AGGREGATE PLANNING:Demand and Capacity Options

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Production and Operations Management MGT613

Lesson 29

AGGREGATE PLANNING

Learning Objectives

Explain the working and usefulness of Aggregate Planning.

Identify the variable decision makers to work with in aggregate planning and some of the possible

strategies they can use.

Describe some of the graphical and quantitative techniques planners use.

Prepare aggregate plans and compare their costs.

Planning Horizon

Aggregate planning: Intermediate-range capacity planning, usually covering 2 to 12 months.

Long Range

Intermediate

Range

Short

Range

Now

2 months

1 Year

As Operations Manager we should be able to understand and identify the various Planning Levels which

are Short Range Plans, Intermediate Plans and Long Range Plans.

Short-range plans (Detailed plans)

1. Machine loading

2. Job assignments

Intermediate plans (General levels)

1. Employment

2. Finished Good inventories

3. Subcontracting, Backorders

4. Output

Long-range plans

1. Long term capacity

2. Location / layout

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Production and Operations Management MGT613

Planning Sequence

Aggregate Planning Inputs

Resources

1. Workforce

2. Facilities

Demand forecast

Policies

1. Subcontracting

2. Overtime

3. Inventory levels

4. Back orders

Costs

1. Inventory carrying

2. Back orders

3. Hiring/firing

4. Overtime

5. Inventory changes

6. subcontracting

Aggregate Planning Outputs

1. Total cost of a plan

2. Projected levels of inventory

3. Inventory

4. Output

5. Employment

6. Subcontracting

7. Backordering

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Production and Operations Management MGT613

Aggregate Planning Strategies

Proactive Strategy: Strategies that alter demand to match capacity are known as Proactive Strategy.

Reactive Strategy: Strategies that alter capacity to match demand are known as Reactive Strategy.

Mixed. Strategies that make use of qualities from both Proactive and Reactive Strategy are known

as Mixed Strategies.

Demand and Capacity Options

Demand Options: The four common demand options primarily focus on market aspects apart from

backorders which is strictly operational management in nature. The operations manager should know all

four demand options but should be more interested in back order option.

Pricing

Promotion

Back orders

New demand

Capacity Options: The common capacity options primarily focus on.

1. Hire and layoff workers

2. Overtime/slack time

3. Part-time workers

4. Inventories

5. Subcontracting

6. Maintain a level workforce

7. Maintain a steady output rate

8. Match demand period by period

9. Use a combination of decision variables

An important point to be noted is that Demand options are short range in nature while Capacity options

are long duration (term or range).

Which Strategy to Use

The organization needs to consider two factors before choosing a strategy

1. Costs

2. Company/Corporate Policy

Policy

can

set

constraints

available

options.

E.g.

Layoffs,

subcontracting/Outsourcing ( PIA subcontracting its databases) to protect secrecy.

As a rule of thumb, aggregate planners seek to match supply and demand within in

constraints by policies and minimum costs.

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