POM Aggregate Planning

An Overview
1. Meaning and definition

2. Objectives of Aggregate Planning
3. Manufacturing and Service Aggregate Plans
4. Aggregate Planning Inputs
5. Aggregate Planning Strategies
6. Passive/ reactive Strategies in Aggregate Planning: Basic
Approaches
 Chase Approach
 Level Approach
7. Conclusions
8. References
Meaning and Definition
Meaning of Aggregate Planning
Aggregate Planning is an intermediate planning
method used to determine the necessary resource capacity a firm
will need in order to meet its expected demand. It is an intermediate
range capacity planning, usually covering 2/3 to 12/18 months. In
other words, it is the matching of capacity and the demand in such a
way that cost are minimized.
Definition
The term Aggregate Planning is defined as, “An operational
activity which does an aggregate plan for the production process, in
advance of 2 to 18 month, to give an idea to management as to what
quantity of materials and other resources are to be procured and
when, so that the total cost of operations of the organization is
kept to minimum over that period”.
Objectives of Aggregate Planning
 Minimize cost and maximize profits
 Minimize inventory investment
 Minimize changes in workforce levels
 Minimize changes in production rates
 Maximize utilization of plant and equipment
Manufacturing and Service
Aggregate Plans
Production Plan (manufacturing aggregate plan):
A managerial statement of the period-by-period (time-
phased) production rates, work-force levels, and inventory
investment, given customer requirements and capacity
limitations.
Staffing Plan (service aggregate plan):
A managerial statement of the period-by-period staff
sizes and labour-related capacities, given customer
requirements and capacity limitations is known as service
aggregate plan.
Aggregate Planning Inputs
• Determine demand for each period.
• Determine capacities for each period.
• Determine pertinent company policies.
• Determine unit cost based on all relevant sources.
• Develop alternative plans and calculate the cost for
each.
• Choose the best overall plan based on company
objectives and cost.
Capacity and Demand
• If capacity and demand are nearly equal emphasis
should be placed on meeting demand as efficiently as
possible.
• If capacity is greater than demand the firm might
choose promotion and advertising in order to increase
demand.
• If capacity is less than demand the firm might consider
subcontracting a portion of the work load.
Aggregate Planning Strategies
 Active strategy
 Passive strategy (reactive strategy)
 Mixed strategy
Passive (reactive) Strategies in
Aggregate Planning: Basic
Approaches
1) Chase approach
The chase method helps the firms to match
production and demand by hiring and firing workers
as necessary to control output. The Capacities
(workforce levels, production schedules, output rates,
etc.) are adjusted to match demand requirements over
the planning horizon.
Advantages:
• Anticipation inventory is not required, and
investment in inventory is low
• Labour utilization is kept high
Disadvantages:
• Expense of adjusting output rates and/or workforce
levels
• Alienation of workforce
2) Level Approach
The Level method allows for a constant rate of
production and uses inventory levels to absorb
fluctuations in demand. The Capacities (workforce
levels, production schedules, output rates, etc.) are
kept constant over the planning horizon
Advantages:
• Stable output rates and workforce levels
Disadvantages:
• Greater inventory investment is required
• Increased overtime and idle time
• Resource utilizations vary over time
Graph of Level vs. Chase Strategy
Aggregate Planning Methods/
Techniques
Techniques for aggregate planning range from informal
trial-and-error approaches, which usually utilize simple tables or
graphs, to more formalized and advanced mathematical
techniques.
Some Common Techniques;
• Graphical/ Charting Method

• Linear Programming
• Simulation
Conclusion
Aggregate planning is a technique for adjusting production
to the ups and downs of demand. An aggregate plan gets its name
from the fact that it must include demand forecasts, resources
and capacity and express these as an aggregate, or combined,
strategy. This type of planning covers a period of two to 12 months
-- sometimes as much as 18 months, depending on your
company's ability to project demand. Setting objectives through
aggregate planning may help your small business run more
efficiently. Aggregate production planning is thus, a vital tool to
aid firms in balancing supply and demand.
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An Overview

1. Meaning and definition

Some Common Techniques;

• Graphical/ Charting Method

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