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Aggregate Planning

Aggregate planning is an intermediate

planning method used to determine the

necessary resource capacity a firm will

need in order to meet its expected

demand.

Process planning

Process planning Strategic capacity planning Sales and operations (aggregate) planning Sales plan Aggregate

Strategic capacity planning

Process planning Strategic capacity planning Sales and operations (aggregate) planning Sales plan Aggregate
Sales and operations (aggregate) planning

Sales and operations (aggregate) planning

Sales plan

Aggregate operations plan

planning Sales plan Aggregate operations plan Services Long range range Short range

Services

Long

Long

range

range

range

Short

range

range

Forecasting & demand management

Intermediate

range Forecasting & demand management Intermediate Manufacturing Master scheduling Material requirements

Manufacturing

& demand management Intermediate Manufacturing Master scheduling Material requirements planning Order

Master scheduling

management Intermediate Manufacturing Master scheduling Material requirements planning Order scheduling Weekly

Material requirements planning

Master scheduling Material requirements planning Order scheduling Weekly workforce and customer scheduling

Order scheduling

scheduling Material requirements planning Order scheduling Weekly workforce and customer scheduling Daily workforce and

Weekly workforce and customer scheduling

requirements planning Order scheduling Weekly workforce and customer scheduling Daily workforce and customer scheduling

Daily workforce and customer scheduling

Goal of Aggregate Planning

To develop a realistic production plan on

an aggregate level that will satisfy organizational goals and customer

demand needs at the lowest total cost.

The Aggregate Operations Plan

Main purpose: Specify the optimal combination

of

production rate (units completed per unit of time)

workforce level (number of workers)

inventory on hand (inventory carried from previous period)

Product group or broad category (Aggregation)

This planning is done over an intermediate- range planning period of 6 to18 months

Balancing Aggregate Demand and Aggregate Production Capacity

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10000 8000 7000 6000 5500 4500 0 Jan Feb Mar Apr May Jun
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0
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9000 8000 6000 4500 4000 4000 0 Jan Feb Mar Apr May Jun
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Suppose the figure to the right represents forecast demand in units Now suppose this lower
Suppose the figure to
the right represents
forecast demand in
units
Now suppose this
lower figure represents
the aggregate capacity
of the company to
meet demand
demand in units Now suppose this lower figure represents the aggregate capacity of the company to
the aggregate capacity of the company to meet demand What we want to do is balance

What we want to do is balance out the production rate, workforce levels, and inventory to make these figures match up

Required Inputs to the Production Planning System

Competitors’

behavior

Raw material

availability

Market

demand

Planning for production
Planning
for
production

Current

workforce

Inventory

levels

External

capacity

Economic

conditions

Current

physical

capacity

Activities

required

for

production

levels External capacity Economic conditions Current physical capacity Activities required for production
levels External capacity Economic conditions Current physical capacity Activities required for production

Principles of the Chase Method

The chase method helps firms match

production and demand by subcontracting/ hiring/ firing workers as necessary to

control output

method helps firms match production and demand by subcontracting/ hiring/ firing workers as necessary to control

Principles of a Level Production Method

The level method allows for a constant

rate of production and uses inventory levels to absorb fluctuations in demand.

Graph of Level vs. Chase Strategy

Graph of Level vs. Chase Strategy

Summary

Aggregate production planning is a vital tool to

aid firms in balancing supply and demand.

All possible strategies should be considered

initially and then eliminated based on cost and

organizational policy.

While pure strategies such as chase demand

and level production may work for some firms,

most tend to use a mixed strategy.