Aggregate Planning

P. RAJENDRAN MBA [Ph.D]

Associate Professor – Finance

OPERATIONS MANAGEMENT(Anna University Chennai: MBA Curriculum)

Aggregate Planning

Chapter HighlightsAggregate Planning or Aggregate Capacity

Planning.Costs Associated with Aggregate PlanningApproaches to Aggregate PlanningRough-cut PlanningCapacity Requirement PlanningCRP Process

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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 weekProduct Line: A (280), B (120), C (100)Weekly Capacity: A (6), B (3), C (2)

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 outputsUtilisation of Capacity and Balancing outputs with Capacity at designed

levels of Competitive Effectiveness

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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

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

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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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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

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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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

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.

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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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

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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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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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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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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