Aggregate planning is an operational

Operations management

Operations management is an area of management concerned with overseeing, designing, and redesigning business operations in the production of goods and/or services. It involves the responsibility of ensuring that business operations are efficient in terms of using as little resources as needed, and...

 activity that does an aggregate plan for the production

Production, costs, and pricing

The following outline is provided as an overview of and topical guide to industrial organization:Industrial organization – describes the behavior of firms in the marketplace with regard to production, pricing, employment and other decisions...

 process, in advance of 2 to 18 months, to give an idea to management

Management

Management in all business and organizational activities is the act of getting people together to accomplish desired goals and objectives using available resources efficiently and effectively...

 as to what quantity of materials and other resources

Resource (project management)

In project management terminology, resources are required to carry out the project tasks. They can be people, equipment, facilities, funding, or anything else capable of definition required for the completion of a project activity. The lack of a resource will therefore be a constraint on the...

 are to be procured and when, so that the total cost of operation

Cost of operation

The cost of operation is the business strategy implemented in many companies to gain a huge market. Cost of operation is the cost acquired in completing one operation. It may be a conversion of inputs into the outputs or labor costs etc. If the cost of operation is low then it is easy to maintain...

s of the organization is kept to the minimum over that period..

The quantity of outsourcing

Outsourcing

Outsourcing is the process of contracting a business function to someone else.-Overview:The term outsourcing is used inconsistently but usually involves the contracting out of a business function - commonly one previously performed in-house - to an external provider...

, subcontracting of items, overtime

Overtime

Overtime is the amount of time someone works beyond normal working hours. Normal hours may be determined in several ways:*by custom ,*by practices of a given trade or profession,*by legislation,...

 of labour, numbers to be hired and fired in each period and the amount of inventory

Inventory

Inventory means a list compiled for some formal purpose, such as the details of an estate going to probate, or the contents of a house let furnished. This remains the prime meaning in British English...

 to be held in stock and to be backlogged for each period are decided. All of these activities are done within the framework of the company ethics

Ethics

Ethics, also known as moral philosophy, is a branch of philosophy that addresses questions about morality—that is, concepts such as good and evil, right and wrong, virtue and vice, justice and crime, etc.Major branches of ethics include:...

, policies, and long term commitment to the society, community and the country of operation.

Aggregate planning has certain prerequired inputs which are inevitable. They include:

• Information about the resources and the facilities available.
• Demand
  Supply and demand
  Supply and demand is an economic model of price determination in a market. It concludes that in a competitive market, the unit price for a particular good will vary until it settles at a point where the quantity demanded by consumers will equal the quantity supplied by producers , resulting in an...
  
   forecast for the period for which the planning has to be done.
• Cost of various alternatives and resources. This includes cost of holding inventory, ordering cost, cost of production through various production alternatives like subcontracting, backordering and overtime.
• Organizational policies regarding the usage of above alternatives.

"Aggregate Planning is concerned with matching supply and demand of output over the medium time range, up to approximately 12 months into the future. Term aggregate implies that the planning is done for a single overall measure of output or, at the most, a few aggregated product categories. The aim of aggregate planning is to set overall output levels in the near to medium future in the face of fluctuating or uncertain demands. Aggregate planning might seek to influence demand as well as supply."

Level plans

• Use a constant workforce & produce similar quantities each time period
• Use inventories and backorders to absorb demand peaks & valleys

Chase plans

• Minimize finished good inventories by trying to keep pace with demand fluctuations
• Matches demand by varying either work force level or output rate

Hybrid Strategies

• Build-up inventory ahead of rising demand and use backorders to level extreme peaks
• Layoff
  Layoff
  Layoff , also called redundancy in the UK, is the temporary suspension or permanent termination of employment of an employee or a group of employees for business reasons, such as when certain positions are no longer necessary or when a business slow-down occurs...
  
   or furlough
  Furlough
  In the United States a furlough is a temporary unpaid leave of some employees due to special needs of a company, which may be due to economic conditions at the specific employer or in the economy as a whole...
  
  workers during lulls
• Subcontract production or hire temporary workers to cover short-term peaks
• Reassign workers to preventive maintenance during lulls

Problems related to Aggregate Planning

Smoothing

• Smoothing refers to costs that result from changing production and workforce levels from one period to the next.

Bottleneck Problems

• It is the inability of the system to to respond to sudden changes in demand as a result of capacity restrictions.

Planning Horizon

• The number of periods for which the demand is to be forecasted , and hence the number of periods for which workforce and inventory levels are to be determined, must be specified in advance.

Treatment of Demand
Aggregate planning methodology requires the assumption that demand is known with certainty. This is simultaneously a weakness and a strength of the approach.

Further reading

• Nahmias, Steven (2009). "Production and Operation Analysis". New York, New York: McGraw-Hill Inrwin
• Schroeder, R.G (2007). Operations management. New York, New York: McGraw-Hill Inrwin
• Stevenson, William J. (2007). Operations management. New York, New York: McGraw-Hill Inrwin