OPERATIONS

MANAGEMENT
S E S S I O N 7 – A G G R E G AT E
PLANNING

P R O F. S U S H M I T A N A R A Y A N A
An Introduction to Aggregate
Planning
Operations Planning & Scheduling is the process of making sure that demand and supply plans
are in balance, from the aggregate level down to the short-term scheduling level

Aggregate production planning is concerned with determining the quantity and timing of
production for the intermediate future
◦ ~ 3 – 18 months
HMMS Model
In the early 1950s, Charles C. Holt, Franco Modigliani,
John F. Muth, and Herbert A. Simon (HMMS) began work
on a project, “Planning and Control of Industrial
Operations”, at the Graduate School of Industrial
Administration (GSIA) at the Carnegie Institute of
Technology. William W. Cooper, who was also at GSIA,
initiated the project, and the Office of Naval Research
supported it.
Holt had four degrees in electrical engineering and
economics from MIT and the University of Chicago, and
he wanted to study how instability in the economy was
related to firms’ management of their inventories.
Modigliani (awarded the Nobel Prize in 1985) received a
J.D. in 1939 from the University of Rome and a D.S.S. in
1944 from the New School of Social Research. He had
worked on production smoothing.
Simon (awarded the Nobel Prize in 1978) received his
Ph.D. from the University of Chicago in 1943. A cognitive
scientist, economist, organizational theorist, and
political scientist, he had worked on the dynamics of
inventory feedback on production rates. He was
interested in understanding how managers made their
decisions, and he wanted to model their behavior.
Muth had an undergraduate degree in industrial
engineering and was a graduate student at the GSIA
where he earned a Ph.D. in 1962. He published a paper
on rational expectations in 1961, derived from the work
on the project, “Planning and Control of Industrial
Operations”. Robert Lucas built on Muth's work and won
a Nobel Prize in 1995.
Why aggregate planning?
Holt et al. (1955) was among the first to recognize and discuss problems related to seasonal
variations in demand that result in difficult scheduling of production and timely availability of
resources
Medium-term planning needs aggregate levels of resources (labor, inventory) needed to satisfy
aggregate demands
Aggregate forecasts tend to be more accurate than disaggregate forecasts
In general, aggregation is carried out along three dimensions
◦ Services/Products
◦ Workforce
◦ Time
 Business Plan

Sales and Operations Plan/ Aggregate

Production planning
Staffing plan Production Plan
(Service firm) (Manufacturing firm)

Resource planning (service ) Resource planning (manufacturing )

• Workforce schedule • Master Production Schedule
• Materials and facility resources • Material requirement planning

•Employee schedules •Employee and equipment schedules

•Facility schedules •Production order schedules
•Customer schedules •Purchase order schedules
Matching supply with demand
Two options are possible for matching supply with demand
◦ Demand Management
◦ Supply Management
Information Stocks and Flows
DEMAND
DEMAND
FULFILMENT
Demand
Backlog
LOST SALES

Information flow

SUPPLY SALES
Inventory Level

Material Stocks and Flows

Information Stocks and Flows
DEMAND
DEMAND
FULFILMENT
Demand
Backlog
Complementary LOST SALES
products

Prescheduled
Promotional
appointments
pricing
Revenue
management
Information flow

Reservations

SUPPLY SALES
Inventory Level

Material Stocks and Flows

Information Stocks and Flows
DEMAND
DEMAND
FULFILMENT
Demand
Backlog
Complementary LOST SALES
products

Prescheduled
Promotional
appointments
pricing
Revenue
management Backorder Shortag
Information flow

Reservations
s e

SUPPLY SALES
Inventory Level

Material Stocks and Flows

Information Stocks and Flows
DEMAND
DEMAND
FULFILMENT
Demand
Backlog
Complementary LOST SALES
products

Prescheduled
Promotional
appointments
pricing
Revenue
management Backorder Shortag
Information flow

Reservations
s e

SUPPLY SALES
Anticipation Inventory Level
Inventory
Workforce
adjustment Vacation
(hiring/layoff) schedules
Workforce utilization
Part-time Subcontractors
(overtime/undertime)
workers Material Stocks and Flows