Aggregate Planning in Supply

Chain

Lecture 6, Prof Pradeep Pai

1
 Role of Aggregate Planning in
SCM
 Aggregate planning is a process by which a company decides ideal levels of
capacity, production, subcontracting, inventory, stockouts, pricing over a
specified time horizon.
 Aggregate decisions rather than SKU’s (stock keeping units) decisions.
 Time frame is 3 months to 18 months.
 Aggregate planning seen traditionally as an within the enterprise tool but also
affects the supply chain performance.
 Just like collaborative forecasts, aggregate plans require downstream
participation & in some cases the aggregate planning constraints are due to
supply chain partners.
 The main objectives of aggregate planning are,
 Production Rate
 Workforce
 Overtime
 Machine Capacity Level
 Subcontracting
 Backlog
 Inventory on Hand

2
 Need for Aggregate Planning
 Demand Fluctuations –
 Capacity Fluctuations –
 Difficulty in altering production & supply rates –
 Benefits of multi-period planning –
 Alternatives available
 Inventory based alternatives –
 Capacity Adjustment alternatives –
 Capacity Augmentation alternatives –
 Basic Strategies
 Level Strategy – Inventory mark up / down
 Chase Strategy – Overtime / Undertime, Hiring /
Layoff,
 Mixed Strategy.

3
Implementing Aggregate
planning in practice
 Think beyond the enterprise to entire supply
chain. Downstream partners to help in
forecast, Upstream partners to help with
constraints.
 Make flexible plans, not watertight plans.
Sensitivity analysis helps.
 Rerun the aggregate plans as new data
emerges.
 Use aggregate planning when capacity
utilisation increases.