Aggregate planning


Aggregate planning involves planning the best quantity to produce during time periods in the intermediate-range horizon(often 3 months to 1 year) and planning the lowest cost method of providing the adjustable capacity to accommodate the production requirements. For manufacturing operations, aggregate planning involves planning workforce size, production rate ( work hours per week) and inventory levels.

Objectives of Aggregate Planning

· To develop plans that are :

1. Feasible: The plans should provide for the portion of demand that the firm intends to meet and should be within the financial and physical capacity of the firm.

2. Optimal: The firm should aim for plans which will ensure that resources are used as wisely as possible and costs kept as low as possible.

· To increase the range of alternatives of capacity use, that can be considered by the management of the firm.

Operations Planning and Scheduling Systems

Operations planning and scheduling systems are concerned with the volume and timing of outputs, the utilization of operations capacity and balancing outputs with capacity at the desired levels of competitive effectiveness.

Aggregate Production (output) Planning

It is the process of determining output levels (units) of product groups over the next 6 to 18 months period on a weekly or monthly basis. The plan indicates the overall level of outputs supporting the business plan.

Aggregate Planning or Aggregate Capacity Planning

It is the process of devising a plan for providing a production capacity scheme to support the intermediate range sales forecast.

As forecast demand becomes known in the form of customer orders, aggregate capacity plans may have to be revised upwards and downwards to avoid either overloaded or under loaded facilities.

Need for Aggregate Capacity Planning

1. It facilitates fully loaded facilities and minimizes overloading and under loading and keeps production costs low.
2. Adequate production capacity is provided to meet expected aggregate demand.
3. Orderly and systematic transition of production capacity to meet the peaks and valleys of expected customer demand is facilitated.
4. In times of scarce production resources, getting the maximum output for the amount of resources is enhanced.
5. To manage change in production / operations management by planning for production resources that adapt to the changes in customer demands.

Steps in Aggregate Capacity Planning

1. Prepare the sales forecast for each product that indicates the quantities to be sold in each time period(usually weeks, months or quarters) over the planning horizon(6to18 months).
2. Sum up the individual product or service forecast into one aggregate demand for the factory.
3. Transform the aggregate demand for each time period into labor, materials, machines and other elements of production capacity required to satisfy aggregate demand.
4. Develop alternative resource schemes for supplying the necessary production capacity to support the cumulative aggregate demand.
5. Select the capacity plan from among the alternative considered that satisfy aggregate demand and best meets the objectives of the organizations.

In developing an intermediate aggregate capacity plan, the variables that may be manipulated to vary the production capacity from month to month are

1. The size of workforce.
2. The use of overtime or idle time.
3. The use of inventories or back orders.
4. The use of sub-contractors.
5. Leaving demand unfilled to buffer the difference between production capacity and variations in demand from month to month.