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Aggregate Planning

Aggregate planning is the process of developing a preliminary schedule for an organization's operations, focusing on sales forecasts, production levels, and inventory management to meet demand at minimal cost. It involves determining output levels over a 3 to 18 month period, translating long-term forecasts into specific production rates and labor requirements. The document outlines various strategies for aggregate planning, including proactive and reactive approaches, as well as a problem scenario for calculating production requirements and inventory costs.

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20 views18 pages

Aggregate Planning

Aggregate planning is the process of developing a preliminary schedule for an organization's operations, focusing on sales forecasts, production levels, and inventory management to meet demand at minimal cost. It involves determining output levels over a 3 to 18 month period, translating long-term forecasts into specific production rates and labor requirements. The document outlines various strategies for aggregate planning, including proactive and reactive approaches, as well as a problem scenario for calculating production requirements and inventory costs.

Uploaded by

Shams Shabid
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Production Planning & Control

IPE 3205
Aggregate Planning

Mahjabin Moon
Assistant Professor
Department of Mechanical and Production Engineering
Aggregate planning
Aggregate planning is the process of developing, analyzing and
maintaining a preliminary, approximate schedule of the overall
operations of an organization.

It generally contains targeted sales forecasts, production levels, and


inventory levels. This schedule is intended to satisfy demand forecast at
a minimum cost.
Definition
• The process of determining output levels of product groups over the
coming 3 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
Aggregate Planning
Long-range plans
 Long term capacity
 Location / layout
Intermediate plans (General levels)
 Output levels
 Employment
 Finished goods inventory level
Short-range plans (Detailed plans)
 Machine loading
 Job assignments
Aggregate Planning Process

Select the best


plan that satisfies
Develop the objectives
alternative plans
Determine unit and compute
costs for units costs for each
produced
Identify policies
that are
appropriate
Determine
capacities for
each period

Determine
demand for
each period
Objectives
• Minimize cost
• Maximize customer service
• Minimize inventory investment
• Minimize changes in production rates
• Minimize changes in workforce levels
• Maximize utilization of plant and equipment
Aggregate Planning Strategies
 Proactive
Alter demand to match capacity
 Reactive
Alter capacity to match demand
 Mixed
Some of each
Aggregate Planning Strategies
Demand options (Proactive Strategy: Alter demand to match capacity)
 Pricing – shift demand from peak periods to off-peak periods
 Promotion – sometimes are very effective in shifting demand
 Back orders – taken in one period and delivers for a later
period
 New demand – creating new demand at off-peak time
Aggregate Planning Strategies
Capacity options (Reactive Strategy: Alter capacity to match demand)

Hire and layoff workers


- hiring during peak and laying off during off-peak
- may have severe effect
Overtime
- can be easily & quickly implemented
- less severe
Part time workers
- for seasonal work
- requiring low job skills
Inventories
- produce goods in one period & sell in another period
Subcontracting
- enables planers to acquire temporary capacity
Problem
A manufacturer of roofing supplies has developed monthly forecasts for a family of products. Data for
the 6-months period (January to June) are presented in Table-1 and the necessary cost information is
provided in Table-2.

Table 1

Month Expected Production


demand days Table 2
Jan 900 22
Inventory cost $ 5 per unit per month
Feb 700 18 Subcontracting cost per unit $ 10
Average pay rate $ 5 per hour ($40/day)
Mar 800 21
Overtime pay rate $ 7 per hour (above 8hrs per day)
Apr 1200 21 Labor can produce 5 units/day (shift 8hrs/day)
Cost of increasing daily production rate (hiring, training)
May 1500 22 $300 per unit
Cost of decreasing daily production rate $600 per unit
June 1100 20
Problem
1. Calculate daily and average daily requirement.
2. Plot daily and average demand to illustrate the nature of the aggregate planning problem.
3. If the demand for June increases to 1200, what will be the average production?
4. Calculate total ending inventory & daily workforce requirement.
5. Calculate inventory cost.
Problem
1. Calculate average daily requirement.

Month Expected Production Demand


demand days per day
Jan 900 22 41

Feb 700 18 39

Mar 800 21 38

Apr 1200 21 57

May 1500 22 68

June 1100 20 55
Problem
2. Plot daily and average demand to illustrate the nature of the aggregate planning problem.

70

60

50

40

30

Jan Mar Apr May June


22 Feb 21 21 22 20
18
Problem
3. If the demand for June increases to 1200, the daily rate for June will be 60 and average production
will increase to 50.8 (6300/124)
4. Calculate total ending inventory & daily workforce requirement.

Month Production Production Demand Monthly Ending


days at 50 units forecast inventory inventory
per day change
Jan 22 1100 900 +200 200

Feb 18 900 700 +200 400

Mar 21 1050 800 +250 650

Apr 21 1050 1200 -150 500

May 22 1100 1500 -400 100

June 20 1000 1100 -100 0


Problem

Inventory
cost per
unit
Thank You

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