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Aggregate Planning
Aggregate Planning
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The quantity of outsourcing, subcontracting of items, overtime of labor, numbers to be hired and
fired in each period and the amount of inventory to be held in stock and to be backlogged for
each period are decided. All of these activities are done within the framework of the company
ethics, policies, and long term commitment to the society, community and the country of
operation.
Capacity
Strategic
Company
Constraints
Objectives
Policies
Demand
Aggregate
Financial
Forecast
Planning
Constraints
Size of work
force
Production
per month
Inventory
levels
Units or dollars
subcontracted,
backordered or lost
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Aggregate planning is a forecasting technique that businesses use in an attempt to predict the
supply and demand of their products and services. Mainly, this is done in an effort to save
money, streamline operations and increase productivity. To accomplish this, businesses use an
aggregate planning model to develop a game plan that will assist them with determining their
staffing requirements, materials needed estimated timelines and budget costs so they can better
plan ahead.
I.
II.
Aggregate planning is concerned with determining the quantity and the schedule of production
for the immediate future. Aggregate plans are intermediate-range plans that are valid for three to
18 months. The main objective of aggregate plans is to lower costs and to use capacity most
efficiently. The operations department uses the forecasted demand for the planning period to plan
the rate of production in such a way that the overall costs are reduced thus maximizing the profit.
III.
By using aggregate planning to forecast production demand, businesses are better able to predict
their staffing requirements. Businesses that need additional employees on a temporary basis tend
to fill these positions with workers from temporary employment agencies. Through proper
forecasting, a business will be able to reduce or eliminate the need to hire these extra workers.
This will save the business both time and money as it won't need to pay the additional fees to the
staffing agency and it won't have to pay its own workers to train the new additions.
IV.
Reduce Overhead
Excess inventory costs businesses a lot of money. Additional materials will need to be stored,
and having finished products lying around increases the likelihood of damage to the products
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before they reach the customer. Adhering to an aggregate planning model can help businesses
operate in a leaner manner. Managers will be able to better anticipate how much product they
will need and when they will need it so they won't have to stockpile it in advance due to a fear
that they'll run out before they can get more.
V.
Accommodate Changes
Since production orders often vary, most businesses cannot stick to one plan at all times.
Aggregate planning allows for contingency measures to be put in place so businesses can better
accommodate significant changes in customer orders and production. At different times,
businesses can rotate between active, passive and mixed strategies. They can also fluctuate
between using the chase strategy where production levels equal forecast demands and the level
production strategy where stable output rates remain constant
VI.
Aggregate planning allows planners to compare projected demand with existing capacity. Using
the data inputs, planners use graphical analysis to compare the costs of various options to meet
demand. These techniques in aggregate planning allow companies to not only identify the best
options to meet demand but also to know about inefficiencies within their own organizations.
Aggregate planning thus helps in developing more efficient strategic plans. This includes
developing strategic relationships with suppliers and distributors and also developing more
accurate market research.
VII.
Sustainable marketing
Sustainable marketing is the process of promoting products that are environmentally safe at the
retail level and touting a company's commitment to sustainable practices at the public relations
level. This category of marketing seeks to capitalize on the increased value consumers place on
eco-friendly products and companies that have a perceived commitment to sustainability in its
production and supply chains. Aggregate planning creates opportunity to create sustainable
marketing by taking right decision at right time.
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I.
Scheduling
The fact that this system is a plan that seeks to organize production around anticipated demand
is itself a problem. There is little flexibility if demand spikes or falls drastically. If the firm has
planned for a certain amount of output over the next six months and demand declines, then
workers sit idle and inventory rots in warehouses. It is very rare that scheduling demand ever
really fits perfectly with reality.
II.
Waste
The real-world concept of aggregate planning is that the plan gets fulfilled no matter what
happens on the outside. The firm in capitalism is meant to be a transmission belt between
supply and demand. Instead, under aggregate planning, the firm looks more like a Soviet-style
enterprise fulfilling a quota rather than focusing on customers and what they want. At least at
certain times in the production cycle, the creation of goods might have no or little connection to
customers at all.
III.
Prices
In general terms, if a company's product suddenly becomes demanded in greater quantities, the
firm doing the supplying has few options in the short term. Either the plan is totally thrown away
and the company retooled, or the prices for the firm's product skyrockets without any short term
response. Under extreme conditions, a sudden increase in demand might entice competitors to try
and siphon off this demand if the firm is too tied to its aggregate plan to respond quickly.
Aggregate planning is based on the desire for a smooth, bureaucratic routine. A firm, however, is
meant to be a rapid response machine.
IV.
Labor
Under aggregate planning, stability is the main desire. If all goes according to plan, then the
aggregate system works well. No one is surprised and the routine becomes normal. On the other
hand, a sudden spike in demand means that workers are paid much in overtime, machinery is
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used beyond its capacity and, possibly, new workers must be rapidly hired and trained. All of this
takes time and obviates the firm's short run flexibility. If demand shifts too far apart from the
plan in any direction, labor is mismatched to the work at hand.
V.
For aggregate planning its very important to have integration with the suppliers so that they can
provide the raw materials or other supplies when needed. If there is a miscommunication or
misunderstanding among suppliers and the enterprise a successful aggregation will not be
possible.
VI.
Aggregate planning depends greatly on forecasting about future sales, demand, supply,
production etc. for accurate forecasting the managers need reliable information. But sometimes
information is not accurate or may be biased.
VII.
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