TOPIC: Aggregate Production Planning
Table of content
Table of content ........................................................................................................................................... 1
Abstract........................................................................................................................................................ 2
Introduction ................................................................................................................................................. 2
Objectives..................................................................................................................................................... 4
Example 1: ............................................................................................................................................ 4
Aggregate Production Planning Model ..................................................................................................... 5
Figure: Strategies for meeting demand................................................................................................... 6
Figure: inputs and outputs from aggregate production planning .......................................................... 7
Why using Aggregate Planning? ............................................................................................................... 9
Conclusion ................................................................................................................................................... 9
Referencing:............................................................................................................................................... 11
Abstract
Aggregate planning is the process of increasing, analyzing, and maintaining groundwork,
estimated plan of the overall operations of an organization. The aggregate plan generally
includes targeted sales forecasts, construction levels, inventory levels, and customer backlogs.
This plan is intended to satisfy the demand forecast at a least cost.
In simple terms, aggregate planning is an attempt to balance power and demand in such a way
that costs are minimized. The word "aggregate" is used because scheduling at this level includes
all resources "in the aggregate;" Aggregate resources may possibly be the total number of
workers, hours of machine time, or tons of raw materials.
Aggregate planning does not discriminate among sizes, colors, features, and so forth. When units
of aggregation are difficult to determine equivalent units are usually determined. These similar
units could be based on value, cost, worker hours, or some identical measure.
Aggregate planning is considered to be intermediate-term in nature. Therefore, most aggregate
plans cover a period of three to 18 months.
Introduction
This term paper covers issues concerned with how a firm integrates information from and about
its customers, internal and external to the firm, into the manufacturing planning and control
system. Aggregate planning is responsible for input from demand management process, which
includes activities that vary from determining or estimating the demand from customer, through
converting definite customer orders into promised delivery dates, to helping balance demand
with supply.
Aggregate planning in business is defined as the process of development, analytics and
maintenance of a schedule for the company overall operations. The planned output levels,
targeted sales and future inventory levels are taken into account while preparing an aggregate
plan.
Aggregate production planning is the method by which organizations determine how they will
meet demand in the intermediate future, generally from 6 - 18 months. During this time frame,
organizations use different methods to adjust production output to meet demand such as adding
shifts, hiring/firing workers, overtime, under time, subcontracting the work to an outside firm,
and etc. The use of the word “aggregate” implies that the planning is not done for definite
products, but for groups of products with related production characteristics. This allows the
planning to be done using aggregate units of capacity.
A good aggregate plan must attempt to match the demand for a product/service and its supply by
determining the required quantities and timings. The plan must consider a horizon with scope for
uneven updating. That is, the demand and supply together must be able to be influenced, with
changes in production rates, inventories and workforce levels.
There are two types of aggregate plans used by businesses: production aggregate plans and
staffing aggregate plans.
i.
Production aggregate plans: it prepares a managerial report for the said period with
respect to production rates, inventories and customer specifications.
ii.
Staffing aggregate plans: it details out the staff sizes and labor capacities.
Objectives
The main objective of aggregate planning in business is to minimize total cost across the planned
period. To accomplish this, inventory and investment, changes in workforce and production rates
should be minimized. Also, customer satisfaction and consumption of the plant and equipment
should be maximized. (Krish, 2009)
Other objectives should be considered to:

maximize customer service

minimize inventory investment

minimize changes in staff levels

minimize modification in production rates

maximize consumption of plant and equipment
Example 1:
Assume you have the following forecasts for demand to meet:
Month
1
2
3
4
5
6
Demand
1000
1200
1500
1900
1800
1600
Relevant Costs:
Regular production cost
$35/unit
Lost sales
$100/unit
Inventory carrying costs
$10/unit/month
Subcontracting costs
$60/unit
Hiring costs
$1500/worker
Firing costs
$3000/worker
Beginning workforce level
20 workers
Capacity per worker
50 units/month
Initial inventory level
700 units
Closing inventory level
100 units
Aggregate Production Planning Model
Aggregate production planning models may be important as decision support systems and to
evaluate proposals in union discussions. Two extreme aggregate production plans are: The justin-time production plan and the production-smoothing plan.
The Just-in-time production plan, also known as the chase plan, consists in varying the
production rate to satisfy demand. The idea is reliable with the JIT production philosophy and
results in low holding costs but may result in high cost of adjusting the production rate. As an
outcome, the just-in-time plan is best suited to circumstances where the cost of changing the
production rate is relatively inexpensive.
The production-smoothing plan, also known as the stable plan, consists in keeping the
production rate steady over time. This strategy minimizes the production cost when production
costs are bowed. The production-smoothing plan is best suited to conditions where inventory
carrying costs are low. (Gallego 2001)
Figure: Strategies for meeting demand
Aggregate production planning (APP) determines the supply capacity a firm will need to meet its
demand in the future. Aggregate planning presents a plan for allocating resources, like labor and
materials for production, and space and time for services.
There are three main types of AP strategies that businesses globally use. There are active
strategies, passive strategies, as well as mixed strategies and each has its advantages and
drawbacks.
By following active strategy method, the business attempts to grip demand changes by stressing
demand management, and for this method, the management uses pricing strategies.
Passive strategy method attempts to handle demand fluctuations by stressing supply and
capacity. The companies that use this strategy build and draw from inventories and have
common agreements with other firms in the same line of business. These strategies account for
backlogs and stock-outs and allow the business to vary use of labor through overtime and/or idle
time.
Mixed strategy method is a mix of active and passive strategies. Firms that use this method make
use of experience, preset rules and conditions, managerial instinct and insight. More often than
not, these strategies appoint the use of computers for graphical interpretation and spreadsheet
analysis. There is a main drawback to this. Although many solutions are possible, the best one is
rarely found.
Figure: inputs and outputs from aggregate production planning
Manufacturers and service providers usually find that the demand for their products or services is
not stable. As a result planning their production to meet demand is often problematic.
Aggregate planning was developed to carry out the problem of meeting forecasted demand by
adjusting production capacity. Aggregate planning have its advantages and disadvantages. It can
be used across a wide range of industries, it develops a road map to operate efficiently, and it is
used for all production-planning processes, and is also flexible.
In simple terms, aggregate planning is an effort to balance production capacity and demand in
such a method that costs are minimized. Aggregate resources could be entire number of workers,
hours of machine time, or tons of raw materials. The Aggregate Production Planning Function is
given below.
Figure: Functions of Aggregate Planning
Why using Aggregate Planning?
Aggregate planning is important for companies with regular demand patterns and for service.
With aggregate planning, a company can resolve the resource capacity needed to meet demand.
Business matches market demand to their company resources.Besides that, plans production 6 to
12 months in advance. Through aggregate planning, company also can express demand,
resources, and capacity in general terms.
Aggregate planning help to develop a approach for economically meeting demand. Otherwise, it
also can create a company-wide game plan for allocating resources.
Conclusion
It can be conclude that aggregate planning plays an important role in an efficient manufacturing
planning. Also, by understanding the aggregate planning and control system, the manager can
have efficient and effective utilization of resources. We have also understood the different
strategies and cost involved in production planning.
Intermediate-range planning establishes general levels of employment, output, and inventories
for phases of two months to one year. In the range of planning, it falls between the broad design
decisions of long-range planning and the very specific and detailed short-term planning
decisions. It starts with an overall forecast for the planning horizon and ends with preparations
for applying the plans to specific products and services. The core of intermediate planning is the
aggregation of products or services into one product or service. This allows planners to consider
overall levels of employment and inventories without having to become involved with specific
details which are better left to short-range planning. Obviously, no one aggregate planning
decision model can capture all the shades of a complex manufacturing environment. However, to
be realistic, a model must disclose the realities of the production environment in which it is to be
used.
Referencing:

“Aggregate planning today” by Lin Pan and Brian H. Kleiner
URL: http://core.ecu.edu/omgt/krosj/APP3.pdf

OM0004-Unit-09-Aggregate Planning Unit-09-Aggregate Planning
URL:http://train-srv.manipalu.com/wpress/?p=61848

Aggregate Planning from OPPapers.com
URL:http://www.oppapers.com/essays/Aggregate-Planning/137735

IEOR 4000: Production Management page 2, by Professor Guillermo Gallego on 9
October 2001
URL: http://www.columbia.edu/~gmg2/4000/pdf/lect_05.pdf

“Aggregate Production Planning” from Krish Thursday, December 17, 2009
URL: http://logisticssupplychainforum.blogspot.com/2009/12/aggregate-productionplanning-part-i.html

“The Advantages of an Aggregate Production Plan” by Subha Varadan from, eHow
Contributor on URL: http://www.ehow.com/about_5070710_advantages-aggregateproduction-plan.html

“Case Studies and Management Resources” from Asia's Most Popular Collection of
Management Case Studies
URL:http://www.icmrindia.org/courseware/Operations%20Management%202nd%20Edit
ion/Operations%20Management-DS7.htm

Aggregate Planning by rohitanand14 on January 13,
URL:2009http://www.antiessays.com/free-essays/29935.html

“Why a company want using aggregate planning” By 4u Articles on December 11, 2010
URL: http://www.4u-2.com/business/business-strategic-planning/why-a-company-wantusing-aggregate-planning/
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