Aggregate Planning

CHAPTER 13
AGGREGATE PLANNING

KEY IDEAS
1. Aggregate planning is planning for general levels of employment and output to balance supply
and demand typically for periods of one year or less.
2. The term "aggregate" implies that planning is done for groups of products, or product types (i.e.,
product "families") rather than for specific or individual products.
3. Planners take into account projected demand, capacity, and costs of various options in devising
an aggregate plan.
4. Among the variables available to planners are adjustments in output rate, employment level,
overtime/undertime, and subcontracting.
5. The goal of aggregate planning is to achieve a production plan that will effectively utilize the
firm’s resources.
6. Due to the nature of aggregate planning, it is seldom possible to structure a plan that is
guaranteed optimal. Instead, planners usually resort to trial-and-error methods to achieve an
acceptable plan.
7. Among the strategies aggregate planners might try are to:
a. maintain a level work force and meet demand variations in some other manner, such as
holding inventories or subcontracting.
b. use some combination of pricing differentials, promotions and back orders to smooth out
fluctuations in demand.
a. match demand period by period with some combination of overtime and part time work,
or putting workers on leave.
Note: It is unlikely that planners would attempt to match demand period by period by varying
employment levels alone because that would tend to be costly, disruptive, and result in low
employee morale.
8. Choosing a strategy usually depends on the cost entailed and company policy.
9. In order to effectively plan, in addition to knowledge of company policy, estimates of the
following items must be available to planners:
a. Demand for each period
b. Capacity for each period
c. Costs (regular time, overtime, subcontracting, backorders, etc.)
10. In order to translate an aggregate plan into meaningful terms for production, it must be
disaggregated (i.e., broken down into specific product requirements) to determine labor, material,
and inventory requirements.
11. A master schedule indicates the desired quantity and timing of deliveries. A master production
schedule takes into account planned production, as well as on-hand inventory.
1. There are three basic inputs to the master schedule: Beginning inventory, forecasts for
each period in the schedule, and customer orders. Outputs of the scheduling process
include projected inventory, production requirements, and the amount of uncommitted
inventory, which is referred to as available-to-promise (ATP) inventory.

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