The document discusses aggregate planning and related concepts. It provides: 1) An overview of aggregate planning, which involves planning production quantities and capacity over an intermediate time horizon to accommodate production requirements at lowest cost. 2) Details on aggregate capacity planning and rough-cut capacity planning, which develop a production capacity scheme to support the sales forecast and ensure feasibility of capacity to meet demand. 3) Approaches to aggregate planning including top-down and bottom-up, and an explanation of rough-cut capacity planning which tests capacity feasibility before finalizing a master production schedule.

1. Aggregate Planning
P. RAJENDRAN MBA [Ph.D]
Associate Professor – Finance
OPERATIONS MANAGEMENT
(Anna University Chennai: MBA Curriculum)

2. Aggregate Planning
 Chapter Highlights
Aggregate Planning or Aggregate Capacity
Planning.
Costs Associated with Aggregate Planning
Approaches to Aggregate Planning
Rough-cut Planning
Capacity Requirement Planning
CRP Process
© Rajendran: SNS B-School

3. Aggregate Planning
 Aggregate Planning
involves
 planning the best quantity to
produce
 during the time periods in the
intermediate-term (range)
horizon (often 3 months to 1
year) and
 planning the lowest cost
method of
 providing the adjustable
capacity
 to accommodate the
production requirements.
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Decided as Forecasted : 500 Units
10 Units per week
Product Line: A (280), B (120), C (100)
Weekly Capacity: A (6), B (3), C (2)

4. Operations Planning (and Scheduling
Systems) Vs Aggregate Planning
 Aggregate Planning is based on Operation
Planning and Scheduling Sysrems.
 Operation planning and Scheduling
Systems are concerned the
volume and time of outputs
Utilisation of Capacity and
Balancing outputs with Capacity at designed
levels of Competitive Effectiveness
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5. Operations Planning and Scheduling Systems
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Business Plan
Aggregate Output Planning
Master Production Scheduling (MPS)
Materials Requirement Planning (MRP)
Loading
Sequencing
Scheduling
Expediting
Aggregate Capacity Planning
Rough-cut Capacity Planning
Detailed Capacity Planning
Short-Term Capacity Control
Output Planning Capacity Planning

6. Aggregate Production Planning
 Process of determining output levels of product
group over the next 3 months to 1 year.
 On a weekly or Monthly basis.
 Overall level of outputs supporting business
plan.
 Aggregate plan also known as Production Plan
is a statement of a firm’s:
 Production rates
 Workforce levels and
 Inventory holding based on customer requirements
(Demand)
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7. Concept, and Objectives of Aggregate
Planning
 Concept:
 Plans are developed product lines or Product Families
rather than individual Product.
 Objectives:
1. To balance the complexities among customer service,
workforce stability, cost and profit.
2. To establish company-wide strategic plan for
allocating resources.
3. To develop an economic strategy to meet customer
demand.
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8. Purpose and Scope of Aggregate Planning
 Forecasting demand in the
intermediate-term.
 Preparing general plan to
meet demand by Setting
 Output
 Workforce and
 Finished goods inventory levels.
 No expansion of capacity (of
the facilities) possible
(feasible) in the intermediate-
term.
 It is feasible to increase or
decrease facilities.
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Facilities Increase Decrease
Workforce
Size
Hire Lay-offs
Working
hours
Extra shift,
overtime
Sub-
contract
Inventory
levels
Build-up deplete

9. Inputs and Outputs of Aggregate Planning
Inputs
 Facilities and / Resources
 Demand forecast
 Policy on workforce
(changes)
 Back orders
 Inventory levels and costs
 Inventory carrying cost
 Back-order cost
 WF hiring / lay-off cost
 Inventory changing cost
Outputs
 Total cost of the plan
 Projected levels of
 Inventory
 Output
 Employment
 Sub-contracting and
 Back-ordering
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10. Importance of Aggregate Planning
S.No Parameters of Ag. Plans Description
Engineering New Product, Design, Changes M/c Stds.
Materials Suppr. Capabilities, Storage Capacity &
Material availability
Operations Current WF, M/c Capacities (CMC), FWF/MC,
Marketing & Distribution Customer Needs, DF, Competitors Behaviour
Accounting & Finance Cost and Financial Position
Human Resources Labour Market condition and Training Capacity
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Objectives of selecting specific Parameters of Agg. Plans
Specific Parameters of Agg. Plans
1. Optimisation
2. Maximising Customer
Service
3. Min. Inventory Inv.
4. Min. Changes in Pdn. Rate
5. Min. Changes in Workforce Levels
6. Max. Utilisation of Plant &
Equipment

11. Aggregate Capacity Planning
 Process of devising a plan for providing a
production capacity scheme to support the
intermediate range sales forecast.
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Need for Aggregate Capacity Planning
 Keeping fully loaded, minimising over loading and under
loading, keeping production cost low.
 Meeting expected aggregate demand.
 Systematic plan of customer demand
 Getting maximum o/p in times of scarce resources.
 Managing changes of Customer Demand.

12. Process or Steps in
Aggregate Capacity Planning
 Determining Demand (sales) Forecast
 Determining Aggregate Demand
 Transform Aggregate Demand periodical Facility
needs.
 Identifying relevant policy to meet the Demand
 Determining unit cost under various circumstances wrt
increasing and decreasing facilities.
 Developing alternative plan
 Selecting best plan for aggregate demand and meeting
objective of the firm.
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13. Relationship between AGP and MPS
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Market Environment
Forecast Customer
Demand / order
Resource Base and
Technology
Capacity of Facility
Aggregate
Production Plan
Master Production
Schedule
Materials Requirements Capacity Requirements

14. Costs Associated with Aggregate Planning
 Payroll Cost
 Overtime,
 Additional Shift
 Subcontracting
 Hiring WF
 Lay-offs
 Excess inventory
 Back-log
 Changes in Production Rate
 Idle and over utilizing / Underutilizing Facilities
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15. Approaches to AGP
 An AGP is the plan takes into consideration of the overall
level output and the capacity that is required to produce
goods.
 Basic Approaches to AGP:
1. Top-Down (Downward) Approach (Total Individual)
 Development of the entire plan by working only at the highest level
of consideration of products.
 Consolidating products into average product and develops overall
plan.
 This plan is disaggregated to allocate capacity to product facilities
and individual products.
 This approch is performed in terms of a pseudo product
 which is fictitious product that represents
 the average characteristics of the entire product line to be planned.
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16. Approaches to AGP
2. Bottom-up (Upward) Approach (Total Individual)
 Development of plans for major products or product
families the lower level.
 These sub-plans are then consolidated to arrive
aggregate plan.
 This is also called Resource Requirement Planning and
 sometimes also known as Rough-cut Capacity
Planning.
 Associated with MRP-1.
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17. Rough-cut Capacity Planning (RcCP)
 Before finalizing MPS, a tentative MPS is
prepared by testing the feasibility of capacity
referred to be RcCP.
 It ensures that
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