Aggregate Planning

Anheuser-Busch
 Anheuser-Busch produces nearly
40% of the beer consumed in the
U.S.
 Matches fluctuating demand by
brand to specific plant, labor, and
inventory capacity
 High facility utilization requires
 meticulous cleaning between batches
 effective maintenance
 efficient employees
 efficient facility scheduling
Aggregate Planning
Requires
 Logical overall unit for measuring
sales and outputs
 Forecast of demand for
intermediate planning period in
these aggregate units
 Method for determining costs
 Model that combines forecasts and
costs so that planning decisions can
be made
 Planning
 Setting goals & objectives
 Example: Meet demand within the limits
of available resources at the least cost
 Determining steps to achieve goals
 Example: Hire more workers
 Setting start & completion dates
 Example: Begin hiring in Jan.; finish,
Mar.
 Assigning responsibility
Planning Tasks and
Responsibilities
 Planning Horizons
Responsible:
Short-range plans Operations
Job assignments managers
Ordering
Job scheduling Intermediate-range plans
Sales planning Responsible:
Dispatching
Production planning and Top executives
Responsible: budgeting
Long-range plans
Operations Setting employment, inventory,
R&D
managers, subcontracting levels
New product plans
supervisors, Analyzing operating plans
Capital expenses
foremen
Facility location, expansion

Today 3 Months 1 year 5 years

Planning Horizon
Relationships of the
Aggregate Plan

Marketplace Product Research and

and Demand Decisions Technology

Demand Process
Forecasts, Planning & Capacity
orders Decisions Work Force
Raw Materials
Available
Aggregate Inventory On
Plan for Hand
Production External
Capacity
Master Subcontractors
Production
Schedule, and MRP systems

Detailed Work
Schedules
What’s Needed for Aggregate
Planning
A mathematically based aggregate
planning model requires considerable:
 time

problem definition

model development

model verification

model application
 expertise

people who understand the problem
 people who understand both the modeling
process, and the specific model
 money

money to pay for all of the above

often requires funding for several people
for several months!
 Aggregate Planning
 Provides the quantity and timing of
production for intermediate future
 Usually 3 to 18 months into future
 Combines (‘aggregates’) production
 Often expressed in common units
 Example: Hours, dollars, equivalents
(e.g., FTE students)
 Involves capacity and demand
variables
 Aggregate Planning Goals
 Meet demand
 Use capacity efficiently
 Meet inventory policy
 Minimize cost
 Labor
 Inventory
 Plant & equipment
 Subcontract
 Aggregate Planning Strategies
Pure Strategies

 Capacity Options — change

capacity:
 changing inventory levels
 varying work force size by hiring or
layoffs
 varying production capacity through
overtime or idle time
 subcontracting
 using part-time workers
Aggregate Planning Strategies
Pure Strategies

 Demand Options — change

demand:
 influencing demand
 backordering during high demand
periods
 counterseasonal product mixing
Aggregate Scheduling Options
- Advantages and
Disadvantages
Option Advantage Disadvantage Some
Comments

Changing Changes in Inventory Applies mainly

inventory levels human resources holding costs; to production,
are gradual, not Shortages may not service,
abrupt result in lost operations
production sales
changes

Varying Avoids use of Hiring, layoff, Used where size

workforce size other alternatives and training of labor pool is
by hiring or costs large
layoffs
Advantages/Disadvantages
- Continued
Option Advantage Disadvantage Some
Comments
Varying Matches seasonal Overtime Allows
production rates fluctuations premiums, tired flexibility within
through overtime without workers, may not the aggregate
or idle time hiring/training meet demand plan
costs
Subcontracting Permits Loss of quality Applies mainly
flexibility and control; reduced in production
smoothing of the profits; loss of settings
firm's output future business
Advantages/Disadvantages
- Continued
Option Advantage Disadvantage Some
Comments
Using part-time Less costly and High Good for
workers more flexible turnover/training unskilled jobs in
than full-time costs; quality areas with large
workers suffers; temporary labor
scheduling pools
difficult
Influencing Tries to use Uncertainty in Creates
demand excess capacity. demand. Hard to marketing ideas.
Discounts draw match demand to Overbooking
new customers. supply exactly. used in some
businesses.
Advantage/Disadvantage -
Continued
Option Advantage Disadvantage Some
Comments
Back ordering May avoid Customer must Many companies
during high- overtime. Keeps be willing to backorder.
demand periods capacity constant wait, but
goodwill is lost.

Counterseasonal Fully utilizes May require Risky finding

products and resources; allows skills or products or
service mixing stable workforce. equipment services with
outside a firm's opposite demand
areas of patterns.
expertise.
The Extremes

Level Chase
Strategy Strategy

Production
Production rate
equals
is constant
demand
Aggregate Planning
Strategies
 Mixed strategy
 Combines 2 or more aggregate scheduling
options
 Level scheduling strategy
 Produce same amount every day
 Keep work force level constant
 Vary non-work force capacity or demand
options
 Often results in lowest production costs