AGGREGATE PLANNING BY ADIL SHAIKH

ROLL NO: 1615051

The aggregate plan generally contains targeted sales forecasts, production levels,
inventory levels, and customer backlogs. This schedule is intended to satisfy the
demand forecast at a minimum cost.
IN SIMPLE TERMS…
Adjusting production rates, labor levels, inventory levels, overtime work, subcontracting rates...

IN ORDER TO

Determine the best way to meet forecasted demand and minimize cost over the planning period.
OBJECTIVES
•Minimize cost / maximize profits
•Maximize customer service
•Minimize inventory investment
•Minimize changes in production rates
•Minimize changes in workforce levels
•Maximize utilization of plant and equipment
PROCESS OF AGGREGATE PLANNING
Determine Determine Identify policies
demand for capacities for that are
each period each period pertinent

Develop
Select the best Determine units,
alternative plans
plan that satisfies costs for units
and compute
objectives produced
costs for each
AGGREGATE PLANNING STRATEGIES
•There are two pure planning strategies available :
Level strategy
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.
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
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
LEVEL VS CHASE STRATEGY
LEVEL STRATEGY CHASE STRATEGY
•Stable output rates and workforce •Investment in inventory is low
•Greater inventory costs •Labor utilization in high
•Increased over time and idle time •The cost of fluctuating work force
•Resource utilizations vary over time •Potential damage to employee morale
TECHNIQUES OF AGGREGATE PLANNING
•Linear programming
•Linear Decision Rules
•Simulation Model
LINEAR PROGRAMMING
•LP models are methods for obtaining optimal solutions to problems involving the
allocation of scarce resources in terms of cost minimization or profit maximization.
•the goal is to minimize the sum of costs related to regular labor time, over time,
inventory holding costs, and costs associated with changing size of the work force.
•Constraints involve the capacities of the workforce, inventories and subcontracting.
•In order to use this approach, planners must identify capacity (supply) of regular
time, over time, subcontracting and inventory on a period by period basis as well as
related costs of each variable.
LINEAR DECISION RULE
•Linear decision rule is another optimizing technique. It seeks to minimize total
production costs (labor, overtime, hiring/lay off, inventory carrying cost) using a set of
cost-approximating functions to obtain a single quadratic equation.
•Then, by using calculus, two linear equations can be derived from the quadratic
equation, one to be used to plan the output for each period and the other for
planning the workforce for each period.
SIMULATION MODELS
•By developing an aggregate plan within the environment of a simulation model, it
can be tested under a variety of conditions to find acceptable plans for
consideration.
•These models can also be incorporated into a decision support system, which can aid
in planning and evaluating alternative control policies.
•These models can integrate the multiple conflicting objectives inherent in
manufacturing strategy by using different quantitative measures of productivity,
customer service, and flexibility.
EXAMPLE OF AGGREGATE PLANNING
1) Assume you are the operations manager of a firm that carries a single family of
products. To obtain a unit of the family we need 1.5 hours (standard hours) of
workforce and each worker’s shift is 8 h. a day. At this moment, December, the
workforce of the firm is 150 workers (50 permanent and 100 temporary) and,
although the security stock desired is 500 units, the available stock is zero.
DATA:
• 1.5 hours per unit (standards h)
• Worker’s shift 8h a day per
• Workforce-:150 workers: 50 permanent 100 temporary
• Security stock desired 500 units
• Available stock 0
EXAMPLE OF AGGREGATE PLANNING
Cost information:
• Materials per unit of product: 5,000 m.u.
• Standard hour of regular time labor: 1,000 m.u.
• Standard hour of overtime labor: 1,500 m.u.
• Standard hour of idle time: 1,100 m.u.
• Hiring: 100,000 m.u./worker
• Layoff of a temporary worker: 150,000 m.u.
• Subcontracting cost per unit: 1,000 m.u., over the regular production cost of one unit.
• Inventory or carrying cost: 200 m.u./unit and month. Cim = Ciu (Iem + Ibm)/2
• Back order cost: 1,500 m.u./ unit and month.
EXAMPLE OF AGGREGATE PLANNING
Other factors that need to be considered to develop an aggregate planning, are the
company policies:
• There are three shifts and the maximum number of workers that can work simultaneously is 50.
Therefore, there is a maximum of 1,200 h/day (150 workers x 8 h/day and worker).
• The maximum number of overtime hours allowed is 10% of the hours available in regular time.
• Permanent workers cannot be laid off.
• All the costs are linear functions.
• The daily demand, within each month, is uniform and continuous.
EXAMPLE OF AGGREGATE PLANNING
EXAMPLE OF AGGREGATE PLANNING
EXAMPLE OF AGGREGATE PLANNING
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USING CHASE STRATEGY:
•Monthly production equal to the necessary production.
•Adjusting capacity by varying workforce levels through hiring or laying off (use of
idle time due to restrictions in the layoff of permanent workers) and backorders.
EXAMPLE OF AGGREGATE PLANNING
HOURS OF REGULAR PRODUCTION=Regular production * h/un.
 EXAMPLE OF AGGREGATE PLANNING

WORKFORCE
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REGULAR REDUCTION COST =

VARIATION IN WORKFORCE=
 EXAMPLE OF AGGREGATE PLANNING
COST OF HIRING AND LAYOFF= COST OF IDLE TIME=

FINAL INVENTORY=
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TOTAL COST=

CUSTOMER SATISFACTION=
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