Bharat Kantharia

Aggregate Planning
Operations & Supply Management
Semester-II
UnitedWorld, Ahmedabad
Aggregate Planning
Definition
Aggregate Planning is concerned with matching
supply and demand of output over the medium
time range, up to approximately 3 to 12 months
into the future. Term aggregate implies that the
planning is done for a single overall measure of
output (equivalent units) or, at the most, a few
aggregated product categories. Aim of aggregate
planning is to set overall output levels in the near
to medium future in the face of fluctuating or
uncertain demands. Aggregate planning might
seek to influence demand as well as supply
Aggregate Planning
Definition
Aggregate planning has certain prerequired inputs which
are inevitable. They include:
Information about the resources and the facilities
available.
Demand forecast for the period for which the
planning has to be done.
Cost of various alternatives and resources. This
includes cost of holding inventory, ordering cost, cost
of production through various production alternatives
like subcontracting, backordering and overtime.
Organizational policies regarding the usage of above
alternatives.


Bharat Kantharia

Bharat Kantharia
Process planning
Strategic capacity
planning
Sales and operations
(aggregate) planning
Sales
plan
Aggregate
operations
plan
Supply network
planning
Forecasting and
demand management
Master scheduling
Material requirements
planning
Order scheduling
Vehicle capacity
planning
Vehicle loading
Vehicle dispatching
Warehouse
receipt
planning
Weekly
workforce
scheduling
Daily workforce
scheduling
Manufacturing Logistics Services
Long
range
Medium
range
Short
range
Sales & Operations Planning
Sales & Operations Planning
Long-range planning
Greater than one year planning horizon
Usually performed in annual increments

Medium-range planning
Six to eighteen months
Usually with weekly, monthly or quarterly
increments

Short-range planning
One day to less than six months
Usually with weekly or daily increments

Required Inputs to the Production Planning System
Planning
for
production
External
capacity
Competitors
behavior
Raw material
availability
Market
demand
Economic
conditions
Current
physical
capacity
Current
workforce
Inventory
levels
Activities
required
for
production
External
to firm
Internal
to firm
Key Strategies for Meeting Demand
Chase Strategy: Match production (supply) to demand by
hiring or firing workers
Level strategy: Maintain stable workforce @ constant
output. Shortages/surpluses are absorbed by fluctuating
inventory, order backlog, lost sales. Service levels vary.
Stable workforce- varying work hours: Vary output by
varying no of hours worked thru flexible work schedules &
overtime
Mixed Strategies
Company policies
Usage of two or more control variables eg. Combination
of subcontracting & OT or Inventory & OT

Relevant Costs
Basic Production Costs: Fixed, variable costs
for producing a given product type in a given
time period. Direct & indirect costs
Costs associated with changes in production
rate: Hiring, firing, training : Hiring temporaries
Inventory Holding/Carrying Costs: Capital
tied-up
Backordering costs: cost of expediting, loss of
customer goodwill, loss of sales revenues

Bharat Kantharia
Analyzing Costs
Production Rate Vs Regular
Time Prod. Cost
Workforce Size Vs Regular
time Prod. Cost
Bharat Kantharia
Analyzing Costs
Impact of Cost of overtime &
idle time on Prod. Cost
Incremental Cost of Prod. Vs
Prod. Rate Basis Changing
Workforce
Bharat Kantharia
Analyzing Costs
Aggregate Inventory Level
Inventory, Backorder &
Shortage Costs
Bharat Kantharia
Aggregate Planning Strategies
Top-down approach
Bottoms-up approach Basis Capacity
Requirements Planning
Bharat Kantharia
Aggregate Planning Example : Data
January February March April May June Totals
Demand Forecast 1800 1500 1100 900 1100 1600 8000
No Of Working Days 22 19 21 21 22 20 125
Bharat Kantharia
Title Per Costs /Value
Materials $/Unit 100
Inv. Holding Cost $/ Unit per Month 1.5
Marginal Cost of Stockout $ Per Unit Month 5
Hiring & Training Cost $ Per Worker 200
Layoff Costs $ Per Worker 250
Labour Hrs Reqd. Per Unit Hrs/Unit 5
Straight Time Labour Cost (8 Hrs) $ / Hr 4
Beginning Inventory Units 400
Paid Hrs / Day Hrs /Day 8
Policy: Safety Stock Reqd. Of Monthly
Demand Units 25%
Marginal Cost of Subcontracting $/Unit 20
Overtime Cost /Hr : 150% $/Hr 6
Aggregate Planning : (Chase)
Bharat Kantharia
Comparison of Four Plans
Cost Type Plan1 Chase
Demand
Plan2
Constant
Workforce
Plan3
Constant
Workforce +
SubCon
Plan4
Constant
Workforce +
OT
Hiring 5800 0 0 0
Layoff 7000 0 0 0
Excess
Inventory
0 948 0 1281
Shortage 0 1540 0 0
Subcontract 0 0 60000 0
Overtime 0 0 0 12210
Straight
Time
160000 160000 100000 152000
Totals 172800 162488 160000 165491
Bharat Kantharia
Transportation Method
Demand
Forecast Supply Capacity
Period Units of Demand Regular Time Overtime Subcontract
1 500 700 250 500
2 800 800 250 500
3 1700 900 250 500
4 900 500 250 500
Total 3900
Bharat Kantharia
Initial Inventory Units 100
Desired Final Inventory Units 150
Regular Time Cost Cost/Unit 100
Overtime Cost Cost/Unit 125
Subcontract Cost Cost/Unit 150
Inventory Cost (period) Cost/Unit Time 20
Unused Regular Time Cost Cost/Unit 40
Transportation Method
Bharat Kantharia
Comparison of Different Methods