Scribd
Upload
41 views11 pages

Aggregate Planning Strategies Overview

Plan 1: Vary the workforce each month to exactly meet demand, incurring hiring and firing costs but avoiding inventory and shortages. Plan 2: Maintain a constant workforce to produce the average demand over 6 months, avoiding hiring/firing but risking inventory or shortages. Plan 3: Keep a steady workforce on regular time to meet minimum demand, using subcontracting when needed to avoid excess inventory or shortfalls.

Uploaded by

Aniket Borse
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
41 views11 pages

Aggregate Planning Strategies Overview

Plan 1: Vary the workforce each month to exactly meet demand, incurring hiring and firing costs but avoiding inventory and shortages. Plan 2: Maintain a constant workforce to produce the average demand over 6 months, avoiding hiring/firing but risking inventory or shortages. Plan 3: Keep a steady workforce on regular time to meet minimum demand, using subcontracting when needed to avoid excess inventory or shortfalls.

Uploaded by

Aniket Borse
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

Session 7: Aggregate Planning

Big Picture
Strategic Decisions
• Facility location 5 – 10 years
• Product mix

Aggregate Planning
• Inventory level 3 – 18
months
• Production level
• Capacity utilization
• Subcontracting level

Operational Decisions
• Scheduling 1 – 15 days
• Resource allocation
Aggregation
• Group of similar products or services
– Aggregate planning (product family)
• Forecast of LCD TVs
• Forecast of sedan cars
– Disaggregate planning (SKU level)
• Forecast of 21”LCD, 23”LCD, …
• Forecast of black cars, red cars,….

• Aggregate planning is relevant for Family of


products (not SKU level)
Capacity Planning Hierarchy
Our Focus

Executional Tactical Strategic


Capacity Planning Capacity Planning Capacity Planning

Time
0-30 days 1-18 months 1-5+ years
Horizon

Planning
Hours or days Weeks or months Quarters or years
Buckets

Capacity expansion
Optimal allocation
(contraction) of hard-
of existing capacity
to-flex resources
Schedule for
Decisions
existing resources Capacity levels of
Capacity technology
easy-to-flex
resources
Capacity location
Overview of Aggregate Planning
• Starts with a forecast
• Objective of aggregate planning
– Minimizing cost, Maximizing contribution
• Relevant costs
– Inventory costs
– Shortage costs
– Outsourcing/subcontracting costs
– Resource acquisition/liberating costs
• Hiring of workforce
• Firing of workforce
Basic Terms
• Aggregate time unit

• Planning horizon

• Rolling horizon
Level Production
Demand

Production
Units

Time
Chase Demand
Demand

Production
Units

Time
Strategies of aggregate planning
• Chase demand
– Flexible strategy, produce according to the demand
– Demand more than capacity
• Add resources (hiring, subcontracting, overtime, etc.)
– Demand less than capacity
• Remove resources (firing, use of outsourcing,, etc,)

– No demand - supply mismatch (no inventory costs, no


shortage costs)

– High cost of flexibility


Strategies of aggregate planning
• Level demand
– Produce at a constant rate
– Smooth operations, uniform level of resources

– Vulnerable to inventory costs and shortage costs


• Demand exceeds supply rate – shortage
• Demand less than supply rate – inventory
How to develop aggregate plans
Consider the example described in the Assignment

Develop alternative production plans for the firm. Investigate the following
three different plans with the objective of finding one with the lowest cost.

Plan 1: Produce to meet exact monthly production requirements using a


regular eight-hour day by varying workforce.

Plan 2: Produce to meet expected average demand over the next six months
by maintaining a constant workforce.

Plan 3: Produce to meet the minimum demand expected using a constant


workforce on regular time. Use sub-contracting to meet additional output
requirements.

You might also like