1. BUAD306
Aggregate Planning

2. Aggregate Planning
Determines the resource capacity needed to meet demand over an intermediate time horizon
Typically months in duration

3. Objectives
To establish a company-wide game plan for allocating resources
Example: Avoid battles between Marketing and Production
To develop an economic strategy for meeting demand
Demand can be met by adjusting capacity or by managing the demand

4. Managing Demand Pricing – raise prices during high-demand times
Promotion – to increase demand during low-demand seasons
Backorders – taking orders before production and shipping at a later date
New Demand – developing new products

5. Managing Capacity Hire and lay off workers Use overtime and slack time
Use part-time workers
Use inventory to absorb fluctuations in demand
Subcontract work to other firms

6. Aggregate Production Planning
Strategic
Objectives
Inputs
Capacity
Constraints
Company
Policies
Financial
Constraints
Demand
Forecasts
Aggregate Production Planning
Units or dollars
subcontracted,
backordered, or lost
Size of
workforce
Production
per month
(in units or $)
Inventory
levels
Outputs

7. Planning Sequence Business Plan Production Plan Master Schedule
Aggregate Planning

8. Service Considerations
Services occur when they are rendered
Demand for service can be difficult to predict
Capacity availability can be difficult to predict
Labor flexibility can be an advantage in services

9. Level Production Demand Production Units Time
Strategy for meeting uneven demand
Time
Production
Demand
Units

10. Chase Demand Demand Time Strategy for meeting uneven demand Units
Production
Demand

11. Aggregate Planning Schedule

12. Mathematical Calculations
Read on your own
Mathematical Calculations
Number of Number of workers Number of new Number of
workers in = at the end of workers at the start laid-off workers
a period the previous period of the period at the start of period
Inventory Inventory Production Amount used to
at the end of = at the end of in the current satisfy demand in
a period the previous period period the current period
Average
inventory
Beginning Inventory + Ending Inventory 2 =
Cost for = Output cost Hire/lay-off + Inventory + Back-order
a period (Reg.+OT+Subcontract) cost cost cost

13. Calculating Costs
Read on your own

14. Example - Develop a plan for this scenario: LEVEL
Bright Lamps, Inc. is preparing an aggregate plan that will cover 6 months.
They have assembled the following and want a plan for steady output.
Zero inventory on hand to start
10 employees, each person produces 30 units per period max regular and 10 units per period overtime. There is no limit to subcontracting.

15. Example - Develop a plan for this scenario: CHASE
Bright Lamps, Inc. is preparing an aggregate plan that will cover 6 months.
They have assembled the following and want a plan for steady output.
Zero inventory on hand to start
10 employees, each person produces 30 units per period max regular and 10 units per period overtime. There is no limit to subcontracting.

16. Example - Develop a plan for this scenario: COMBO
Bright Lamps has learned that one of their employees will be out of commission for 6 months due to an injury. Rather than replace the person, the company would like to work with a smaller workforce and use overtime to make up for the lost output.
The reduced regular time output is now 270 units per period (9 30 units). The maximum amount of overtime output per period is 10 units. They want to develop an aggregate plan for this scenario and compare it to the other one to confirm that costs will be reduced.
NO SUBCONTRACTING IS ALLOWED!!!

17. Example – Compare costs from both scenarios
Cost of Steady Production with 10 workers – $
Cost of Overtime Production with 9 workers - $
Their decision would be to continue without their injured
employee and assume overtime/backorder costs.
Why wouldn’t this be a good permanent plan?