Aggregate Planning

Anheuser-Busch Anheuser-Busch produces

nearly 40% of the beer consumed in the U.S.

Matches fluctuating demand by brand to specific plant, labor, and inventory capacity

High facility utilization requires meticulous cleaning between

batches effective maintenance efficient employees efficient facility scheduling

Aggregate Planning Requires

Logical overall unit for measuring sales and outputs

Forecast of demand for intermediate planning period in these aggregate units

Method for determining costs Model that combines forecasts

and costs so that planning decisions can be made

Setting goals & objectives Example: Meet demand within the

limits of available resources at the least cost

Determining steps to achieve goals Example: Hire more workers

Setting start & completion dates Example: Begin hiring in Jan.;

finish, Mar. Assigning responsibility

Planning

Planning Tasks and Responsibilities

Planning Horizons

Today 3 Months 1 year 5 years

Planning Horizon

Short-range plansJob assignmentsOrderingJob schedulingDispatching

Intermediate-range plansSales planningProduction planning and budgetingSetting employment, inventory, subcontracting levelsAnalyzing operating plans

Long-range plansR&DNew product plansCapital expensesFacility location, expansion

Responsible: Operations managers, supervisors, foremen

Responsible: Operations managers

Responsible: Top executives

Relationships of the Aggregate Plan

AggregatePlan for

Production

DemandForecasts,

orders

MasterProduction

Schedule, and MRP systems

Detailed WorkSchedules

ExternalCapacity

Subcontractors

Inventory OnHand

Raw MaterialsAvailable

Work Force

Marketplaceand Demand

Research andTechnology

ProductDecisions

ProcessPlanning & Capacity

Decisions

A mathematically based aggregate planning model requires considerable: time

problem definition model development model verification model application

expertise people who understand the problem people who understand both the

modeling process, and the specific model

money money to pay for all of the above often requires funding for several

people for several months!

What’s Needed for Aggregate Planning

Provides the quantity and timing of production for intermediate future Usually 3 to 18 months into future

Combines (‘aggregates’) production Often expressed in common units

Example: Hours, dollars, equivalents (e.g., FTE students)

Involves capacity and demand variables

Aggregate Planning

Meet demand Use capacity

efficiently Meet inventory

policy Minimize cost

Labor Inventory Plant & equipment Subcontract

Aggregate Planning Goals

Aggregate Planning StrategiesPure Strategies

Capacity Options — change capacity: changing inventory levels varying work force size by hiring

or layoffs varying production capacity

through overtime or idle time subcontracting using part-time workers

Aggregate Planning StrategiesPure Strategies

Demand Options — change demand: influencing demand backordering during high demand

periods counterseasonal product mixing

Aggregate Scheduling Options - Advantages and Disadvantages

Option Advantage Disadvantage SomeComments

Changinginventory levels

Changes inhuman resourcesare gradual, notabruptproductionchanges

Inventoryholding costs;Shortages mayresult in lostsales

Applies mainlyto production,not service,operations

Varyingworkforce sizeby hiring orlayoffs

Avoids use ofother alternatives

Hiring, layoff,and trainingcosts

Used where sizeof labor pool islarge

Option Advantage Disadvantage SomeComments

Varyingproduction ratesthrough overtimeor idle time

Matches seasonalfluctuationswithouthiring/trainingcosts

Overtimepremiums, tiredworkers, may notmeet demand

Allowsflexibility withinthe aggregateplan

Subcontracting Permitsflexibility andsmoothing of thefirm's output

Loss of qualitycontrol; reducedprofits; loss offuture business

Applies mainlyin productionsettings

Advantages/Disadvantages - Continued

Advantages/Disadvantages - ContinuedOption Advantage Disadvantage Some

CommentsUsing part-timeworkers

Less costly andmore flexiblethan full-timeworkers

Highturnover/trainingcosts; qualitysuffers;schedulingdifficult

Good forunskilled jobs inareas with largetemporary laborpools

Influencingdemand

Tries to useexcess capacity.Discounts drawnew customers.

Uncertainty indemand. Hard tomatch demand tosupply exactly.

Createsmarketing ideas.Overbookingused in somebusinesses.

Advantage/Disadvantage - ContinuedOption Advantage Disadvantage Some

Comments

Back orderingduring high-demand periods

May avoidovertime. Keepscapacity constant

Customer mustbe willing towait, butgoodwill is lost.

Many companiesbackorder.

Counterseasonalproducts andservice mixing

Fully utilizesresources; allowsstable workforce.

May requireskills orequipmentoutside a firm'sareas ofexpertise.

Risky findingproducts orservices withopposite demandpatterns.

The Extremes

Level Strategy

Chase Strategy

Production equals

demand

Production rate is constant

Mixed strategyCombines 2 or more aggregate

scheduling options Level scheduling strategy

Produce same amount every day Keep work force level constant Vary non-work force capacity or

demand options Often results in lowest production

costs

Aggregate Planning Strategies