AGGREGATE PLANNING

- intermediate range capacity planning usually covering 6 to 18 months.

-focusing on a group of similar products or sometimes an entire product line and try to avoid focusing
on individual product.

AN OVERVIEW OF AGGREGATE PLANNING

1. Begins with forecast of aggregate demand for the intermediate range.

2. Followed by a general plan to meet demand requirements
3. Production plan is the output of aggregate planning

PURPOSE AND SCOPE OF AGGREGATE PLANNING

- is to specify the optimal combination of production rate, workforce level and inventory on hand.
Production rate - refers to the number of units completed per unit of time (such as hours per
day).
Workforce level - is the number of worker needed for production.
Production = production rate x work force level
Inventory on hand - is unused inventory carried over from the previous period.

BASIC STRATEGY FOR MEETING UNEVEN DEMAND

1. Level capacity strategy - maintaining a steady rate of regular-time output while meeting variations
2. Chase demand strategy - matching the capacity to demand, the planned output for a period is set
at the expected demand for that period.
3. Stable Workforce-variable work hours - vary the output by varying the number of hours worked
through flexible work schedule or over time.

TECHNIQUES FOR AGGREGATE PLANNING

1. Informal trial and error techniques - more commonly used.

2. Mathematical techniques - often served as basis for comparing the effectiveness of alternative
techniques.

RELEVANT COSTS

1. Basic production costs

2. Cost associated with changes in the production rate
3. Inventory holding cost
4. Back ordering costs

GENERAL PROCEDURES FOR AGGREGATE PLANNING

1. Determine demand for each period

2. Determine capacities for each period
3. Identify company or department policy
4. Determine unit costs
5. Develop alternatives plans and compute the cost of each
6. If safely plan emerge, select the one that best satisfies objectives, otherwise return to step 5.

Informal Techniques

-developing simple table and graph that enables planners to visually compare projected demand
requirement with existing capacity.

COMPUTATIONS:

1. To determine the number of workers available in any period

# of worker in a period = # of worker at end of previous period + # of new workers at start
of the period - # of laid-off workers at start of the period
2. To determine the amount of inventory at the end of the period
Inventory at the end of the period = inventory at the end of the previous period + production
in the current period - amount used to satisfy demand in the current period
3. To determine the average inventory for a period

Average inventory for a period =( Beginning Inventory + Ending Inventory) / 2

4. Cost for period = (Regular + OT + Subcontract) + Hire/Lay off cost + Inventory cost + Back
order cost
Where output cost:
 Regular = regular cost/unit x quantity of regular output
Overtime = overtime cost/unit x overtime quantity
Subcontract = subcontract cost/unit x subcontract quantity

Hire/Layoff cost:
Hire = cost per unit x number hired
Layoff = cost per layoff x number of laid off

Inventory = Carrying cost per unit x average inventory

Backorder = Backorder cost per unit x number of Backorder units

RULES IN COMPUTING BACKLOGS

1. Start with the Output - Forecast Value.

If this is (+) and there was a backlog in the preceding period, reduce the backlog by this amount.
If the amount exceeds the backlogs, the difference becomes the ending inventory for the period. If
they are exactly equal, the backlog and the ending inventory will both be equal to zero.

2. If Output - Forecast is (-) subtract it from the beginning inventory. If these produce a negative value
that value becomes the backlogs for that period.