An organization can finalize its business plans on the recommendation of demand forecast. Once business plans are ready, an organization can do backward working from the final sales unit to raw materials required. Thus annual and quarterly plans are broken down into labor, raw material, working capital, etc. requirements over a medium-range period (6 months to 18 months). This process of working out production requirements for a medium range is called aggregate planning.
Factors Affecting Aggregate Planning
Aggregate planning is an operational activity critical to the organization as it looks to balance long-term strategic planning with short term production success. Following factors are critical before an aggregate planning process can actually start;
A complete information is required about available production facility and raw materials. A solid demand forecast covering the medium-range period
Financial planning surrounding the production cost which includes raw material, labor, inventory planning, etc. Organization policy around labor management, quality management, etc. 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 Aggregate planning will ensure that organization can plan for workforce level, inventory level and production rate in line with its strategic goal and objective.
Aggregate planning as an Operational Tool
Aggregate planning helps achieve balance between operation goal, financial goal and overall strategic objective of the organization. It serves as a platform to manage capacity and demand planning.
In a scenario where demand is not matching the capacity, an organization can try to balance both by pricing, promotion, order...