AGGREGATE PLANNING IN OPERATIONS MANAGEMENT - Production and Operations Management

Aggregate planning is an intermediate term planning decision. It is the process of planning the quantity and timing of output over the intermediate time horizon (3 months to one year). Within this range, the physical facilities are assumed to –10 be fixed for the planning period. Therefore, fluctuations in demand must be met by varying labor and inventory schedule. Aggregate planning seeks the best combination to minimize costs.

Aggregate Planning Strategies
The variables of the production system are labor, materials and capital. More labor effort is required to generate higher volume of output. Hence, the employment and use of overtime (OT) are the two relevant variables. Materials help to regulate output. The alternatives available to the company are inventories, back ordering or subcontracting of items. These controllable variables constitute pure strategies by which fluctuations in demand and uncertainties in production activities can be accommodated by using the following steps:

  1. Vary the size or the workforce: Output is controlled by hiring or laying off workers in proportion to changes in demand.
  2. Vary the hours worked: Maintain the stable workforce, but permit idle time when there is a slack and permit overtime (OT) when demand is peak.
  3. Vary inventory levels: Demand fluctuations can be met by large amount of inventory.
  4. Subcontract: Upward shift in demand from low level. Constant production rates can be met by using subcontractors to provide extra capacity.

Aggregate Planning Guidelines
The following are the guidelines for aggregate planning:

  1. Determine corporate policy regarding controllable variables.
  2. Use a good forecast as a basis for planning.
  3. Plan in proper units of capacity.
  4. Maintain the stable workforce.
  5. Maintain needed control over inventories.
  6. Maintain flexibility to change.
  7. Respond to demand in a controlled manner.
  8. Evaluate planning on a regular base.

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Production and Operations Management Topics