Aggregate planning

1. 1. AGGREGATE PLANNING
2. 2. Meaning  Aggregate planning is the process of developing, analyzing, and maintaining a preliminary,
approximate schedule of the overall operations of an organization.  The aggregate plan generally contains
targeted sales forecasts, production levels, inventory levels, and customer backlogs. This schedule is
intended to satisfy the demand forecast at a minimum cost. 2
3. 3. Defined as …  The process of determining output levels of product groups over the coming 6 to 18
months on a weekly or monthly basis ; the plan identifies the overall level of outputs in support of the
business plan.  Aggregate planning involves translating long-term forecasted demand into specific
production rates and the corresponding labor requirements for the intermediate term. 3
4. 4. •Minimize cost / maximize profits •Maximize customer service •Minimize inventory investment •Minimize
changes in production rates •Minimize changes in workforce levels •Maximize utilization of plant and
equipment Objectives 4
5. 5. Aggregate Planning Process Determine demand for each period . Determine capacities for each period .
Identify policies that are pertinent Determine units costs for units produced . Develop alternative plans and
compute costs for each. Select the best plan that satisfies objectives 5
6. 6. Aggregate Planning Strategies  There are two pure planning strategies available to the aggregate
planner:  Firms may choose to utilize one of the pure strategies in isolation, or they may opt for a strategy
that combines the two. Level strategy Chase strategy 6
7. 7. Level strategy  A level strategy seeks to produce an aggregate plan that maintains a steady production
rate and a steady employment level.  In order to satisfy changes in customer demand, the firm must raise
or lower inventory levels in anticipation of increased or decreased levels of forecast demand. 7
8. 8. Level strategy  The firm maintains a level workforce and a steady rate of output when demand is low.
This allows the firm to establish higher inventory levels than are currently needed.  As demand increases,
the firm is able to continue a steady production rate/steady employment level, while allowing the inventory
surplus to absorb the increased demand 8
9. 9. Chase strategy  A chase strategy implies matching demand and capacity period by period.  This could
result in a considerable amount of hiring, firing or laying off of employees; insecure and unhappy employees;
increased inventory carrying costs; problems with labor unions; and erratic utilization of plant and
equipment. 9
10. 10. Chase strategy  It also implies a great deal of flexibility on the firm's part. The major advantage of a
chase strategy is that it allows inventory to be held to the lowest level possible, and for some firms this is a
considerable savings.  Most firms embracing the just-in-time production concept utilize a chase strategy
approach to aggregate planning 10
11. 11. Level vs. Chase LEVEL •ADVANTAGES •Stable output rates and workforce •DISADVANTAGES
•Greater inventory costs •Increased over time and idle time •Resource utilizations vary over time CHASE
•ADVANTAGES •Investment in inventory is low •Labor utilization in high •DISADVANTAGES •The cost of
fluctuating work force •Potential damage to employee morale 11
12. 12. Techniques Linear Programming Model Linear Decision Rule Simulation 12
13. 13. Linear programming  LP models are methods for obtaining optimal solutions to problems involving the
allocation of scarce resources in terms of cost minimization or profit maximization.  the goal is to minimize
the sum of costs related to regular labor time, over time, inventory holding costs, and costs associated with
changing size of the work force.  Constraints involve the capacities of the workforce, inventories and
subcontracting 13
14. 14.  E.H. BOWMAN - proposed formulating the problem in terms of transportation type programming model
as a way to obtain aggregate plans that would match capacities with demand requirements and minimize
cost.  In order to use this approach, planners must identify capacity (supply) of regular time, over time,
subcontracting and inventory on a period by period basis as well as related costs of each variable. 14
15. 15. LINEAR DECISION RULE  Linear decision rule is another optimizing technique. It seeks to minimize
total production costs (labor, overtime, hiring/lay off, inventory carrying cost) using a set of cost-
approximating functions to obtain a single quadratic equation.  Then, by using calculus, two linear
equations can be derived from the quadratic equation, one to be used to plan the output for each period and
the other for planning the workforce for each period. 15
16. 16. SIMULATION MODELS  By developing an aggregate plan within the environment of a simulation
model, it can be tested under a variety of conditions to find acceptable plans for consideration.  These
models can also be incorporated into a decision support system, which can aid in planning and evaluating
alternative control policies. 16
 17. 17. SIMULATION MODELS  These models can integrate the multiple conflicting objectives inherent in
manufacturing strategy by using different quantitative measures of productivity, customer service, and
flexibility

Aggregate planning
Aggregate planning is a process by which a company determines ideal level of capacity, production,
subcontracting, inventory, stock outs, and even pricing over a specified time horizon.
How aggregate plans are made?
Aggregate plans are made In Saffron Pharmaceutical due to the following operational parameters over the
specified time horizon.
Production rate: production rate is the number of units to be completed per unit time such as per week
or per month. In Saffron Pharmaceutical the planner know the production rate of the organization. In
Saffron Pharmaceutical manufacturing different products at a time so their production rate is different for
each products. Due to this reason the aggregate plans are made according to the production rate of the
product and due to production rate the planners know that how many days are require for fulfill the order
of the customer.
Work force: in Saffron Pharmaceutical the aggregate planner made decision about how many workers
are require to fulfill the order of the customer. And decision about how many workers are work then they
achieve their goal.
Over time: in Saffron Pharmaceutical the aggregate planner plans about how many overtime are required
to full the order. In this case the order is higher than production rate thus the overtime for production is
required.
Inventory on hand: in Saffron Pharmaceutical aggregate plans are made to look at which amount of
inventory on hand and which amount of inventory we require to fulfill the order.
With the help of these following operational parameters the aggregate plans are made.

How Uneven Demand Is Met?

Uneven demand is meeting by the Saffron Pharmaceutical with different resources which are available. If
the demand of a product is increase by production rate then the manager managing the production
overtime. And also increase the workforce by achieving the require amount of production. Safety Stock is
also provides protection against uneven demand and supply.

Master Production

Saffron Pharmaceutical manufactured products in Make to Stock (MTS) environment. Actual demand
provide to MPS on basis of annual forecasting. Master production scheduling plays coordination with
between the sale forces and production department.MPS tells the company what is to be made, when to be
made and how much quantity is to be made.