Aggregate Planning

Topics: Inventory, Costs, Newsvendor Pages: 11 (1693 words) Published: February 21, 2011
MD 021 - Management and Operations

Aggregate Planning

Aggregate planning - definitions and strategies

Linear programming (LP)

Aggregate planning LP problem

Chase and level strategy problems

Definitions of Aggregate Planning

Aggregate planning is the “big picture” approach to planning for the intermediate term ([pic] 1 year). The goal of aggregate planning is to achieve a production plan that will effectively utilize the organization’s resources to satisfy expected demand.

Planners must make decisions on:
• Output rates
• Employment levels and changes
• Inventory levels and changes
• Backorders
• Subcontracting/outsourcing

In a manufacturing firm, the aggregate plan links the strategic goals with plans for the individual products (i.e., the master production schedule).

In a service firm, the aggregate plan links the strategic goals with detailed work-force schedules. Aggregation

Reason for aggregation - A planner can devise a course of action, consistent with strategic goals and objectives, without having to deal with a lot of detail.

Three dimensions of aggregation:

Product families - Based on similar demand requirements and common processing, labor, and materials requirements.

Labor - Considerations include work-force flexibility, physical and geographic locations.

Timing - The planning horizon is the length of time covered by the aggregate plan.

Planning Strategies

Chase strategy – Matching capacity to demand; the planned output for a period is set at the expected demand of the period.

Level strategy – Maintaining a steady rate of regular time output while meeting the variations in demand by a combination of inventories, overtime, part-time workers, subcontracting, and back-orders.

| |Pros |Cons | | |Low inventory investment and backlogs |Expense of adjusting output rates and/or work-force | | | |Alienation of work-force | |Chase strategy | |Loss of productivity | | | |Lower quality | | |Level output rates |Increased inventory investment | | |Stable work-force |Increased undertime and overtime expense | |Level strategy | |Increased backlogs |

Issues to Consider in Aggregate Planning

|Production |Workforce |Inventory | |Capacity |Minimum level |Minimum level | |Demand |Maximum level |Maximum level | |Material cost |Overtime...
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