Aggregate Production Planning

Aggregate Production Planning
Aggregate production planning, abbreviated as APP, is useful for

operation management. It is associated with the determination of
production, inventory, and personnel levels to fulfil varying demand
over a planning perspective that ranges from a period of six months to
one year. Aggregate production plans are needed to exploit workforce
opportunity and represent a crucial part of operations management.
Aggregate production plans facilitate matching of supply and demand
while reducing costs. Process of Aggregate production planning applies
the upper-level predictions to lower-level, production-floor scheduling
and is most successful when applied to periods 2 to 18 months in the
future. Plans generally either "chase" demand, adjusting workforce
accordingly, or are "level" plans, meaning that labour is comparatively
constant with fluctuations in demand being met by inventories and back
orders.
Concept of aggregate production planning denotes to the process of

determine the overall quantities of products to be manufactured or
produced in a plant or other manufacturing facility during a medium
term planning period such as a month, or a quarter. The aggregate plan
output comprises of the total quantities of each product or a group of
product to be manufactured in the plan period of going into details of
scheduling of different manufacturing activities required to attain the
planned production levels. The aggregate production will also not
specify details such as the dates when material ordered against
individual customer order will be ready for delivery. The aggregate
production plan is designed to establish overall production targets and as
input for planning availability of other inputs and supporting activities to
meet the production targets. The aggregate plans then form the basis of
more comprehensive production such as daily and weekly production
schedules and customer delivery schedules.
The prime objective of Aggregate Production Planning is to judge

company policies and management inputs linked to operations,
distribution and marketing, materials, accounting and finance,
engineering and human resources to reduce the price and increase
revenue, enhance customer service, lessen inventory investment,
decrease changes in production rates, reduce changes in work-force
levels, boost utilization of plant and equipment.
Costs relevant to aggregate production planning:
a. Basic production costs: material costs, direct labour costs, and

overhead costs. It is customary to divide these costs into variable
and fixed costs.
b. Costs associated with changes in the production rate: Costs
involved in hiring, training, and laying off personnel, as well as
overtime compensations.
c. Inventory related costs. Aggregate production planning models
may be supportive as decision support systems and to appraise
proposals in union negotiations.
Techniques of Aggregate Planning
Various techniques are used to perform the task of aggregate planning.

Usually, there are two categories: Informal trial-and-error techniques
and mathematical techniques. In practice, informal techniques are more
commonly used. However, a substantial amount of research has been
done to mathematical techniques, but still, they are not as extensively
used, they often serve as a basis for comparing the effectiveness of
alternative techniques for aggregate planning.
There are several steps in general procedure for aggregate planning:
1. Determine demand for each period.

2. Determine capacities (regular time, overtime, subcontracting) for
each period.
3. Identify company or departmental policies that are pertinent (e.g.,
maintain a safety stock of 5 percent of demand, maintain a
reasonably stable workforce).
4. Determine unit costs for regular time, overtime, subcontracting,
holding inventories, back orders, layoffs, and other relevant costs.
5. Develop alternative plans and compute the cost for each activity.
6. If satisfactory plans emerge, select the one that best satisfies
objectives. Otherwise, return to step 5.
Procedure for Aggregate Planning

It can be useful to employ a worksheet or spreadsheet to summarize
demand, capacity, and cost for each plan. Additionally, graphs can be
used to guide development of alternatives. Among all methods, the
spreadsheet solver approach is the most appropriate for industries
because the solver on spreadsheet software is readily available on
virtually all personal computers, the APP model is comparatively easy to
devise in a spreadsheet format, and lastly, the results are easy to
construe. There are certain guidelines for developing optimal aggregate
production plan using spreadsheet solver. First of all, necessary data
must be collected for developing Aggregate production planning mode.
Secondly, formulate APP model in the spreadsheet format. Next step is
to appraise the obtained solutions. This can be done by presenting the
constructed spreadsheet aggregate production planning model and its
solutions to related departments of the company such as production,
personnel, planning, sales and marketing, and warehousing, and judge
whether the solutions are satisfactory. The comparison between the
existing aggregate production plan and the optimal plan generated from
the Aggregate production planning model may be done in financial term.
If the solution is not satisfactory, values of some input parameters may
need to be reconsidered or the constraints may need to be customized.
The spreadsheet APP model will be changed until the solutions are
acceptable. Last step is to implement the aggregate production plan.
After the spreadsheet APP model is agreeably developed and solved, the
obtained solutions can be implemented. During the execution of the
aggregate production plan, some parameters of the model may be altered
such as demands, productivity rates, related costs, number of workers,
and inventory levels. These parameters should be modernized regularly
and the APP model is solved to resolve the revised aggregate production
plan.
Steps for Developing the Aggregate Production Plan

To summarize, aggregate production planning, is an effectual approach
to operations management and concentrate to satisfy demand as it relates
to production, labour force, inventory and other models. Aggregate
production planning can attach in facility planning with scheduling
decisions. Aggregate production planning assists to lessen production
costs, the effect of variant demand, cost of inventory and labour costs.
Aggregate production planning also exploits plant and equipment
utilization and profits. The efficiency of aggregate production planning
is a production plan that indicates how many workers are needed in each
period, the amount and type of production (such as regular, overtime,
subcontracting, etc.), and the units to be produced, stored, and back
ordered per month or per quarter. Aggregate production planning is also
a constructive tool to create and assess alternatives such as the
adjustment of the labour force through hire/fire/layoff/overtime, the use
of subcontractors, anticipatory inventory, and even the development of
corresponding products and pricing strategies.

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Aggregate Production Planning

Aggregate production planning, abbreviated as APP, is useful for

Concept of aggregate production planning denotes to the process of

The prime objective of Aggregate Production Planning is to judge

Costs relevant to aggregate production planning:

a. Basic production costs: material costs, direct labour costs, and

Techniques of Aggregate Planning

Various techniques are used to perform the task of aggregate planning.

There are several steps in general procedure for aggregate planning:

1. Determine demand for each period.

Procedure for Aggregate Planning

Steps for Developing the Aggregate Production Plan

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