Chapter 6 Aggregate

Planning
By:
C.M. Dhakal
1. Concept of Sales and Operation Planning.
Both manufacturing and service organization
have to integrate all functional units such as
marketing, manufacturing, engineering, finance,
materials etc. to produce product or services.
This is the concept of production planning.
Recently, the concept of sales and operation
planning has been developed.
The demand of goods and service will uncertain.
However every organization should try to balance
demand and capacity.
 Cont..
So, sales and operation planning is a process that is
designed to help a company to balance demand and
supply.
By developing team and building teamwork between
sales, operation, finance and product development,
organization can provide better customer service, lower
inventory, reduce lead time and stabilize production
rate.
S&OP links the company’s strategic capacity planning
into detail process.
The overview of S&OP can be shown in following figure:
 S&OP Process
Process Planning
Long
Range Strategic Capacity Planning

Aggregate Planning
Manufacturing Services
Medium
Range Master Production Scheduling

Material Requirements Planning

Order Scheduling Weekly Workforce &

Customer Scheduling
Short
Range Daily Workforce &
Customer Scheduling
 2. Aggregate Planning
An aggregate planning is the process of determining
the output level of product groups over the coming 6
to 18 months on a weekly or monthly basis.
The aggregate plan identifies the overall level of
outputs in support to business plan.
Developing the aggregate production plan involves
following four basic considerations.
A. The concept of aggregation
 It is identifying meaningful measure of output. It is easy for
organization producing single product.
 Cont..
 In case of organization producing multi-product, the aggregation can be
done as:
 Items

 Families

 Product type

• In aggregate planning process, the following two variables are important.

 The amount of aggregate product to be produced during each time.

 The amount of direct labor needed.

B. The goal of aggregate planning

 To provide overall level of output, inventory and backlogs as required by
business plan.
 To use the capacity of the plant consistent with the organization’s strategy
 To make consistency with the company’s goals and policies regarding its
employees.
 Cont..
c. The forecast of aggregate demand
d. Options for adjusting short-run capacity
 The workforce size
 Workforce utilization
 Size of inventory
 3. Aggregate Planning Techniques.
The aggregate planning can be done by using simple
(trial and error) technique and mathematical
(advance) technique.
A. Steps for trial and error approach
1. To determine demand of each period.
2. To determine capacity of each period.
3. To identify various policies i.e. overtime policies, inventory
policy, workforce level, productive time policies etc.
4. To calculate basic production cost
5. To implement the plan which meets the objectives of
organization.
 B. Advance Techniques.
There are various advance or mathematical
techniques, which are:
Linear programming
Mixed integer programming
Linear decision rule
Management coefficient model
Search decision rule
Simulation
4. Aggregate Planning Options.
There are primarily two aggregate planning options, which are:
A. Demand options
 Pricing
 Promotions
 New demand
 Complementary products/services
 reservations
B. Capacity options
 Hiring and layoff of employees
 Overtime and under time
 Use of part time or temporary labor
 Carrying inventories
 Subcontracting
5. Aggregate Planning Strategies.
 There are various aggregate planning strategies,
which are:
a. Chase strategy (hiring and layoff)
b. Stable workforce-variable work hour
c. Level strategy
 6. Aggregate Planning in Services.
Aggregate planning is also applicable in service
organization. However, there is significant different
between aggregate planning related to manufacturing
operation and service operation.
The key differences are:
a. Service cannot be stored.
b. Difficult to predict demand
c. Difficult to predict capacity
d. Appropriate place and time.
e. Short-range planning.
 6.1 Objectives of Aggregate Planning in
Services.
The various objectives of aggregate planning in service
are:
a. To minimize cost and maximize profit
b. To improve customer satisfaction
c. To minimize fluctuation of work force
d. To maximize utilization of work force.