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ELSEVIER Int. J. Production Economics41 (1995) 127-133

A managerial perspective on aggregate planning


Geoff Buxey
Faculty of Management, Deakin University. Geelong, Victoria, 3217, Australia
Accepted for publication 1 August 1994

Abstract
Aggregate Planning first appeared in the literature nearly 40 years ago and has proven a popular topic for research
ever since. However, industry seems to have ignored repeated claims that there are algorithms available which would
yield significant cost savings. This paper explores the divergence between theory and practice, via an empirical study
covering 30 firms.
Most authors have blamed weaknesses in particular methods for the lack of applications. The evidence presented here
indicates that the Aggregate Planning model itself is at fault, and that the broad characteristics of real production plans
follow from other business, tactical, or operational considerations. Furthermore, a chase option is generally preferred at
the outset.

Keywords: Aggregate planning

1. Aggregate planning premiums, and, payments related to hiring and


then firing any additional staff.
The Aggregate Planning model was developed as Aggregate Planning techniques find the best cost
a vehicle for minimising the total marginal costs of compromise between these two extremes, and in-
manufacturing a range of products with a strong clude several forms of mathematical programming,
seasonal sales pattern I-1]. Over a calendar year [2, 3], regression analysis [4], simulation [5, 6], and
cycle a factory can maintain a constant monthly heuristic rules [7, 8]. The problem is made (math-
output, equal to the average demand rate, and ematically) tractable by using aggregate measures
stockpile finished goods during slack sales periods. of products, labour and inventory and their asso-
They are then used up as supplements whenever ciated costs. In addition, monthly time buckets are
sales outstrips production. Such a level plan incurs specified over the one year horizon, and it is simply
substantial (smoothing) inventory holding charges. assumed that the disaggregation of any given plan
Another possibility is to adjust the output each (faithfully) into a batched, weekly Master Produc-
month in line with its sales forecast. This chase plan tion Schedule (MPS) will be a straightforward task.
involves increasing scheduled labour hours in the There are several reports of favourable results
peak season, in order to run equipment more inten- when these methods were applied retrospectively to
sively or for longer hours, or, subcontracting some actual company data [9, 10]. However, aggregate
work out. The principal discretionary costs are figures are always supplied despite the fact that
overtime (and undertime), shift, and subcontract a fair test should be based on the MPS. Production

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128 G. Buxey /lnt. J. Production Economics 41 (1995) 127-133

Table 1
The Industrial Sample

Products Variety Production mode Major schedule characteristics

Bulk/bagged cement None For stock Chase, but level for intermediate
Large contracts to order (bottleneck) stage
Petrol and oils Ten related products For stock Chase. Exports to maintain full
plant utilization
Motor vehicle batteries Four sizes For stock Level
Paints/varnishes (industrial) Approximately 400 types To customer order Chase
Processed foods 300 items, including For stock Chase-modified by
different container sizes seasonal raw materials
Lawn bowls 650 models combined with Domestic models for Exports
2000 decorative patterns stock, plus "specials"
to order. Export models
to meet order commitments
Electric wall heaters 30 models For stock Chase. Subcontracts to keep
engineering workshops busy
Ladies footwear Winter range: 287 styles; To customer order Chase. Seasonally differentiated
Summer range: 110 styles; product range
compounded by 60 colours,
8 materials and different sizes
Surfer's wetsuits 50 models in 12 sizes Approximately 50% stock and (modified) chase. Seasonally
50% customer order differentiated product range
Boardshorts Five types, 40 fabrics and To customer order (modified) chase. Exports.
20 sizes Counter seasonal products
Paints/finishes (domestic) 417 items, from 28 types, For stock Chase
5 can sizes, and colour range
tawnmowers, edgers, Eight models For stock Chase
outdoor vacuum cleaners
Ladies' wear 500 styles, compounded by To customer order Chase Seasonally differentiated
fabrics and sizes product range
Ammunition 260 products, belonging to a Approximately 40% to meet Chase volatile market segment.
smaller number of families order commitments. Use long lead time export orders
Low-volume industrial range to maintain high plant utilization
to customer order. Remainder
for stock
Beer Two types For stock Chase
Gas barbecues 70 types, expanding to 200 For stock Counter-seasonal products.
when finishes and optional Exports
modules added
Solid fuel heaters Ten models For stock
Reinforced hoses 50 types Small orders supplied ex stock. Chase
Major customers supplied to
"order'" with 30-40 days
lead time
Colour television receivers 12 models For stock Level
Toys Typically, 25 30 items For stock, but subcontracted Subcontracting
made locally
G. Buxey/lnt. ,L Production Economics 41 (1995) 127-133 133

They do not include an expensive fan, which is ent format to Aggregate Planning. In fact, both
purchased and inserted on a chase basis. involve minimising the combined costs of produc-
tion, inventory and distribution in a multi-plant
situation with given (constant) workforces. They
7. Conclusions still leave a lot of details to be worked out by other
means before a feasible shift-based plan becomes
The investigation reveals that Aggregate Plan- available to cover the short term activities. The
ning is never undertaken in the way promoted by literature believes that greater sophistication, via
the literature. There is no product aggregation/dis- integration to avoid sub-optimisation, is the key to
aggregation, although the initial forecasts and advances in production planning, although it can-
schedules may be simplified by using family groups not as yet come up with a comprehensive model.
to which minor finish or packaging details are This research shows that in real life good guide-
added later. Most significantly, marginal work- lines, prudence, and flexibility are more important,
force-inventory cost balancing is not attempted although there may be room for computerised deci-
at all. sion support systems in developing the former.
Resources and production planning is, nonethe-
less, very important when sales are seasonal. The
problem is tackled at three levels, strategic, tactical,
References
and operational. These are loosely linked to
provide enough scope to handle the inevitable [1] Holt, C.C., Modigliani, F. and Simon, H.A., 1955. Mgmt.
modifications to the MPS as they arise, and many Sci., 2: 1.
potential expenses or difficulties are nullified by [2-] Akinc, V. and Roodman, G.M., 1986. l i e Trans., 18: 84.
cultivating good management practices. There is [3] Deckro, R.F. and Hebert, J.E., 1984. liE Trans., 16: 308.
[4] Bowman, E.H., 1963. Mgmt. Sci., 9: 310.
indeed one case (convenience foods) where a com- [-5] Jones, C.H., 1967. Mgmt. Sci., 13: 843.
puterised model, based on heuristic rules, generates [-6] Taubert, W.H., 1968. Mgmt. Sci., 14: 343.
the MPS, but management sets the overall tactical [-7-] Elmaleh, J. and Eilon, S., 1974. Int. J. Prod. Res., 12:
framework and individual item stock levels are 673.
determined by Economic Batch Quantity (EBQ) [-8] Mellichamp, J.M. and Love, R.M., 1978. Mgmt. Sci., 24:
1242.
logic rather than using the (aggregate smoothing [-9-] Lee, W.B. and Khumawala, B.M., 1974. Mgmt. Sci., 20:
stock) concepts of Aggregate Planning. 903.
Two examples from the literature [13, 14] show [10,] Vergin, R.C., 1966. Ind. Eng., 17: 260.
that linear programming can also be applied suc- [-11] Gilgeous, V., 1988. Int. J. Prod. and Ops. Mgt., 8: 48.
cessfully to formulate an MPS. One company [12,] Gilgeous, V., 1989. Int. J. Prod. Res., 27: 1179.
[13] Kaye, D.R. and Dunsmuir, A.M., 1977. in: S.C. Littlechild
makes convenience foods too and the other (beer) (Ed.), Operational Research for Managers, Philip Allan,
has a similar production environment, but again Deddington, 102.
the models proposed by management have a differ- [14] Duran, F., 1987. European J. Opl. Res., 28: 207.
G. Buxey/lnt. ,L Production Economics 41 (1995) 127-133 133

They do not include an expensive fan, which is ent format to Aggregate Planning. In fact, both
purchased and inserted on a chase basis. involve minimising the combined costs of produc-
tion, inventory and distribution in a multi-plant
situation with given (constant) workforces. They
7. Conclusions still leave a lot of details to be worked out by other
means before a feasible shift-based plan becomes
The investigation reveals that Aggregate Plan- available to cover the short term activities. The
ning is never undertaken in the way promoted by literature believes that greater sophistication, via
the literature. There is no product aggregation/dis- integration to avoid sub-optimisation, is the key to
aggregation, although the initial forecasts and advances in production planning, although it can-
schedules may be simplified by using family groups not as yet come up with a comprehensive model.
to which minor finish or packaging details are This research shows that in real life good guide-
added later. Most significantly, marginal work- lines, prudence, and flexibility are more important,
force-inventory cost balancing is not attempted although there may be room for computerised deci-
at all. sion support systems in developing the former.
Resources and production planning is, nonethe-
less, very important when sales are seasonal. The
problem is tackled at three levels, strategic, tactical,
References
and operational. These are loosely linked to
provide enough scope to handle the inevitable [1] Holt, C.C., Modigliani, F. and Simon, H.A., 1955. Mgmt.
modifications to the MPS as they arise, and many Sci., 2: 1.
potential expenses or difficulties are nullified by [2-] Akinc, V. and Roodman, G.M., 1986. l i e Trans., 18: 84.
cultivating good management practices. There is [3] Deckro, R.F. and Hebert, J.E., 1984. liE Trans., 16: 308.
[4] Bowman, E.H., 1963. Mgmt. Sci., 9: 310.
indeed one case (convenience foods) where a com- [-5] Jones, C.H., 1967. Mgmt. Sci., 13: 843.
puterised model, based on heuristic rules, generates [-6] Taubert, W.H., 1968. Mgmt. Sci., 14: 343.
the MPS, but management sets the overall tactical [-7-] Elmaleh, J. and Eilon, S., 1974. Int. J. Prod. Res., 12:
framework and individual item stock levels are 673.
determined by Economic Batch Quantity (EBQ) [-8] Mellichamp, J.M. and Love, R.M., 1978. Mgmt. Sci., 24:
1242.
logic rather than using the (aggregate smoothing [-9-] Lee, W.B. and Khumawala, B.M., 1974. Mgmt. Sci., 20:
stock) concepts of Aggregate Planning. 903.
Two examples from the literature [13, 14] show [10,] Vergin, R.C., 1966. Ind. Eng., 17: 260.
that linear programming can also be applied suc- [-11] Gilgeous, V., 1988. Int. J. Prod. and Ops. Mgt., 8: 48.
cessfully to formulate an MPS. One company [12,] Gilgeous, V., 1989. Int. J. Prod. Res., 27: 1179.
[13] Kaye, D.R. and Dunsmuir, A.M., 1977. in: S.C. Littlechild
makes convenience foods too and the other (beer) (Ed.), Operational Research for Managers, Philip Allan,
has a similar production environment, but again Deddington, 102.
the models proposed by management have a differ- [14] Duran, F., 1987. European J. Opl. Res., 28: 207.