Aggregate Production

planning
Prof. Sanjay Choudhari
Indian Institute of Management
Indore
Major Operations Activities
Strategic capacity planning
Master Production Schedule

Sales and Operations
(aggregate) planning
Material Requirement
Planning

Order Scheduling

S&OP refer to the process
of keeping demand and
supply in balance.

Aggregate Production Planning
A plan that specifies planned rates of production,
inventory levels, and employee staffing rates and
policies to fulfill demand over a period of time .
Planning horizon for aggregate production plan
ranges from 6 to 18 months-Medium Range Planning.
One should consider the demand for resources
(equipment and labor) aggregated across multiple
products.
Manufacturing
Service
Why? Aggregate forecasts are more accurate
than individual detailed forecasts
January
Forecast
January
Actual
Forecast
Error % Error
Product A 100 120 -20 -17%
Product B 200 180 20 11%
Aggregate 300 300 0 0
Use aggregate forecasts for planning medium-
range overall production levels.
High long-range forecast accuracy
Detail not needed for planning long-range resource use
(labor, inventory, etc.)

Why Aggregates ?
Sales forecasts can be aggregated with respect to
time:
January February March Aggregate
Product A 100 150 200 450
Why Aggregates ?
Aggregation : Three dimensions
Product families
A group of customers, services or products having
similar demand requirement
Common process, workforce, materials

Workforce / other resources
Aggregation various ways (Skilled, Unskilled..)

Time (Planning horizon of one year)
Adjustment of output rate and workforce monthly,
quarterly or seasonally
not weeks or days or hours

Why Aggregates ?
Matching supply with demand becomes
challenging when forecasts call for uneven
demand patterns

Demand management, the process of
changing demand patterns using one or
more demand options

Aggregate Production planning
Aggregate Production planning
Supply options
Anticipation inventory
Workforce adjustment
Workforce utilization
Part-time workers
Subcontractors
Vacation schedules
Aggregate Production planning
Planning strategies
Chase strategy
Level strategy
Mixed strategy
Aggregate Planning Strategies
Chase strategy. Match the production rate
to the demand rate by hiring and laying
off employees as the demand rate varies.
Less Inventory but High Cost of Hire and
Layoff


Cumulative Number of Units
Demand
Time
Production
Number of Units
Time
Demand
Production
Aggregate Planning Strategies
Level strategy. Maintain a stable workforce working
at a constant output rate. Higher Inventory Level,
No hiring and Layoff cost.

Cumulative Number
of Units
Demand
Time
Production
Number of Units
Production
Demand
Time
Aggregate Production planning
TYPES OF COSTS WITH SALES AND OPERATIONS PLANNING
Cost Definition
Regular time Regular-time wages plus benefits

Overtime Wages paid for work beyond the normal workweek
Hiring and layoff Cost of advertising jobs, interviews, training programs,
scrap caused by inexperienced employees, exit
interviews, severance pay, and retraining
Inventory holding Capital, storage and warehousing, pilferage and
obsolescence, insurance, and taxes
Backorder and
stockout
Costs to expedite past-due orders, potential cost of
losing a customer