AGGREGATE PLANNING

Aggregate planning is an operational activity critical

to organization as it looks to balance long-term
strategic planning with short term production success
• Aggregate planning is a marketing activity that does an aggregate plan for the production
process, in advance of 6 to 18 months, to give an idea to management as to what quantity of
materials and other resources are to be procured and when, so that the total cost of
operations of the organization is kept to the minimum over that period.

• The quantity of outsourcing, subcontracting of items, overtime of labour, numbers to be hired

and fired in each period and the amount of inventory to be held in stock and to be
backlogged for each period are decided. All of these activities are done within the
framework of the company ethics, policies, and long term commitment to the society,
community and the country of operation.
PROBLEMS RELATED TO AGGREGATE PLANNING
• Smoothing
• Smoothing refers to costs that result from changing production and workforce levels from one period to the
next.
• Bottleneck Problems
• It is the inability of the system to respond to sudden changes in demand as a result of capacity restrictions.
• Planning Horizon
• The number of periods for which the demand is to be forecasted, and hence the number of periods for which
workforce and inventory levels are to be determined, must be specified in advance.
• Treatment of Demand Aggregate planning methodology requires the assumption that demand is known with
certainty. This is simultaneously a weakness and a strength of the approach.
FACTORS AFFECTING AGGREGATE PLANNING

Following factors are critical before an aggregating planning can actually start
• A complete information is required about available production facility and row materials
• A solid demand forecast covering the medium range period
• Financial planning surrounding the production cost which includes raw materials,
• labor, inventory planning
• Organization policy around labor management quality management
 AGGREGATE PLANNING STRATEGIES

• Level strategies
As the name suggests, level strategies looks to maintain a study
production rate and workforce level . In this strategy organization requires a
robust forecast demand as to increase or decrease production in anticipation
of lower or higher customer demand . Advantage of level strategy is study
workforce .Disadvantages of level strategy is high inventory and increase
Back logs
• Chase strategy
As name suggests, chase strategy looks to dynamically
match demand with production. Advantages of chase strategy is
lower inventory level and back logs. Disadvantage is lower
productivity,quality and depressed workforce.
• Hybrid strategy
As the name suggests, hybrid strategy looks balance
between level strategy and chase strategy
For aggregate planning to be a success, following inputs are required;

• An aggregate demand forecast for the relevant period

• Evaluation of all the available means to manage capacity planning like sub-
contracting, outsourcing, etc.
• Existing operational status of workforce (number, skill set, etc.), inventory level and
production efficiency
 IMPORTANCE OF AGGREGATE PLANNING

• Achieving financial goals by reducing overall variable cost and improving the bottom
line
• Maximum utilization of the available production facility
• Provide customer delight by matching demand and reducing wait time for customers
• Reduce investment in inventory stocking
• Able to meet scheduling goals there by creating a happy and satisfied work force
 THE ROLE OF AGGREGATE PLANNING
• Aggregate planning is an integral part of the business planning process. This process
begins when your company's top management gathers input from finance, marketing,
operations, and engineering to develop a strategic business plan.
• The strategic business plan, with its long-term focus, provides your company's
direction and objectives for the next 2 to 10 years.
• The strategic business plan is normally updated and reevaluated annually.
• The strategic business plan is also the starting point for sales and operations
planning.
• It states the company's objectives for profitability, growth rate, and return on
investment.
STEPS TAKEN

• Steps taken to produce an aggregate plan begin with the determination of demand and the
determination of current capacity. Capacity is expressed as total number of units per time
period that can be produced (this requires that an average number of units be computed
since the total may include a product mix utilizing distinctly different production times).
Demand is expressed as total number of units needed. If the two are not in balance (equal),
the firm must decide whether to increase or decrease capacity to meet demand or increase or
decrease demand to meet capacity. In order to accomplish this, a number of options are
available.
• Options for situations in which demand needs to be increased in order to match capacity include:

• Pricing. Varying pricing to increase demand in periods when demand is less than peak. For example, matinee prices
for movie theaters, off-season rates for hotels, weekend rates for telephone service, and pricing for items that
experience seasonal demand.

• Promotion. Advertising, direct marketing, and other forms of promotion are used to shift demand.

• Back ordering. By postponing delivery on current orders demand is shifted to period when capacity is not fully
utilized. This is really just a form of smoothing demand. Service industries are able to smooth demand by taking
reservations or by making appointments in an attempt to avoid walk-in customers. Some refer to this as "partitioning"
demand.

• New demand creation. A new, but complementary demand is created for a product or service. When restaurant
customers have to wait, they are frequently diverted into a complementary (but not complimentary) service, the bar.
Other examples include the addition of video arcades within movie theaters, and the expansion of services at
convenience stores.
• Options which can be used to increase or decrease capacity to match current demand include:
• Hire/lay off. By hiring additional workers as needed or by laying off workers not currently required to
meet demand, firms can maintain a balance between capacity and demand.
• Overtime. By asking or requiring workers to work extra hours a day or an extra day per week, firms can
create a temporary increase in capacity without the added expense of hiring additional workers.
• Part-time or casual labor. By utilizing temporary workers or casual labor (workers who are considered
permanent but only work when needed, on an on-call basis, and typically without the benefits given to
full-time workers).
• Inventory. Finished-goods inventory can be built up in periods of slack demand and then used to fill
demand during periods of high demand. In this way no new workers have to be hired, no temporary or
casual labor is needed, and no overtime is incurred.
• Subcontracting. Frequently firms choose to allow another manufacturer or service provider to
provide the product or service to the subcontracting firm's customers. By subcontracting work
to an alternative source, additional capacity is temporarily obtained.
• Cross-training. Cross-trained employees may be able to perform tasks in several operations,
creating some flexibility when scheduling capacity.
• Other methods. While varying workforce size and utilization, inventory buildup/backlogging,
and subcontracting are well-known alternatives, there are other, more novel ways that find use
in industry. Among these options are sharing employees with counter-cyclical companies and
attempting to find interesting and meaningful projects for employees to do during slack times.
 GRAPHICAL METHODS

Popular techniques

Easy to understand and use

Trial-and-error approaches that do

not guarantee an optimal solution

Require only limited computations

15
 GRAPHICAL METHODS
1. Determine the demand for each period
2. Determine the capacity for regular time, overtime, and
subcontracting each period
3. Find labour costs, hiring and layoff costs, and inventory
holding costs
4. Consider company policy on workers and stock levels
5. Develop alternative plans and examine their total costs
EXAMPLE 1

• ABC a manufacturer of roofing tiles has developed monthly

Forecasts for roofing tiles and presented the period January-June
in the table 1.

• To represent the projected demand, ABC also draws a graph

(figure 1) that charts the daily demand each month. The dotted
line across the chart represents the production rate required to
meet average demand which is computed by dividing the total
expected demand by number of production days.
TABLE 1: EXPECTED DEMAND AND NUMBER OF
PRODUCTION DAYS
• BY:
• ATHUL T.O
• BENHUR GEORGE
• CHANDAN KUMAR
• CHITHU S