Aggregate planning is the process of developing,
analyzing, and maintaining a preliminary,
approximate schedule of the overall operations of
The aggregate plan generally contains targeted
sales forecasts, production levels, inventory levels,
and customer backlogs. This schedule is intended
to satisfy the demand forecast at a minimum cost.
Defined as …
The process of determining output levels of
product groups over the coming 6 to 18 months on
a weekly or monthly basis ; the plan identifies the
overall level of outputs in support of the business
Aggregate planning involves translating long-term
forecasted demand into specific production rates
and the corresponding labor requirements for the
•Minimize cost / maximize profits
•Maximize customer service
•Minimize inventory investment
•Minimize changes in production
•Minimize changes in workforce levels
•Maximize utilization of plant and
Aggregate Planning Process
each period .
each period .
that are pertinent
costs for units
costs for each.
Select the best
plan that satisfies
Aggregate Planning Strategies
There are two pure planning strategies available to
the aggregate planner:
Firms may choose to utilize one of the pure
strategies in isolation, or they may opt for a strategy
that combines the two.
A level strategy seeks to produce an aggregate
plan that maintains a steady production rate and
a steady employment level.
In order to satisfy changes in customer demand,
the firm must raise or lower inventory levels in
anticipation of increased or decreased levels of
The firm maintains a level workforce and a steady
rate of output when demand is low. This allows the
firm to establish higher inventory levels than are
As demand increases, the firm is able to continue a
steady production rate/steady employment level,
while allowing the inventory surplus to absorb the
A chase strategy implies matching demand and
capacity period by period.
This could result in a considerable amount of hiring,
firing or laying off of employees; insecure and
unhappy employees; increased inventory carrying
costs; problems with labor unions; and erratic
utilization of plant and equipment.
It also implies a great deal of flexibility on the firm's
part. The major advantage of a chase strategy is
that it allows inventory to be held to the lowest
level possible, and for some firms this is a
Most firms embracing the just-in-time production
concept utilize a chase strategy approach to
Level vs. Chase
•Stable output rates and
•Greater inventory costs
•Increased over time and
•Resource utilizations vary
•Investment in inventory is
•Labor utilization in high
•The cost of fluctuating work
•Potential damage to
Linear Decision Rule
LP models are methods for obtaining optimal
solutions to problems involving the allocation of
scarce resources in terms of cost minimization or
the goal is to minimize the sum of costs related to
regular labor time, over time, inventory holding
costs, and costs associated with changing size of
the work force.
Constraints involve the capacities of the workforce,
inventories and subcontracting
E.H. BOWMAN - proposed formulating the problem
in terms of transportation type programming model
as a way to obtain aggregate plans that would
match capacities with demand requirements and
In order to use this approach, planners must
identify capacity (supply) of regular time, over
time, subcontracting and inventory on a period by
period basis as well as related costs of each
LINEAR DECISION RULE
Linear decision rule is another optimizing
technique. It seeks to minimize total production
costs (labor, overtime, hiring/lay off, inventory
carrying cost) using a set of cost-approximating
functions to obtain a single quadratic equation.
Then, by using calculus, two linear equations can
be derived from the quadratic equation, one to be
used to plan the output for each period and the
other for planning the workforce for each period.
By developing an aggregate plan within the
environment of a simulation model, it can be
tested under a variety of conditions to find
acceptable plans for consideration.
These models can also be incorporated into a
decision support system, which can aid in planning
and evaluating alternative control policies.
These models can integrate the multiple conflicting
objectives inherent in manufacturing strategy by
using different quantitative measures of
productivity, customer service, and flexibility.