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Aggregate Planning

LECTURE
29

Aggregate Planning

Operations Management, Eighth Edition, by William J. Stevenson


McGraw-Hill/Irwin Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.
Aggregate Planning

Planning Horizon
Long range

Intermediate
range
Short
range

Now 2 months 1 Year

Aggregate planning: Intermediate-


range capacity planning, usually
covering 2 to 12 months.
Aggregate Planning

Overview of Planning Levels


 Short-range plans
• Job assignments
• Machine loading
 Intermediate plans
• Employment
• Finished Good inventories
• Subcontracting, Backorders
• Output
 Long-range plans
• Location / layout
• Long term capacity
Aggregate Planning

Planning Sequence

Economic,
Corporate competitive, Aggregate
strategies and political demand
and policies conditions forecasts

Establishes operations
Business Plan
and capacity strategies

Establishes
Aggregate plan
operations capacity

Master schedule Establishes schedules


for specific products
Aggregate Planning

Aggregate Planning Inputs


 Resources
 Demand forecast

 Policies

 Costs
Aggregate Planning

Aggregate Planning Inputs


 Resources  Costs
• Workforce • Inventory carrying
• Machines • Back orders
• Facilities • Hiring/firing
 Demand forecast • Overtime
 Policies • Inventory changes
• subcontracting
• Subcontracting
• Overtime
• Inventory levels
• Back orders
Aggregate Planning

Aggregate Planning Outputs


 Total cost of a plan
 Projected levels of inventory

• Inventory
• Output
• Employment
• Subcontracting
• Backordering
Aggregate Planning

Aggregate Planning Strategies


 Proactive
• Alter demand to match capacity.
 Reactive
• Alter capacity to match demand.
 Mixed
• Combination of both.
Aggregate Planning

Demand Options
 Pricing

 Promotion

 Back orders

 New demand
Aggregate Planning

Capacity Options
 Hire and layoff workers
 Overtime/slack time

 Part-time workers

 Inventories

 Subcontracting
Aggregate Planning

Aggregate Planning Strategies


 Maintain a level workforce.
 Maintain a steady output rate.
 Match demand period by period.
 Use a combination of decision
variables.
Aggregate Planning

Which Strategy to Use


As a rule of thumb, aggregate
planners seek to match supply and
demand within in constraints by
policies and minimum costs.

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