13

Aggregate Planning

McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved.
 Learning Objectives
 Explain what aggregate planning is and
how it is useful.
 Identify the variables decision makers have
to work with in aggregate planning and
some of the possible strategies they can
use.
 Describe some of the graphical and
quantitative techniques planners use.
 Prepare aggregate plans and compute their
costs.
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 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

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 Overview of Planning Levels
 Short-range plans (Detailed plans)
 Machine loading
 Job assignments
 Intermediate plans (General levels)
 Employment
 Output
 Long-range plans
 Long term capacity
 Location / layout

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 Planning Sequence
Figure 13.1

Economic,
Corporate competitive, Aggregate
strategies and political demand
and policies conditions forecasts

Establishes operations
Business Plan
and capacity strategies

Establishes
Aggregate plan
operations capacity

Master schedule Establishes schedules

for specific products

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 Aggregate Planning
 Begin with forecast of aggregate demand
 Forecast intermediate range
 General plan to meet demand by setting
 Output levels
 Employment
 Finished goods inventory level
 Production plan is the output of aggregate
planning
 Update plan periodically – rolling planning
horizon always covers the next 12 – 18
months
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 Aggregate Planning Inputs
 Resources  Costs
 Workforce  Inventory carrying
 Facilities  Back orders
 Demand forecast  Hiring/firing
 Overtime
 Policies
 Inventory changes
 Subcontracting
 Subcontracting
 Overtime
 Inventory levels
 Back orders

13-7
 Aggregate Planning Outputs

 Total cost of a plan

 Projected levels of inventory
 Inventory
 Output
 Employment
 Subcontracting
 Backordering

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Aggregate Planning Strategies
 Proactive
 Alter demand to match capacity
 Reactive
 Alter capacity to match demand
 Mixed
 Some of each

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 Demand Options
 Pricing

 Promotion

 Back orders

 New demand

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 Capacity Options
 Hire and layoff workers
 Overtime/slack time
 Part-time workers
 Inventories
 Subcontracting

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Aggregate Planning Strategies

 Maintain a level workforce

 Maintain a steady output rate
 Match demand period by period
 Use a combination of decision
variables

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 Basic Strategies

 Level capacity strategy:

 Maintaining a steady rate of regular-time
output while meeting variations in
demand by a combination of options.
 Chase demand strategy:
 Matching capacity to demand; the
planned output for a period is set at the
expected demand for that period.

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 Chase Approach
 Advantages
 Investment in inventory is low
 Labor utilization in high

 Disadvantages
 The cost of adjusting output rates and/or
workforce levels

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 Level Approach
 Advantages
 Stable output rates and workforce

 Disadvantages
 Greater inventory costs
 Increased overtime and idle time
 Resource utilizations vary over time

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 Techniques for Aggregate
Planning
1. Determine demand for each period
2. Determine capacities for each period
3. Identify policies that are pertinent
4. Determine units costs
5. Develop alternative plans and costs
6. Select the best plan that satisfies objectives.
Otherwise return to step 5.

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 Cumulative Graph
Figure 13.3
Cumulative output/demand

Cumulative
production
Cumulative
demand

1 2 3 4 5 6 7 8 9 10

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 Average Inventory

Average Beginning Inventory + Ending Inventory

=
inventory 2

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 Mathematical Techniques

Linear programming: Methods for

obtaining optimal solutions to problems
involving allocation of scarce resources
in terms of cost minimization.
Simulation models: Computerized models
that can be tested under different
scenarios to problems.

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 Summary of Planning
Table 13.7 Techniques
Technique Solution Characteristics
Graphical/charting Heuristic (trial Intuitively appealing, easy to
and error) understand; solution not
necessarily optimal.
Linear Optimizing Computerized; linear assumptions
programming not always valid.

Simulation Heuristic (trial Computerized models can be

and error) examined under a variety of
conditions.

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 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

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Aggregate Plan to Master Schedule
Figure 13.4

Aggregate
Planning

Disaggregation

Master
Schedule

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 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.

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 Master Scheduling
 Master schedule
 Determines quantities needed to meet
demand
 Interfaces with
 Marketing
 Capacity planning
 Production planning
 Distribution planning

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 Master Scheduler
 Evaluates impact of new orders
 Provides delivery dates for orders
 Deals with problems
 Production delays
 Revising master schedule
 Insufficient capacity

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 Master Scheduling Process
Figure 13.6

Inputs Outputs
Beginning inventory Projected inventory
Master
Forecast Master production schedule
Scheduling

Customer orders Uncommitted inventory

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 Projected On-hand Inventory

Projected on-hand Inventory from Current week’s

inventory
=
previous week
- requirements

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 Projected On-hand Inventory
Figure 13.8
Beginning
Inventory
JUNE JULY
64 1 2 3 4 5 6 7 8
Forecast 30 30 30 30 40 40 40 40
Customer Orders
(committed) 33 20 10 4 2
Projected on-hand
inventory 31 1 -29 Forecast is larger than
Customer orders in week 3

Customer orders are Forecast is larger than

larger than forecast in Customer orders in week 2
week 1

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 Time Fences

Time Fences – points in time

that separate phases of a
master schedule planning
horizon.

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 Time Fences in MPS
Figure 13.12

Period
1 2 3 4 5 6 7 8 9

“frozen” “slushy” “liquid”

(firm or somewhat (open)
fixed) firm

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Solved Problems: Problem 1

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