Aggregate Planning

Strategies and Methods

By Group#8
- Rishi Takwale - 16111
- Abhijeet Metkar - 16119
- Bhupesh Bhole - 16130
- Ankit Kale - 16137
- Chaitanya Katyare - 16138
Planning
Long Range Plans
Long Term Capacity, Location
Layout, Product Design

Intermediate Plans
Employment, Inventories
Subcontracting, Back Orders

Short Range Plans

Machine Loading, Job Assignment
Order Quantities, Work Schedules
Planning Sequence
Corporate Economic Aggregate
Strategies competitive Demand
and policies and political Forecast
conditions

Business Plan

Aggregate
Plan

Master
Schedule
Aggregate Planning
Intermediate Range Capacity planning that typically
covers time horizon of 2 to 12 months

Objective
To meet forecasted demand while minimizing cost over
the planning period by adjusting,
Production Costs
Labour Levels
Inventory Levels
Overtime
Subcontracting Rates
Overview of Aggregate Planning

Followed by General Plan

Updated Periodically(Rolling Planning Horizon)
Demand and Capacity
Inputs to Aggregate planning
Available Resources
Forecast of expected demand
Policies
Aggregate Planning Strategies
1. Use inventories to absorb changes in
demand
2. Accommodate changes by varying
workforce size
3. Use part-timers, overtime, or idle time to
absorb changes
4. Use subcontractors and maintain a stable
workforce
5. Change prices or other factors to influence
demand
Aggregate Planning Strategies

Mixed
Proactive (Element of Reactive
(Demand) both (Capacity)
approaches)
Demand Options
Options for situations in which demand needs to be
increased in order to match capacity
Through demand options firms try to smooth out changes
in the demand pattern over the planning period.
The basic demand options are as following:
1. Pricing:
Differential pricing is often used to reduce peak demand or
to build up demand in off-peak periods
2. Advertising & promotion:
Use advertising or promotion to increase demand in low
periods
Attempt to shift demand to slow period
May not be sufficient to balance demand and capacity
Demand Options (Cont.)
3.Backlog & reservations:
Requires customers to wait for an order without loss
or goodwill or the order
Most effective when there are few if any substitutes
for the product or service
Often results in lost sales

4.Development of complementary products:

Develop a product mix of seasonal items
May lead to products or services outside the
companys area of expertise
Capacity Options
Capacity options do not try to change demand but
attempt to absorb fluctuations in it.
Options which can be used to increase or decrease
capacity to match current demand include:
1. Hiring & layoff of employees:
Match production rate to demand
Training and separation costs for hiring and laying off
workers
New workers may have lower productivity
Laying Off workers may lower morale and productivity
Capacity Options
2.Using overtime and under time:
Allows constant workforce
May be difficult to meet large increase in demand
Overtime can be costly and may drive down
productivity
Absorbing idle time may be difficult

3.Using part-time or temporary labor:

Useful for filling unskilled or low skilled positions,
especially in services
Capacity Options
4. Carrying inventory:
Increase inventory in low demand periods to meet high
demand in the future
Increase costs associated with storage, insurance, handling
obsolescence, and capital investment
Shortages can mean lost sales due to long lead times and
poor customer services

5. Subcontracting:
Temporary measure during periods of peak demand
May be costly
Assuring quality and timely delivery may be difficult
Exposes your customers to a possible competitor
Aggregate Planning Options
Option Advantages Disadvantage Comments
s
Carrying Changes in Inventory Applies mainly
Inventory human holding cost to production,
resources are may increase; not service,
gradual or none; Shortages may operations.
no abrupt result in lost
production sales
changes
Hiring and Avoids the costs Hiring, layoff, Used where
layoffs of of other and training size of labor
employees alternatives costs may be pool is large
significant
Using overtime Matches Overtime Allows
and under seasonal premiums; tired flexibility within
time fluctuations workers; may the aggregate
without not meet plan
hiring/training demand
Aggregate Planning Options
Option Advantages Disadvantage Comments
s
Subcontracting Permits Loss of quality Applies mainly
flexibility and control; reduced in production
smoothing of profits; loss of settings
firms output future business
Using part-time Is less costly High Good for
or temporary and more turnover/trainin unskilled jobs in
labour flexible than g costs; quality areas with large
full-time suffers; temporary labor
workers scheduling pools
difficult
Influencing Tries to use Uncertainty in Creates
demand excess capacity. demand. Hard marketing
Discounts draw to match ideas.
new customers. demand to Overbooking
supply exactly. used in some
businesses.
Aggregate Planning Options
Option Advantages Disadvantag Comments
es
Backlog and May avoid Customer Many
reservations overtime. must be willing companies
Keeps capacity to wait, but back order.
constant goodwill is lost

Development Fully utilizes May require Risky finding

of resources; skills or products or
complementar allows stable equipment services with
y products workforce outside the opposite
firms areas of demand
expertise. patterns.
Chase Demand Strategy

A production control plan that attempts to match

capacity to the varying levels of forecast demand

Chase demand plans require flexible working practices

and place varying demands on equipment requirements

Pure chase demand plans are difficult to achieve

They are most commonly found in operations where

output cannot be stored or where the organization is
seeking to eliminate stores of finished goods
 Chase Demand Strategy
(Output matches demand)

Demand Output is below

and normal; capacity is
Output temporarily
decreased to match
demand
Normal
Capacity
Time
Output is below above
normal; capacity is
temporarily increased
to match demand
 Chase Demand Strategy
(Output matches demand)

Demand Output is below

and normal; capacity is
Output temporarily
decreased to match
demand
Normal
Capacity
Time
Output is below above
normal; capacity is
temporarily increased
to match demand

Laying off workers,

Undertime working
 Chase Demand Strategy
(Output matches demand) Hiring workers,
Overtime working
Demand Output is below
and normal; capacity is
Output temporarily
decreased to match
demand
Normal
Capacity
Time
Output is below above
normal; capacity is
temporarily increased
to match demand
Chase Demand Strategy

The success of this strategy depends on having a pool

of easily trained applicants to draw on as order volume
increase

There are obvious motivational impacts on the

employees

When order backlogs are low, employees may feel

compelled slow down out of fear of being laid of as soon
as existing orders are completed
 Level
Strategy
System would employ constant workforce / maintain constant
working hours
Firms employ inventory related alternatives to address supply-
demand mismatch

Demand
Normal Capacity
Forecasted
Demand
Time
 Level
Strategy
Advantages
Useful in industries operating in a made to stock
environment
Retaining highly skilled employees
Clashes with unions are avoided
Disadvantages
Substantial money tied up in inventories
Large storage facilities required
Not useful for service oriented firms
 Mixed Strategy
Mixed Strategy 1
Hire certain number of workers at beginning of planning horizon,
maintain constant production rate & utilize inventory to match supply
& demand
Mixed Strategy 2
Do not hire / lay off workers, adjust production by varying number of
shifts / subcontracting to match supply & demand

Mixed Strategy 2
Do not hire / lay off workers, subcontract / build inventory as per demand
Methods for aggregate planning:

Trial and error method using graphs and

spreadsheets

Mathematical methods
Linear programming method
Simulation method
1. Graphs and spreadsheets:
Numerous techniques are available to help with the task of
aggregate planning
In practice, informal techniques are more frequently used
Enable planners to visually compare projected demand
requirements with existing capacity
Graphs can be used to guide the development of alternatives
Cumulative plans
Period by period plans
Advantage of a graph is that it provides a visual portrayal
of a plan
Chief disadvantage of such techniques is that they do not
necessarily result in the optimal aggregate plan
 Cumulative graph

Worksheet/ spreadsheet
2. Mathematical methods:
Linear programming
Linear programming (LP) models are methods for
obtaining optimal solutions to problems involving the
allocation of scarce resources in terms of cost
minimization or profit maximization
Constraints involve the capacities of the workforce,
inventories, and subcontracting
Problem can be formulated as a transportation-type
programming model
Planners must identify capacity (supply) of regular time,
overtime, subcontracting, and inventory on a period-by-
period basis, as well as related costs of each variable
2. Mathematical methods:
Simulation method
A number of simulation models have been developed
for aggregate planning.
The essence of simulation is the development of
computerized models that can be tested under a
variety of conditions in an attempt to identify
reasonably acceptable (although not always optimal)
solutions to problems
 Aggregate planning techniques other than trial and error
do not appear to be widely used.
Instead, in the majority of organizations, aggregate
planning seems to be accomplished more on the basis of
experience along with trial-and-error methods
Thank You