Aggregate Planning
Chapter 13
MGMT 326
Foundations
of Operations
Products &
Processes
Quality
Assurance
Introduction
Managing
Projects
Managing
Quality
Product
Design
Statistical
Process
Control
Strategy
Process
Design
Just-in-Time & Lean Systems
Facilities
& Work
Design
Linear
Programming
Capacity
and
Location
Facility
Layout
Work
System
Design
Planning
& Control
Managing
Inventory
Aggregate
Planning
Presentation Outline

Planning for Operations
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What is Aggregate Planning, and why is it
important
3 Levels of planning for manufacturing
 Master Production Schedule and Rough Cut
Capacity Plan
Aggregate Planning options
 Work force and capacity management
 Demand management
Aggregate Operations Planning
for Services

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Input: demand forecast by product line by
month by facility
Output: Labor requirements by month by
facility
Aggregate Plan in Manufacturing

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Objective: Match supply and demand so that
the sales plan can be met.
Input: sales forecast by product line by
month for 6-18 months
Information in the plan, by product line by
month

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Supply: production and outsourcing (buying from
another firm) by product line by month
Labor force by product line by month
Ending inventory level by month
Why is Aggregate Planning Important?

Operations and supply chain management

To ensure that Operations is prepared to meet
customer needs
 Should make-buy decisions be changed?
 Contracts for raw materials and parts
 Labor requirements
 Inventory levels
Why is Aggregate Planning Important? (2)

Marketing

To ensure that the company's capacity will
be used in the most profitable way,
considering market constraints

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If there is not enough capacity, which
products or customers will have priority?
If there is more capacity than needed, how
can the firm sell more?
The Aggregate Operations Plan and the
Sales Plan must be consistent.
Why is Aggregate Planning Important?(3)

Accounting and Finance

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To have an accurate budget for operations
To ensure adequate cash flow for operations
Year-end inventory levels affect earnings forecasts
Human resources management


If more workers will be needed, plan for hiring
and training
If fewer workers are needed, plan for layoffs
3 Levels of Planning for Manufacturing
Master Production Schedule (MPS)
and Rough Cut Capacity Plan

Master Production Schedule (MPS): shows
planned production by item, by day or week,
for 2 – 6 months

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Is revised as sales forecast changes
Rough Cut Capacity Plan: a calculation to
ensure that there is enough capacity to make
the items in the Master Production Schedule
Aggregate Production Plan
and Master Production Schedule (MPS)
Master Production Schedule
Aggregate Planning Options
Work Force and Capacity Management
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Hiring
Layoffs
Increase or decrease working hours
(overtime or undertime)
Increase or decrease use of part-time or
temporary workers
Contract production to another firm
Use contract service workers (service or
administrative departments)
Aggregate Planning Options
Demand-Driven Options

To increase demand, reduce prices and offer
promotions to increase demand when you need it

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Profit per unit is lower, but you get additional business
A good strategy when fixed costs are high and variable
costs are low
Service firms often use appointment systems to
match supply and demand
Aggregate Planning Options
Demand-Driven Options (2)

Build finished goods inventory when demand is low and
sell it when demand is high

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High inventory costs
Risk of having obsolete inventory
Companies with highly seasonal demand may have to use this
strategy.
Back orders result when a company cannot supply
demand immediately

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Unless you have a unique product or a lower price than
competitors, there is a high risk of lost sales
Additional administrative and transportation costs