AGGREGATE PLANNING

Objectives
Explain the importance of Aggregate Planning
Understand problems related to Aggregate Planning
To understand the planning process of Firms
Identify the different strategy and methods of Aggregate Planning

Introduction
An organization can finalize its business plans on the recommendation of
demand forecast. Once business plans are ready, an organization can do backward
working from the final sales unit to raw materials required. Thus annual and quarterly
plans are broken down into labor, raw material, working capital, etc. requirements over
a medium-range period (6 months to 18 months). This process of working out
production requirements for a medium range is called aggregate planning.

The Firm Planning Process
Long range forecast aids managers deal with problems related to capacity and
strategic issues. Medium range planning starts when a decision on long-term capacity
has already been made, and the operation manager performs this function. Short-range
planning is basically for three-month periods but can extend up to a year.

The Nature of Aggregate Planning

The main idea of this mode of planning is combining all the resources into a
group or unit. The aggregate plan is a part of a larger production planning, which
involves understanding, the interfaces of the internal and external factors as essential

STRATEGIES FOR AGGREGATE PLANNING
The following basic guidelines are essential to the formulation of an effective
aggregate plan for production.

1. The appropriate inventory level to absorb changes in demand during the
planning period.
2. The policy of the firm on the size of work force for any variation in
demand.
3. The strategy for increasing man-hours; by overtime or multiple shifts.
4. The appropriateness of employing subcontractors to augment capacity.
5. Policy on prices and other factors to influence demand.
Strategy for Capacity

1. Changing inventory levels










This strategy can cost the company higher for storage, insurance, handling,
obsolescence, pilferage and capital investment, which accounts for 15% to 50% of the
value of an item annually.
2. Vary work force by hiring or lay-offs
Hiring may be costly and productivity level may drop temporarily because newly
hired employees are ill-trained.
3. Vary production rates by overtime
The increase in demand for capacity can still be provided even without increasing
the level of the work force through overtime.
4. Subcontracting
During temporary peak in demand, capacity can be enhanced through
subcontracting, but this has its shortcomings
5. Employment of part-time workers
This is appropriate to an immediate need of unskilled workers, which basically
the firm will pay only minimal cost.

Demand Strategies
To avoid serious problems on capacity, the following strategies on demand are
commonly adopted by firms:
1. Influence demand
When demand is deteriorating, the firm can employ several demand enhancing
measures like massive advertisements and promotion, cut in prices, or provision of
quantity discounts.
2. Backlog Provision
Buyers may be asked to agree for a postponement of delivery of their orders for
sometime for a discount to allow the firm a breathing space in its production schedule.

Level Scheduling
This is a piece in capacity planning popularized by the Japanese in which
aggregate plans are based on uniform demand and capacity
Methods of Aggregate Planning
This describes the available techniques in aggregate planning commonly
adopted by manufacturing firms. They range from what is termed as intuitive method
to the widely-used charting or graphing method to a more mathematical approach.
1. Intuitive Approach
This approach does not use any mathematical method; it is basically based on
individuals perception and opinion regarding the capacity to be built in relation to --
production quantities.
2. Graphical and charting methods
These methods are the most popular because they are easy to understand and
use.
Basically, these methods follow the following steps:
(a) Ascertain demand for every period.
(b) Determine the capacity required for regular time over time and
subcontracting each period.
(c) Find the cost for hiring and lay-offs, inventory holding cost and
labor cost.
(d) Give consideration to the companys policy on workers and
inventories.
(e) Plans and examines their total costs.

Summary
Aggregate Planning mainly expresses of how a company may plot procedures
and resources to achieve its goal in a more efficient and effective means. These plans
may be in the form of long term, medium or intermediate term and short term. These
planning system should comply from the different guidelines to achieve its goal
effectively. The planning strategies used by a certain company varies in the different
management they have. These strategies include changing inventory levels, vary work
force by hiring or lay-offs, vary production rates by overtime, subcontracting, and
employment of part-time workers.