Aggregate planning:

Aggregate planning: Intermediate-range

capacity planning, usually covering 2 to 12
months.
Long range

Intermediate
range
Short
range

Now 2 months 1 Year

 Aggregate Plan
Aggregate
Aggregate Plan:
Plan: AA statement
statement of
of aa company’s
company’s
production
production rates,
rates, workforce
workforce levels,
levels, and
and
inventory
inventory holding
holding based
based on
on estimates
estimates ofof
customer
customer requirements
requirements and
and capacity
capacity limitations
limitations

Manufacturing
Manufacturing
Industry
Industry
Service
Service Industry
Industry ►Production
► Production Plan
Plan
►Staffing
► Staffing Plan
Plan ►Regarding
► Regarding
production
production rates
rates and
and
inventory
inventory
Aggregate Production Planning (APP)

► Determines resource capacity to meet demand

► For intermediate time horizon, 6-12 months
► Not feasible to build new facility
► May be feasible to hire/lay off workers, overtime,
or subcontract
► Adjusting capacity OR managing demand
 Aggregate Planning Inputs
► Resources
 Workforce ► Costs
 Facilities  Inventory carrying
► Demand forecast  Back orders
► Policies  Hiring/firing
 Subcontracting  Overtime
 Overtime  Inventory changes
 Inventory levels  Subcontracting
 Back orders
 Aggregate Planning Outputs
► Total cost of a plan
► Projected levels of inventory
 Inventory
 Output
 Employment
 Subcontracting
 Backordering
 Aggregate Planning Strategies
► Proactive
 Alter demand to match capacity
► Reactive
 Alter capacity to match demand
► Mixed
 Some of each
 Demand options
 Pricing :-
Used to shift demand from peak periods to
off- peak periods .
Eg: -retail stores announces prizes who visit in
the afternoons
 Importance lies on the degree of price
elasticity
Cont..
► Promotion :-
Advertisings and displays and direct marketing.
 Less effective in shifting demand
 Back orders :-
 Orders are taken in one period and deliveries
promised for another period.
 Success depends on the willingness of the
customers
Cont..
► Costs are lost sales annoyed customers.
► New demand:-
► During off peak period the capacity is
utilized for other purpose.
► Example in sourcing , electronic companies
producing small auxiliary componenets
Capacity option
► Hire and lay off employees
 The impact depends on the extent to which
the operations is labor intensive
 Union contracts may restrict this option.
 Hiring –recruitment costs, screening,
training,
 Layoff costs- potential bad feelings towards
firm, loss of morale
 Cont..
► Overtime/slack time :-
 Less severe method of changing than hiring
 Use of overtime may attract workers since it
increases their earnings.
 But may result in poor quality ,more
accidents
 Slack period can be used for training ,
process development,
Cont..
► Part time workers:-
 Viable option- for jobs requiring low &
moderate skills.
 Grater flexibility – can be added or
subtracted easily.
 Unions may dislike this option because they
don’t pay union dues and may lessen union
strength.
Cont..
► Inventories:-
 Use of finished goods inventories allows
products to produce in one period and sell
them in another period
 Cost of storage , cash not available for use,
cost of insurance, spoilage .
 Applied only to maufacturing
Cont..
► Subcontracting :-
 Can acquire temporary capacity , although
we have less capacity over control, quality
problems
 Depends on available capacity ,relative
expertise, stability of demand.
 Outsourcing- contacting on provide goods
on regular basis
 Aggregate Planning Strategies
► Maintain a level workforce
► Maintain a steady output rate
► Match demand period by period
► Use a combination of decision
variables
 Basic Strategies
► Level capacity strategy:
 Maintaining a steady rate of regular-time output
while meeting variations in demand by a
combination of options.
► Chase demand strategy:
 Matching capacity to demand; the planned
output for a period is set at the expected
demand for that period.
 Chase Approach
► Advantages
 Investment in inventory is low
 Labor utilization in high
► Disadvantages
 The cost of adjusting output rates and/or
workforce levels
 Level Approach
► Advantages
 Stable output rates and workforce
► Disadvantages
 Greater inventory costs
 Increased overtime and idle time
 Resource utilizations vary over time
 Techniques for Aggregate
Planning
► Determine demand for each period
► Determine capacities for each period
► Identify policies that are pertinent
► Determine units costs
► Develop alternative plans and costs
► Select the best plan that satisfies objectives.
Otherwise return to step 5.