AGGREGATE

PLANNING
Mel A. Sy, Jr., DBM(CAR)
Objectives
1. Explain what aggregate planning is and how it is useful.
2. Identify the variables decision makers have to work with in
aggregate planning.
3. Use strategies for meeting uneven demand.
4. Use graphical and quantitative techniques planners use.
5. Disaggregate an aggregate plan.
6. Describe the master scheduling process and explain its importance.
7. Prepare aggregate plans and compute their costs.
Sub-Topics
1. Aggregate Planning Perspective
2. Aggregate Planning and the Supply Chain
3. Types of Aggregate Plan
4. Developing the Aggregate Plan
5. Other Methods of Developing Aggregate Plan
6. Role of MPS

Tool: Trial and Error, Graphs and Spreadsheets and Mathematical

Tools
Sub-Topic 1: Aggregate Planning
Perspective
 Aggregate Planning Perspective

Aggregate Plan is intermediate-range capacity planning

that typically covers a time horizon of 2 to 12 months,
although in some companies it may extend to as much as
18 months.
Aggregate Planning Perspective

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Aggregate Planning Perspective

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Aggregate Planning Perspective

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Sub-Topic 2: Aggregate Planning and
the Supply Chain
Aggregate Planning and the Supply Chain

Aggregate planning in supply chain management include

the following:

1. Solid Demand Forecast

2. Production Capacity
3. Limitations on Capital
Aggregate Planning and the Supply Chain

Aggregate planning is crucial within a manufacturing

operation that is seeking to improve production planning
within the production process.

Aggregate planning can be implemented with an

Advanced Planning and Scheduling (APS) system and
improve operational efficiency within your manufacturing
operation.
Sub-Topic 3: Types of Aggregate Plan
 Types of Aggregate Planning
◦ Level Aggregate Plans
◦ Maintains a constant workforce
◦ Sets capacity to accommodate average demand
◦ Often used for make-to-stock products like appliances
◦ Disadvantage- builds inventory and/or uses back orders
◦ Chase Aggregate Plans
◦ Produces exactly what is needed each period
◦ Sets labor/equipment capacity to satisfy period demands
◦ Disadvantage- constantly changing short term capacity

13
 Types of Aggregate Planning
Level Plan Example
◦ Level production rate= 28,000 units/7 periods= 4000 units
◦ Level workforce= (4000 units x .64 std.)/160 = 16 people

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 Types of Aggregate Planning
Chase Plan Example
◦ Chase hires and fires staff to exactly meet each periods demand
◦ Period 1 = (500 units x .64 std.)/160 = 2 people, need to fire 16
people

15
 Types of Aggregate Planning

◦ Hybrid Aggregate Plans

◦ Uses a combination of options
◦ Options should be limited to facilitate execution
◦ May use a level workforce with overtime & temps
◦ May allow inventory buildup and some backordering
◦ May use short term sourcing

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 Types of Aggregate Planning

Aggregate Planning Options

◦ Demand based options
◦ Reactive: uses finished goods inventories and
backorders for fluctuations
◦ Proactive: shifting the demand patterns to minimize
fluctuations e.g. early bird dinner prices at a
restaurant

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 Types of Aggregate Planning

Aggregate Planning Options

◦ Capacity based options
◦ Changes output capacity to meet demand
◦ Uses overtime, undertime, subcontracting, hiring,
firing, and part-timers – cost and operational
implications

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Sub-Topic 4: Developing the Aggregate
Plan
 Developing the Aggregate Plan

Starting with the Current Situation

◦ Point of Departure
◦ Current % of normal capacity
◦ Options are different depending on present situation

◦ Magnitude of change
◦ Larger changes need more dramatic measures

◦ Duration of change
◦ Is the length of time a brief seasonal change?
◦ Is a permanent change in capacity needed?
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 Developing the Aggregate Plan
◦ Step 1- Choose strategy: level, chase, or Hybrid
◦ Step 2- Determine the aggregate production rate
◦ Step 3- Calculate the size of the workforce
◦ Step 4- Test the plan as follows:
◦ Calculate Inventory, expected hiring/firing, overtime needs
◦ Calculate total cost of plan

◦ Step 5- Evaluate performance: cost, service,

human resources, and operations

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 Developing the Aggregate Plan

Plan for Companies with Tangible Products – Plans A, B,

C, D
◦ Plan A: Level aggregate plan using inventories and back
orders
◦ Plan B: Level plan using inventories but no back orders
◦ Plan C: Chase aggregate plan using hiring and firing
◦ Plan D: Hybrid plan using initial workforce and overtime as needed

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Problem Data for Plans A, B, C, D
(Table 13.4)
A B
4 Cost Data
5 Regular time labor cost per hour $12.50
6 Overtime labor cost per hour $18.75
7 Subcontracting cost per unit (labor only) $125.00
8 Back order cost per unit per period $25.00
9 Inventory holding cost per unit per period $10.00
10 Hiring cost per employee $800.00
11 Firing cost per employee $500.00
12
13 Capacity Data
14 Beginning workforce (employees) 90
15 Beginning inventory (units) 0
16 Production standard per unit (hours) 8
17 Regular time available per period (hours) 160
18 Overtime available per period (hours) 40
19
20 Demand Data (units)
21 Period 1 1920
22 Period 2 2160
23 Period 3 1440
24 Period 4 1200
25 Period 5 2040
26 Period 6 2400
27 Period 7 1740
28 Period 8 1500
29
30 Total Number of Periods 8 23
Plan A - Level Using Inventory &
Backorders (Table 13-5)
◦ First calculate the level production rate (14400/8=1800)
D E F G H I J K L M
3 Plan A: Level Aggregate Plan, Using Inventories and Backorders
4
5 Compute Level Production Rate
6 Total Demand 14400
7 Less: Beginning Inventory 0
8 Total Net Demand 14400
9 Average Demand Per Period 1800 <-- Production Rate for Level Plan
10
11 Compute Workforce Needed
12 Units per Employee per Period 20
13 Employees Required 90
14 Number to Hire 0
15 Number to Fire 0
16
17
18 Detailed Plan Computations Period
19 1 2 3 4 5 6 7 8 Total
20 Demand (units) (net of beg. Inventory) 1920 2160 1440 1200 2040 2400 1740 1500 14400
21 Cumulative demand (units) 1920 4080 5520 6720 8760 11160 12900 14400
22 Period production (units) 1800 1800 1800 1800 1800 1800 1800 1800 14400
23 Cumulative production (units) 1800 3600 5400 7200 9000 10800 12600 14400
24 Cum.Dem. Minus Cum.Prod. 120 480 120 -480 -240 360 300 0
25 Ending Inventory (units) 0 0 0 480 240 0 0 0 720
26 Backorders (units) 120 480 120 0 0 360 300 0 1380
27
28 Cost Calculations for Plan A
29 Regular time labor cost $1,440,000
30 Overtime labor cost $0
31 Inventory holding cost $7,200
32 Back order cost $34,500
33 Hiring cost $0
34 Firing cost $0
35 Total Cost $1,481,700
36 24
Plan A Evaluation
◦ Back orders were 13.9% of demand (1380)
◦ Worst performance was period 2 at 21% of demand
◦ Marketing will not be satisfied at these levels
◦ Workable plan for operations
◦ No employees hired or fired, no overtime or undertime needed,
and output is constant
◦ No human resource problems are anticipated

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Plan B – Level, Inventory but
No Backorders (Table 13-7)
◦ Set the level rate equal to the peak cumulative demand/period
D E F G H I J K L M N
38 Plan B: Level Aggregate Plan, Using Inventories but No Backorders
39
40 Detailed Plan Computations Period
41 1 2 3 4 5 6 7 8 Total
42 Demand (units) (net of beg. Inventory) 1920 2160 1440 1200 2040 2400 1740 1500 14400
43 Cumulative demand (units) 1920 4080 5520 6720 8760 11160 12900 14400
44 Cumulative demand/periods 1920 2040 1840 1680 1752 1860 1842.857 1800
45 Period production (units) 2040 2040 2040 2040 2040 2040 2040 2040 16320
46 Cumulative production (units) 2040 4080 6120 8160 10200 12240 14280 16320
47 Cum.Dem. Minus Cum.Prod. -120 0 -600 -1440 -1440 -1080 -1380 -1920
48 Ending Inventory (units) 120 0 600 1440 1440 1080 1380 1920 7980
49 Backorders (units) 0 0 0 0 0 0 0 0 0
50
51 Compute Level Production Rate and Workforce Needed
52 Production Rate (units) 2040
53 Units per Employee per Period 20
54 Employees Needed 102
55 Number to Hire 12
56 Number to Fire 0
57
58 Cost Calculations for Plan B
59 Regular time labor cost $1,632,000
60 Overtime labor cost $0
61 Inventory holding cost $79,800
62 Back order cost $0
63 Hiring cost $9,600
64 Firing cost $0
65 Total Cost $1,721,400
66 26
Plan B Evaluation
◦ Plan B costs $240K (16%) more than plan A
and has ending inventory of 7980 units
◦ To be fair, Plan B built 1920 additional units
($192K) which will be sold later
◦ Plan B costs $2.58 more per unit (2.5%)
◦ Marketing satisfied by 100% service level
◦ Workable Operations and HR plan- hire 12,
no OT or UT, and level production 27
Plan C – Chase Using Hires and
Fires (Table 13- 9)
◦ The production rate equals the demand each period
D E F G H I J K L M N
68 Plan C: Chase Aggregate Plan, Using Hiring and Firing (no overtime)
69
70 Beginning Number of Employees 90
71 Units per Worker per Period 20 (used to compute workforce size requirement each period)
72
73 Detailed Plan Computations Period
74 1 2 3 4 5 6 7 8 Total
75 Demand (units) (net of beg. Inventory) 1920 2160 1440 1200 2040 2400 1740 1500
76 Production per period (units) 1920 2160 1440 1200 2040 2400 1740 1500 14400
77 Employees needed in period 96 108 72 60 102 120 87 75 720
78 Number to hire 6 12 0 0 42 18 0 0 78
79 Number to fire 0 0 36 12 0 0 33 12 93
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81 Cost Calculations for Plan C
82 Regular time labor cost $1,440,000
83 Overtime labor cost $0
84 Inventory holding cost $0
85 Back order cost $0
86 Hiring cost $62,400
87 Firing cost $46,500
88 Total Cost $1,548,900
89 28
Plan C Evaluation
◦ Costs an additional $2 per unit more than Plan
B
◦ Marketing is satisfied again by 100% service
level
◦ From Operations and HR standpoint, not easy
to implement:
◦ Need space, tools, equipment for up to 120 people
in period 6 and only have 60 people in period 4
◦ High training costs and potential quality problems 29

◦ Low morale likely due to poor job security

Plan D– Hybrid, Initial Workforce
and OT as Needed (Table 13-12)

◦ This is basically a level plan using OT to avoid backorders

D E F G H I J K L M N
91 Plan D: Hybrid Aggregate Plan, Using Initial Workforce and Overtime as Needed
92
93 Compute Regular Time Production Rate
94 Number of Employees 90
95 Units per Employee per Period 20
96 Regular Time Production per Period 1800
97
98 Detailed Plan Computations Period
99 1 2 3 4 5 6 7 8 Total
100 Total Demand in Period 1920 2160 1440 1200 2040 2400 1740 1500 14400
101 Net Demand After Inventory Considered 1920 2160 1440 840 1080 1680 1620 1320
102 Regular Time Production 1800 1800 1800 1800 1800 1800 1800 1800 14400
103 Overtime Production Needed 120 360 0 0 0 0 0 0 480
104 Ending Inventory 0 0 360 960 720 120 180 480 2820
105
106 Cost Calculations for Plan C
107 Regular time labor cost $1,440,000
108 Overtime labor cost $72,000
109 Inventory holding cost $28,200
110 Back order cost $0
111 Hiring cost $0
112 Firing cost $0
113 Total Cost $1,540,200
114 30
Plan D Evaluation
◦ Cost is only $.61 (.6%) more than Plan A with a
reasonable increase in ending inventory
(+1440)
◦ Marketing is satisfied as well with 100% service
level
◦ Not difficult for Operations to implement
◦ Does not need excessive overtime
◦ Uses overtime in just periods 1 and 2 (7%, 20%)
◦ Aggregate Plan Objective: Keep customer 31

service high and costs low

Aggregate Plans for Service Companies with Non-
Tangible Products- Plans E, F, G
◦ Options remain the same – level, chase, and
hybrid plans
◦ Overtime and undertime can be used
◦ Staff can be hired and fired

◦ Inventory cannot be used to level the service

plan
◦ All demand must be satisfied or lose business
to a competing service provider 32
Problem Data for Plans E, F, G
(Table 13.4)
A B
4 Cost Data
5 Regular time labor cost per hour $8.00
6 Overtime labor cost per hour $12.00
7 Subcontracting cost per unit (labor only) $60.00
8 Hiring cost per employee $250.00
9 Firing cost per employee $150.00
10
11 Capacity Data
12 Beginning workforce (employees) 60
13 Service standard per call (hours) 4
14 Regular time available per period (hours) 160
15 Overtime available per period (hours) 24
16
17 Demand Data (calls)
18 Period 1 2400
19 Period 2 1560
20 Period 3 1200
21 Period 4 2040
22 Period 5 2760
23 Period 6 1680
24 Period 7 1320
25 Period 8 2400
26
27 Total Number of Periods 8 33
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Plan E – Level with Staffing for Peak
Demand- (Table 13-14)
D E F G H I J K L M
3 Plan E: Level Aggregate Plan with No Backorders, No Tangible Product
4
5 Compute Workforce Needed
6 Maximum Demand 2760 <-- Need to staff to meet the maximum number of calls
7 Calls per Worker per Period (Reg Time) 40
8 Workers Needed 69
9 Number to Hire 9
10 Number to Fire 0
11
12 Detailed Plan Computations Period
13 1 2 3 4 5 6 7 8 Total
14 Demand (calls) 2400 1560 1200 2040 2760 1680 1320 2400 15360
15 Service hours needed 9600 6240 4800 8160 11040 6720 5280 9600 61440
16 Regular time hours available 11040 11040 11040 11040 11040 11040 11040 11040
17 Undertime hours 1440 4800 6240 2880 0 4320 5760 1440 26880
18
19 Cost Calculations for Plan E
20 Regular time labor cost $706,560
21 Hiring cost $2,250
22 Firing cost $0
23 Total Cost $708,810
24

◦ Staff of 69 people creates excessive UT (30%)

◦ Cost per service call is $46.15
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Plan F – Hybrid with Initial Workforce
and OT as Needed (Table 13-16)

D E F G H I J K L M
26 Plan F: Hybrid Aggregate Plan Using Initial Workforce and Overtime as Needed
27
28 Detailed Plan Computations Period
29 1 2 3 4 5 6 7 8 Total
30 Demand (calls) 2400 1560 1200 2040 2760 1680 1320 2400 15360
31 Service hours needed 9600 6240 4800 8160 11040 6720 5280 9600 61440
32 Regular time hours of capacity 9600 9600 9600 9600 9600 9600 9600 9600 76800
33 Overtime hours needed 0 0 0 0 1440 0 0 0 1440
34 Undertime hours 0 3360 4800 1440 0 2880 4320 0 16800
35
36 Cost Calculations for Plan F
37 Regular time labor cost $614,400
38 Overtime labor cost $17,280
39 Total Cost $631,680

◦ Costs reduced by $77K and undertime to 20%

◦ Cost per service call reduced to $41.13 (-$5.02)
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Plan G – Chase Plan with Hiring and
Firing (Table 13-18)
D E F G H I J K L
42 Plan G: Chase Aggregate Plan Using Hiring and Firing
43
44 Beginning Number of Employees 60
45
46 Detailed Plan Computations Period
47 1 2 3 4 5 6 7 8
48 Demand (calls) 2400 1560 1200 2040 2760 1680 1320 2400
49 Service hours needed 9600 6240 4800 8160 11040 6720 5280 9600
50 Number of employees needed 60 39 30 51 69 42 33 60
51 Number of hires 0 0 0 21 18 0 0 27
52 Number of fires 0 21 9 0 0 27 9 0
53
54 Cost Calculations for Plan G
55 Regular time labor cost $491,520
56 Hiring cost $16,500
57 Firing cost $9,900
58 Total Cost $517,920

◦ Total cost reduced by $114K over Plan F, utilization improved to 100%, and
cost per service call $33.72 (-$7.41)
◦ Workforce fluctuates from 30-69 people- morale problems
◦ Solution?? Compare smaller permanent workforce, more OT?? 36
Aggregate Planning Bottom Line
◦ The Aggregate plan must balance several
perspectives
◦ Costs are important but so are:
◦ Customer service
◦ Operational effectiveness
◦ Workforce morale

◦ A successful AP considers each of these factors

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Sub-Topic 5: Other Methods of
Developing the Aggregate Plan
 Other Methods of Developing the
Aggregate Plan
1. Trial and Error using Graphs and Spreadsheets
2. Mathematical Techniques
2.1 Linear Programming
2.2 Simulation Models

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Sub-Topic 6: Role of MPS
 Role of MPS
Planning Links to MPS

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 Role of MPS

◦ Aggregate plan:
◦ Specifies the resources available (e.g.: regular workforce,
overtime, subcontracting, allowable inventory levels &
shortages)
◦ Master production schedule:
◦ Specifies the number & when to produce each end item
(the anticipated build schedule)
◦ Disaggregates the aggregate plan

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 Role of MPS

Objectives of Master Schedule

◦ The Master Scheduler must:
◦ Maintain the desired customer service level
◦ Utilize resources efficiently
◦ Maintain desired inventory levels
◦ The Master Schedule must:
◦ Satisfy customer demand
◦ Not exceed Operation’s capacity
◦ Work within the constraints of the Aggregate Plan

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 Role of MPS
Developing an MPS
◦ The Master Scheduler:
◦ Develops a proposed MPS
◦ Checks the schedule for feasibility with available capacity
◦ Modifies as needed
◦ Authorizes the MPS
◦ Consider the following example:
◦ Make-to-stock environment with fixed orders of 125 units
◦ There are 110 in inventory to start
When are new order quantities needed to satisfy the
forecasted demand?
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 Role of MPS
The MPS Record
W eek BI 1 2 3 4 5 6 7 8 9 10 11 12

F o re c a s t 50 50 50 50 75 75 75 75 50 50 50 50

P ro je c t e d a va ila b le 110 60 10 -4 0

MPS

W eek BI 1 2 3 4 5 6 7 8 9 10 11 12

F o re c a s t 50 50 50 50 75 75 75 75 50 50 50 50

P ro je c t e d a va ila b le 110 60 10 85 35 -4 0

MPS 125

◦ Projected Available = beginning inventory + MPS shipments - forecasted

demand
◦ The MPS row shows when replenishment shipments need to arrive to avoid
a stock out (negative projected available)

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 Role of MPS
Revised and Completed MPS Record
W eek BI 1 2 3 4 5 6 7 8 9 10 11 12

F o re c a s t 50 50 50 50 75 75 75 75 50 50 50 50

P ro je c te d a va ila b le 110 60 10 85 35 85 10 -6 5

MPS 125 125

W eek BI 1 2 3 4 5 6 7 8 9 10 11 12

F o re c a s t 50 50 50 50 75 75 75 75 50 50 50 50

P ro je c te d a va ila b le 110 60 10 85 35 85 10 60 110 60 10 85 35

MPS 125 125 125 125 125

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 Role of MPS

Evaluating the MPS

◦ Rough-cut capacity planning:
◦ An estimate of the plan’s feasibility
◦ Given the demonstrated capacity of critical resources (e.g.:
direct labor & machine time), have we overloaded the system?
◦ Customer service issues:
◦ Does “available-to-promise” inventory satisfy customer orders?
If not, can future MPS quantities be pulled in to satisfy new
orders?

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Rough Cut Capacity Problem: a shoe company produces two models of dance shoes.
Over the past 3 years 72,000 pairs of Model M have been produced using 21,600 direct
labor hours and 5760 machine hours, and 108,000 pairs of Model W using 43,200 hours of
labor and 12,960 hours of machine time.

◦ Step 1: Determine the Planning factors:

◦ Labor Factors

Total DL hours building model

Direct Labor Planning Factor =
number of units built
21,600 hours 43,200 hours
DL PFM = = 0.30 hour ; DL PFW = = 0.40 hour
72,000 pairs 108,000 pairs
◦ Machine Factors Total machine hours building model
Machine Planning Factor =
number of units built
5760 hours 12,960
Machine PFM = = 0.08hour ; MachinePFW = = 0.12hour
72,000 pairs 108,000

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Step 2:Calculate the Workload Generated by This
Schedule

A B C D E F
4 Planning Factors (hours per pair)
5 Direct Machine
6 Labor Time
7 Model M 0.30 0.08
8 Model W 0.40 0.12
9
10 Quarterly Master Production Schedule (MPS) (pairs)
11 Q1 Q2 Q3 Q4 Totals
12 Model M 6000 5500 9500 6500 27500
13 Model W 10000 12000 7500 10100 39600

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Step 3: Calculate the Capacity Needs for Each
Resource for Each Time Period

A B C D E F
15 Direct Labor Hours Required
16 Q1 Q2 Q3 Q4 Totals
17 Model M 1800 1650 2850 1950 8250
18 Model W 4000 4800 3000 4040 15840
19 Totals 5800 6450 5850 5990 24090
20
21 Machine Time (Hours) Required
22 Q1 Q2 Q3 Q4 Totals
23 Model M 480 440 760 520 2200
24 Model W 1200 1440 900 1212 4752
25 Totals 1680 1880 1660 1732 6952

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Step 4: Calculate Individual Work center Capacity
Needs Based on Historical Percentage Allocation
A B C D E F
27 Work Center Historical Breakdown
28 Direct Machine
29 Labor Time
30 Center 101 60% 60%
31 Center 102 40% 40%
32
33 Direct Labor Hours Required by Work Center
34 Q1 Q2 Q3 Q4 Totals
35 Center 101 3480 3870 3510 3594 14454
36 Center 102 2320 2580 2340 2396 9636
37 Totals 5800 6450 5850 5990 24090
38
39 Machine Time Hours Required by Work Center
40 Q1 Q2 Q3 Q4 Totals
41 Center 101 1008 1128 996 1039.2 4171.2
42 Center 102 672 752 664 692.8 2780.8
43 Totals 1680 1880 1660 1732 6952

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Using the MPS to “Order Promise”
◦ The authorized MPS is used to promise orders to customers
◦ The MPS table is expanded to add customer orders and available-to-
promise rows (inventory to satisfy new orders)
◦ ATP Action Bucket = (beginning inventory + MPS shipment) – (customer
orders before next replenishment). Available in period 1
◦ ATP=MPS shipment – Customer orders between current MPS shipment
and next scheduled replenishment. Available in periods 3,5,7,8, & 11
W eek BI 1 2 3 4 5 6 7 8 9 10 11 12

F o re c a s t 50 50 50 50 75 75 75 75 50 50 50 50

C u s t o m e r o rd e rs 35 25 25 20 0 15 0 0 10 0 0 10

P ro je c t e d a va ila b le 110 60 10 85 35 85 10 60 110 60 10 85 35

A va ila b le -t o -p ro m is e 50 80 110 125 115 115

MPS 125 125 125 125 125

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Example of Revising the ATP MPS Record: A customer calls marketing
willing to purchase 200 units if they can be delivered in period 5. The two
tables below show how the system logic would first slot the 200 into period
5 and then how the order would be allocated across periods 1, 3, and 5
and adjusting the ATP row.

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Stabilizing the MPS

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ACTIVITY:
1. Prepare an Aggregate Plan.
End of Presentation