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8.1 Aggregate Planning

Aggregate planning, also known as aggregate scheduling is concerned with determining the quantity and timing of production for the immediate future, often from three to eighteen months ahead. Operations managers try to determine the best way to meet forecasted demand by adjusting production rates, labor levels, inventory levels, overtime work, subcontracting rates, and other controllable variables. Usually the objective of aggregate planning is to meet forecasted demand while minimizing costs over the planning period.

Four things are needed for aggregate planning:

1. A logical overall unit for measuring sales and output.
2. A forecast of demand for a reasonable intermediate planning period in these aggregate terms.
3. A method for determining the costs.
4. A model that combines forecasts and costs so that scheduling decisions can be made for the planning period.

The medium-range planning begins once long-term capacity decisions are made. This is the job of the operations manager. Scheduling decisions address the problem of matching productivity to fluctuation demands. These plans need to be consistent with top management's long-range strategy and work within the resources allocated by earlier strategic decisions. Medium or intermediate range planning is accomplished by building an aggregate production plan. If top management does a poor or inconsistent job of long-term planning, problems may develop that make the aggregate planner's job very difficult.

Aggregate planning is part of a larger production planning system. In a manufacturing environment, the process of breaking down the aggregate plan into greater details is called, disaggregation, resulting in the master production schedule, which provides input to material requirements planning (MRP) systems. The MPS or master production schedule addresses the purchasing or production of parts or components needed to make the final product.