Friday, April 20, 2012

Supply Chain Planning - Aggregate Planning


Aggregate Planning

  The objective of aggregate plan is to satisfy demand in a way that maximizes profit for the firm. Aggregate planning is done for a given supply chain design. This means that capacity of the various facilities in the supply chain are constraints now. But demand has predictable or predicted variability for period to period in the planning horizon. Also there is a demand variation which cannot be predicted. Aggregate plan is made to get maximize profit from the estimated demand and given supply chain constraints.  
The definition of aggregate planning problem  
Given the demand forecast for each period in the planning horizon, determine the production level, inventory level and the capacity level (to extent variation is possible like number of shifts, overtime etc.) for each period that maximizes the firm's profit over the planning horizon (Chopra and Meindl).  


Data Required for Aggregate Planning

  Demand forecast in units for each period in the planning horizon   Cost data
  • Labor cost - for regular time and overtime
  • cost of subcontracting
  • cost of changing capacity by hiring and firing workforce
  • Cost of adding or reducing machine capacity
  •  Inventory carrying cost or holding cost
  • Stockout or backlog cost or backfilling cost

Manhours and machine hours required per unit  
  • overtime
  • layoffs
  • capital available for inventory financing
  • stockouts

Aggregate Planning Strategies

1. Chase strategy: Capacity is the lever. Capacity is changed as per the demand.  
 2. Workforce time flexibility based capacity strategy: Workforce works for more or less time depending on the demand.  
3. Level Strategy: Production levels are kept uniform and inventory is accumulated during slack periods and used during peak demand periods.   Some Suggestions for Effective Aggregate Planning   Do sensitivity analysis and be flexible with aggregate plans. Be ready to rerun the aggregate plan when conditions warrant As capacity utilization increases more attention is required on capacity planning.    





Sunil Chopra and Peter Meindl, Supply Chain Management: Strategy, Planning and Operations, Prentice Hall, 2001.

Original Knol - 1357

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