AGGREGATE PLANNING

WHAT IS AGGREGATE PLANNING

Aggregate planning is an approach to determine quantity and timing of production for the intermediate future. Aggregate- combining of things, resources or factors

OBJECTIVES
Objectives of aggregate planning:
Meet forecasted demand Minimizing cost over planning period

WHAT IS NEEDED IN AP
A logical overall unit for measuring sales and output. A method for determining relevant cost. A forecast of demand for a reasonable intermediate planning period in these aggregate terms. A model that combines forecasts and costs so that scheduling decisions can be made for the planning period.

AGGREGATE PLANNING
Means combining appropriate resources into general terms. It is a part of larger production planning system. Disaggregation is breaking the aggregate plan into greater detail. The result of disaggregation is master production schedule which is a timetable specifies what to be made and when.

PLANNING PROCESS

AGGREGATE PLANNING STRATEGIES

CAPACITY OPTION
Changing inventory levels.
Increase inventory during low demands to meet high demands in future.

Varying workforce.
Meet demands by hiring or laying off workers.

Varying production rates through overtime or idle time.

Absorb workers idle-time during low demand.

Subcontracting
Subcontracting work during peak demand.

Using part-time workers

Fill labor needs by hiring part timers.

 DEMAND OPTION
Influencing demands
Use advertising, promotions, personal selling and price cuts to increase demands.

Back ordering during high demand

Accept the order but delay the producing of the product.

Counterseasonal product and service mixing

Produce products that can fit into seasonal time.

 MIXING OPTION TO DEVELOP PLAN

Chase strategy
Attempts to achieve output rates for each period that match the demand forecasts.

Level strategy
Maintaining a constant output rate, production rate, or workforce level over planning horizon.

Option

Advantage

Disadvantage

Some Comments
Applies mainly to production, not service, operations

Changing inventory levels

Changes in human resources are gradual, not abrupt production changes

Inventory holding costs; Shortages may result in lost sales

Varying workforce size by hiring or layoffs

Avoids use of Hiring, layoff, other alternatives and training costs

Used where size of labor pool is large

Option
Varying production rates or idle time Subcontracting

Advantage

Disadvantage

Some

Comments
Matches seasonal Overtime fluctuations hiring/training costs Permits flexibility and smoothing of the firm's output Loss of quality control; reduced profits; loss of future business Applies mainly in production settings premiums, tired workers, may not meet demand Allows flexibility within the aggregate plan

through overtime without

Option
Using part-time workers

Advantage
Less costly and more flexible than full-time workers

Disadvantage
High turnover/training costs; quality suffers; scheduling difficult Uncertainty in demand. Hard to match demand to supply exactly.

Some Comments
Good for unskilled jobs in areas with large temporary labor pools

Influencing demand

Tries to use excess capacity. Discounts draw new customers.

Creates marketing ideas. Overbooking used in some businesses.

Option
Back ordering during highdemand periods

Advantage

Disadvantage

Some Comments
Many companies backorder.

May avoid Customer must overtime. Keeps be willing to capacity constant wait, but goodwill is lost.

Counterseasonal Fully utilizes May require products and resources; allows skills or service mixing stable workforce. equipment outside a firm's areas of expertise.

Risky finding products or services with opposite demand patterns.