pricing
• Used to shift demand from peak to off-peak periods
• Price elasticity is important
• Promotion
• Advertising and other forms of promotion.
• Back orders
• Orders are taken in one period and deliveries promised for a later period
• New demand
• Complimentary products / services for level/ better utilizations of resources
Supply Options
• Hire and layoff workers
• Overtime/slack time
• Part-time workers
• Inventories
• Subcontracting

Prominent Aggregate Planning Strategies

1. Maintain a level workforce (Level capacity)
2. Maintain a steady output rate(Level capacity)
3. Match demand period by period (Chase demand)
4. Use a combination of decision variables (Mixed)