Presenter are as following

10 - Hem Mav
02- Sneha Chavan
06- Amol Jadhav
Date: 22-2-2020
1
Introduction
An organization can finalize its business plans on
the recommendation of demand forecast. Once
business plans are ready, an organization can do
backward working from the final sales unit to
raw materials required. Thus annual and
quarterly plans are broken down into labor, raw
material, working capital, etc. requirements over
a medium-range period (6 months to 18
months). This process of working out production
requirements for a medium range is called
aggregate planning.
2
Strategy of Aggregate planning
There are two approaches to it.

Capacity option Demand option

• Inventory level • Influencing demand

• Subcontracting
• Vary the workforce size
• Use part time workers

3
Strategy of Aggregate planning

Quantity of
goods

Forecasted
Demand
Timing of
production

4
Importance of Aggregate Planning
• Aggregate planning plays an important part in achieving long-term
objectives of the organization. Aggregate planning helps in:
• Achieving financial goals by reducing overall variable cost and improving
the bottom line
• Maximum utilization of the available production facility
• Provide customer delight by matching demand and reducing wait time for
customers
• Reduce investment in inventory stocking
• Able to meet scheduling goals there by creating a happy and satisfied
work force
5
Strategy to aggregate planning

• Level Strategy
1

• Chase Strategy
2

6
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. 7
8
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.

9
Chase strategy
• 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

10
11
 Level Vs.
Chase

LEVEL CHASE

• ADVANTAGES • ADVANTAGES

• Stable output rates and • Investment in inventory is

workforce low
• Labor utilization in high

• DISADVANTAGES • DISADVANTAGES

• Greater inventory costs • The cost of fluctuating work

• Increased over time and force
idle time • Potential damage to
• Resource utilizations vary employee morale
over time
Optimization
• The chase and level strategies are two extreme strategies.
Chase strategy minimizes inventory costs and level strategy
minimizes smoothing costs. The goal of optimization is to
identify a production plan that minimizes the total inventory and
smoothing costs.
• This can be done using linear programming.

13
Techniques

Linear Programming
Model

Linear Decision Rule

Simulation
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

• Video Link Linear Programming

• Excel LP
Microsoft Excel 15
Worksheet
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.

16
 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. 17
Thank You.

18