To take the first steps in
translating forecasts for demand into a production plan.
Attempts to match the supply of and demand for a
product or service by determining the appropriate quantities and timing of
inputs, transformation, and outputs. Decisions made on production, staffing, inventory and
backorder levels.
Characteristics of aggregate
planning:
Production Plan (manufacturing aggregate plan):
A managerial statement of the periodbyperiod (timephased)
production rates, workforce levels, and inventory investment, given customer
requirements and capacity limitations.
Staffing Plan (service aggregate plan):
A managerial statement of the periodbyperiod staff
sizes and labourrelated capacities, given customer requirements and capacity
limitations.
Objective of aggregate planning frequently is to
minimize total cost over the planning horizon.
Other objectives
should be considered:
Active strategy:
Passive strategy (reactive
strategy):
Mixed strategy:
capacities (workforce levels, production schedules,
output rates, etc.) are adjusted to match demand requirements over the planning
horizon.
Advantages:
Disadvantages:
Level Approach
Capacities (workforce levels, production schedules,
output rates, etc.) are kept constant over the planning horizon.
Advantages:
Disadvantages:
Aggregate Planning Methods: Intuitive Methods
Intuitive methods use management intuition,
experience, and rulesofthumb, frequently accompanied by graphical and/or spreadsheet
analysis.
Advantage:
Disadvantage:
Aggregate Planning Example:
Suppose you have the following
forecasts for demand to meet:
Month 
1 
2 
3 
4 
5 
6 
Demand 
1000 
1200 
1500 
1900 
1800 
1600 
Relevant Costs:
Regular
production cost 
$35/unit 
Lost
sales 
$100/unit 
Inventory
carrying costs 
$10/unit/month 
Subcontracting
costs 
$60/unit 
Hiring
costs 
$1500/worker 
Firing
costs 
$3000/worker 
Beginning
workforce level 
20
workers 
Capacity
per worker 
50
units/month 
Initial
inventory level 
700
units 
Closing
inventory level 
100
units 
LEVEL PRODUCTION STRATEGY
Find the requirements for the period of the plan and
produce the average amount needed per month to meet the plan.
First determine
the average requirements per month:
Avg. requirements
= total requirements  opening inv. + closing inv.
number of periods
Avg. requirements
= (9000  700 + 100)/6 = 1400 units/period
Steps:
LEVEL STRATEGY
Period 
1 
2 
3 
4 
5 
6 
Total 
Req. 
1000 
1200 
1500 
1900 
1800 
1600 
9000 
Prod. 







Inv.(700) 







Hire 







Fire 







Sub. 







Costs:
TOTAL COSTS:
_________
CHASE STRATEGY
Period 
1 
2 
3 
4 
5 
6 
Total 
Req. 
1000 
1200 
1500 
1900 
1800 
1600 
9000 
Prod. 







Inv.(700) 







Hire 







Fire 







Sub. 







Costs:
TOTAL COSTS : _____________
Intuitive (Mixed) Strategy
 Trial and Error
to find a good solution
 Use Excel to model
the problem and test the impact of different solutions
 Build the model
using proper structure with key variables at the top and a summary of key
results immediately below.
Finding Optimal Solutions Using Linear Programming
 Aggregate
planning problems can be solved optimally using linear programming (LP).
 Given the
constraints on requirements, production capabilities, allowed workforce
changes, overtime and subcontracting limits plus all relevant costs LP will
find an optimal solution to the problem which minimizes total costs.
Excel's Solver
addin will perform LP