A firm must plan its manufacturing activities at a variety of levels and operate these as a system.

Aggregate planning is medium‐range capacity planning which typically covers a time horizon of
anywhere from three to 18 months. The goal of aggregate planning is to achieve a production plan
which will effectively utilize the organization′s resources to satisfy expected demand. Planners must
make decisions on output rates, employment levels and changes, inventory levels and changes, back
orders, and subcontracting. Aggregate planning determines not only the output levels planned but also
the appropriate resource input mix to be used. For example; A company projects demand to rise for
three months, then decline for three months. The peak calls for 50,000 units, while the low months
need only 25,000 units. Projections look like this: 10,000, 15,000, 50,000, 30,000, and 10,000. Company
policy requires 5,000 units for safety. The planner directs the warehouse manager to order the 5,000
safety units plus the first month, then order 85 percent of the projected demand each month. Additional
orders to replenish the safety margin should be made only after actual demand figures come in. By using
the safety units to cover inaccuracies in the predictions, then ordering only enough to restore safety
levels. the planner ensures minimum inventory (labor remains steady and productivity incentives are
introduced for the first three months).

Below are the steps involving in Aggregate Planning:

Step 1- Choose strategy: level, chase, or Hybrid

Step 2- Determine the aggregate production rate

Step 3- Calculate the size of the workforce

Step 4- Test the plan as follows:

a) Calculate Inventory, expected hiring/firing, overtime needs

b) Calculate total cost of plan

Step 5- Evaluate performance: cost, service, human resources, and operations.

Aggregate Planning Strategies:

There are two pure planning strategies available to the aggregate planner:

1) Level strategy
2) Chase strategy

Firms may choose to utilize one of the pure strategies in isolation, or they may opt for a strategy that
combines the two.

1.Level Strategy: A level strategy seeks to produce an aggregate plan that maintains a steady production
rate and a steady employment level. In order to satisfy changes in customer demand, the firm must raise
or lower inventory levels in anticipation of increased or decreased levels of forecast demand. The firm
maintains a level workforce and a steady rate of output when demand is low. This allows the firm to
establish higher inventory levels than are currently needed. As demand increases, the firm is able to
continue a steady production rate/steady employment level, while allowing the inventory surplus to
absorb the increased demand. Merits of level strategy is Stable output rates and workforce.
Demerit of level strategy is 1) Greater inventory costs Increased over time and idle time • Resource
utilizations vary over time.

2.Chase Strategy: A chase strategy implies matching demand and capacity period by period. This could
result in a considerable amount of hiring, firing or laying off of employees; insecure and unhappy
employees; increased inventory carrying costs: problems with labor unions, and erratic utilization of
plant and equipment. It also implies a great deal of flexibility on the firm's part. The major advantage of
a chase strategy is that it allows inventory to be held to the lowest level possible, and for some firms this
is a considerable savings. Most firms embracing the just-in-time production concept utilize a chase
strategy approach to aggregate planning. Merits of chase strategy is 1) Investment in inventory is low 2)
Labor utilization in high.

Demerit of chase strategy is 1) The cost of fluctuating work force 2) Potential damage to employee
morale.