Aggregate planning problems – Implications for the Manager

The aggregate planning problem is one of the most important to managers because it is through these plans that major resources are deployed. Through the mechanisms of aggregate planning, management’s interest is focused on the most Important aspects of this deployment process; basic employment levels and activity rate are set, and where inventories are available as a part of the strategy; their levels are also set. Given managerial approval of these broad-level plans, the detailed planning and scheduling of operations can proceed within the operating constraints established by the aggregate planning model.

Managers come across in the structure of the aggregate planning a number of problems and a number of alternative decision processes. At this point, the graphic methods are probably most frequently used. Mathematical and computer search methods have been developed in an effort to improve on traditional methods by making the process dynamic, optimum seeking, and representative of the multistage nature of the problem . Several models have been of value mainly as stepping stones to more useful models that represent reality more accurately. The most important single stepping stone has been the LDR; however, its original advantage in requiring only simple computations has been largely off set by the computer.

Presently, the computer search methods seem to offer the most promise. Although some of the analytical methods do produce optimum solutions, we must remember that it is the model that is being optimized. The real-world counterpart of the model is also optimized only if the mathematical model duplicates reality. The computer search methods are only optimum seeking by their nature, but they do not suffer from the need to adhere to strict mathematical forms in the model and can therefore more nearly duplicate reality in cost and profit models.

Perhaps the greatest single contribution of formal models to aggregate planning is that they provide insight for the manager into the nature of the resource problem faced. Managers need to understand that good solutions ordinarily involve a mixed strategy that uses more than one of the available options of hiring and layoff, over time, inventories, outside processing, and so forth. The particular balance for a given organization will depend on the balance of costs in that organization. Even if formal models are not used for decision making, they may be useful as managerial learning devices concerning the short term capacity economies of the enterprise. Judgments about the most advantageous combination of strategies at any particular point in the seasonal cycle can be developed through a gaming process.

The managers must be concerned not only with the direct economic factors that enter the aggregate planning problem but also with the human and social effects of alternative plans. These kinds of variables are not included in formal models; however, by considering a range of alternate plans that meet human and social requirements to varying degrees, managers can take trade-offs between costs and more subjective values. Thus, the formal models can help managers to generate aggregate plans that are acceptable on the basis of broadly based criteria.

Inventories are not available to absorb demand fluctuations in service and non-manufacturing situations. Although this variable is not available as a managerial strategy, the aggregate planning problem in such organizations is conceptually similar to that in manufacturing organizations. Thus managers must focus their strategies on hiring and layoff, on the astute use of normal labor turnover, and on the allocation of overtime and under-time. In service oriented situations, the use of part time workers is often an effective strategy.