Aggregate Planning

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Aggregate Planning


• Aggregate planning, or macro production

planning, details the production rate

decisions, work force decisions, and inventory

scheduling decisions over an intermediate

planning horizon to achieve a production plan

that will effectively utilize the organization’s

resources to satisfy the expected demand.

Reasons for Aggregation

• A planner can devise a course of action,

consistent with strategic goals without having

to deal with a lot of details.

Overview of the Aggregation Problem

• Suppose that D1, D2, . . . , DT are the forecasts

of demand for aggregate units over the

planning horizon (T periods.)

• The problem is to determine both work force

levels (Wt) and production levels (Pt ) to

minimize total costs over the T period

planning horizon.

Important Issues

• Smoothing. Refers to the costs and disruptions that

result from making changes from one period to the


• Bottleneck Planning. Problem of meeting peak demand

in the face of capacity restrictions

• Planning Horizon. Assumed given (T), but what is

“right” value? Rolling horizons and end of horizon

effect are both important issues

• Treatment of Demand. Assume demand is known.

Ignores uncertainty to focus on the predictable or

systematic variations in demand, such as seasonality

Relevant Costs

• Smoothing Costs

– changing size of the work force

– changing number of units produced

• Holding Costs

• Shortage Costs

• Other Costs: payroll, overtime, subcontracting

Aggregate units of production

• At this level of planning, there is not a lot of

detail. Individual and product identity is

typically not present. Instead, planning is

performed for a composite, or average unit of

product in a particular family of similar


• Example: Labor hours , Dollars (Value of

sales),Fictitious aggregated units


• One plant produced 6 models of washing machines:


# hrs.


% sales

A 5532