• Contact sales

Start free trial

What Is Aggregate Planning? Strategies & Tips

ProjectManager

For any company to profit from a product, there must be a strategic plan in place to produce just enough to meet that need. Create too few products, and there’s a missed financial opportunity. Create too much, and money is wasted in production and warehousing.

Aggregate planning is a technique to create an equilibrium between demand and capacity. It’s something every company that is producing something needs to know. Let’s take a look at what aggregate production planning is and some aggregate planning strategies.

What Is Aggregate Planning?

Aggregate planning is a method for analyzing, developing and maintaining a manufacturing plan with an emphasis on uninterrupted, consistent production. Aggregate planning is most often focused on targeted sales forecasts, inventory management and production levels in the mid-term (3-to-18-month) future.

Note that production planning is not just goods, but services as well. Aggregate planning defines the necessary production inputs for a good or service (including facilities, workforce, raw materials and inventory levels) to maintain consistent delivery dates, all while keeping costs down.

This doesn’t apply solely to individual production lines or the manufacturing of one product. It will cover all the jobs being done at a facility or across several facilities. This allows manufacturers to get the most out of their resources even if there are different demands for products and changes in customer orders, the supply chain or other variables.

what is aggregate planning in operations management

Get your free

Master Production Schedule Template

Use this free Master Production Schedule Template for Excel to manage your projects better.

How to Create an Aggregate Plan

To create an aggregate plan, you must first determine the number of units that are produced over a specific time frame, which is the capacity , and the number of units needed, which is the customer demand .

Here are some of the factors to consider when trying to create consistency in your process:

  • Pricing Strategies: When demand is low, reduce the price to match capacity. You can also do the reverse; when demand is high, increase the price.
  • Advertising/Promotion: Marketing and promotional activities can impact the demand for your product or service.
  • Back Ordering: Delay delivery until demand catches up with capacity.
  • New Demand Creation: Create another demand to supplement an existing one.
  • Workforce: You can lay off or hire employees to meet the demand or respond to a lack of it. Overtime, subcontracting or use of a temporary workforce is also an option.

What’s the Purpose of Aggregate Planning?

As stated, the goal of aggregate planning is figuring out the level of production, inventory and workforce required to respond to fluctuating demand in the medium term. With this information, a business can assess when demand will spike or wane, and ensure it has enough product to meet the moment. Aggregate production planning also lets manufacturers know what staff, materials, output rates, timeline estimates and budget costs they need.

Making forecasts saves the company from changing its production schedule quickly, which is not only expensive but also creates insecurity and uncertainty. With aggregate planning, you can make a fairly accurate forecast of demand and capacity in the medium term.

Resource Management

In other words, you’re working on short-term resource allocation. This reduces the risk of overproduction, which wastes resources, depresses prices and can lead to oversaturation of your product in the market. By reducing production during periods of weak demand, you save money on labor and materials.

what is aggregate planning in operations management

Cost Savings

Aggregate planning helps companies achieve their financial goals and improve the bottom line. It allows for maximum utilization of the available production capabilities while meeting customer demand and reducing their wait time, as well as reducing the cost of stocking excess inventory.

Good Data is Required

Aggregate planning forecasting is not a magic bullet, though. It’s only as good as the data you collect (and the people you use) to forecast. People have biases, and they can misread economic indicators or use faulty forecast models. There are always unknowns, too, such as material price spikes, implementation of new policies, changing interest rates. Not to mention labor; alterations in labor conditions can cause unrest in your workforce.

Project management software facilitates aggregate planning. ProjectManager is award-winning software that helps manufacturers manage costs and resources to allow for uninterrupted production. Planning on our powerful Gantt charts helps to control costs and resources associated with production runs and reallocate those resources as necessary to keep production lines running smoothly.  You can even track the planned effort against the actual effort in real time. Get started with ProjectManager today for free.

ProjectManager's Gantt chart

3 Types of Aggregate Planning Strategies

Success depends on having the following inputs: an aggregate demand forecast for the period you’re planning for, evaluating capacity management (including using subcontractors, outsourcing, etc.), and the existing operational status of your workforce. All this will lead to greater accuracy, and therefore, a greater likelihood of success.

You can achieve this by applying a variety of aggregate planning strategies. There are three main ones that organizations have used:

  • Level Strategy: The goal of an aggregate planning strategy is to keep the production rate and the workforce level. This requires strong forecasting of demand to know if production levels must be increased or decreased as customer demands grow and shrink. This aggregate production planning strategy will keep your workforce steady but can increase your inventory and backlog.
  • Chase Strategy: As the name implies, you are chasing market demand. The production matches demand, and excess inventory isn’t held over. This is part of a larger lean production strategy, which saves money by waiting until an order is placed. However, productivity and quality can be reduced, and it can negatively impact the morale of your workforce.
  • Hybrid Strategy: There is a third alternative, which is a hybrid of the previous two strategies. This keeps the balance between the production rate, workforce and inventory levels, while still responding to demand as it changes. This alternative offers a bit of flexibility that can satisfy demand while working to keep production costs low.

Best Practices for Making an Aggregate Plan

Whatever strategy you choose, there are some things to keep in mind when using aggregate planning. For one, you want to figure out the demand and capacity for each period. These two should match one another, though this might require overtime or sub-contracting to achieve.

You’ll also want to identify any policies, be they union, departmental or companywide, that can impact production levels. Cost is also important, obviously, so you’ll want to determine fixed and variable costs as well as direct and indirect labor costs.

what is aggregate planning in operations management

It never hurts to have an alternative plan just in case. These plans should also follow the same best practices for making an aggregate plan. If you come up with one that meets your objectives, you might discover it in fact costs less and should be your primary aggregate production plan.

How ProjectManager Helps with Aggregate Planning

Work management software helps you reign the variables in your aggregate planning and let you manage your production to keep capacity matched with demand. ProjectManager is a cloud-based software that gives you better insights into your manufacturing process, workforce and budget because it delivers real-time data.

Managers understand that aggregate planning is all about resources. You can use the Gantt chart to plan production , filter for the critical path and set a baseline to always have project variance available to view. Set up your budget, then manage costs. Your resources’ costs are automatically calculated as your team logs their hours worked. The Gantt chart has a timeline, which provides a visual of the whole production cycle.

ProjectManager's Gantt chart with task info

Keeping track of your team, their hours and availability is key to a successful aggregate production plan. With ProjectManager, you can set your teams’ workdays, holidays and PTO. You can also view all the tasks assigned to them on a Team Page. Then, you can switch over to the color-coded workload chart. From there, you can re-allocate their work to balance their workload and help them work more productively.

Another of ProjectManager’s work views is the kanban board. This visual workflow tool lets your teams manage their backlog, while you get transparency into where they are in the production cycle. Aggregate planning is all about matching capacity to demand.

With the board view, you can see potential roadblocks and re-allocate resources to keep the team working. ProjectManager is fast, flexible and provides the visibility needed for project planning , resource management and capacity planning.

A screenshot of the Kanban board project view

ProjectManager is award-winning software that gives teams collaborative platform, and gives managers transparency without getting in the way of their workforce. See how it can help you meet demand, whether you’re working on one or dozens of projects at once. Try ProjectManager today for free.

Click here to browse ProjectManager's free templates

Deliver your projects on time and under budget

Start planning your projects.

  • Production & Operations Management

What is Aggregate Planning? - Importance and its Strategies

Introduction.

An organization can finalize its business plans on the recommendation of demand forecast. Once business plans are ready, an organization can do backward working from the final sales unit to raw materials required. Thus annual and quarterly plans are broken down into labor, raw material, working capital, etc. requirements over a medium-range period (6 months to 18 months). This process of working out production requirements for a medium range is called aggregate planning.

Factors Affecting Aggregate Planning

Aggregate planning is an operational activity critical to the organization as it looks to balance long-term strategic planning with short term production success . Following factors are critical before an aggregate planning process can actually start;

  • A complete information is required about available production facility and raw materials.
  • A solid demand forecast covering the medium-range period
  • Financial planning surrounding the production cost which includes raw material, labor, inventory planning, etc.
  • Organization policy around labor management, quality management, etc.

For aggregate planning to be a success, following inputs are required;

  • An aggregate demand forecast for the relevant period
  • Evaluation of all the available means to manage capacity planning like sub-contracting, outsourcing, etc.
  • Existing operational status of workforce (number, skill set, etc.), inventory level and production efficiency

Aggregate planning will ensure that organization can plan for workforce level, inventory level and production rate in line with its strategic goal and objective.

Aggregate planning as an Operational Tool

Aggregate planning helps achieve balance between operation goal, financial goal and overall strategic objective of the organization. It serves as a platform to manage capacity and demand planning.

In a scenario where demand is not matching the capacity, an organization can try to balance both by pricing, promotion, order management and new demand creation.

In scenario where capacity is not matching demand, an organization can try to balance the both by various alternatives such as.

  • Laying off/hiring excess/inadequate excess/inadequate excess/inadequate workforce until demand decrease/increase.
  • Including overtime as part of scheduling there by creating additional capacity.
  • Hiring a temporary workforce for a fix period or outsourcing activity to a sub-contrator.

Importance of Aggregate Planning

Aggregate planning plays an important part in achieving long-term objectives of the organization. Aggregate planning helps in:

  • Achieving financial goals by reducing overall variable cost and improving the bottom line
  • Maximum utilization of the available production facility
  • Provide customer delight by matching demand and reducing wait time for customers
  • Reduce investment in inventory stocking
  • Able to meet scheduling goals there by creating a happy and satisfied work force

Aggregate Planning Strategies

There are three types of aggregate planning strategies available for organization to choose from. They are as follows.

As the name suggests, level strategy looks to maintain a steady production rate and workforce level. In this strategy, organization requires a robust forecast demand as to increase or decrease production in anticipation of lower or higher customer demand. Advantage of level strategy is steady workforce. Disadvantage of level strategy is high inventory and increase back logs.

As the name suggests, chase strategy looks to dynamically match demand with production. Advantage of chase strategy is lower inventory levels and back logs. Disadvantage is lower productivity, quality and depressed work force.

As the name suggests, hybrid strategy looks to balance between level strategy and chase strategy.

  Related Articles

  • Capacity Planning
  • Materials and Resource Planning
  • Production Planning and Control
  • Demand Forecasting
  • Why Forecasting has Become Very Difficult for Individuals, Firms, and Nations

View All Articles

Authorship/Referencing - About the Author(s)

The article is Written By “Prachi Juneja” and Reviewed By Management Study Guide Content Team . MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. We are a ISO 2001:2015 Certified Education Provider . To Know more, click on About Us . The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to ManagementStudyGuide.com and the content page url.
  • Operations: Policy and Strategy
  • International Production Management
  • Managing Technology in OM
  • Value Analysis
  • Effective Product Design
  • Process Design and Analysis
  • Integrated Product Development
  • Facility Location
  • Facility Layout
  • Aggregate Planning
  • Operations Scheduling
  • Waiting Line (Queue) Management
  • Inventory Management and Just In Time
  • Warehouse and Materials Management
  • Material Handling
  • Maintenance Policy and Repair
  • Quality - A Tool for Achieving Excellence
  • Quality Control Techniques
  • World Class Manufacturing
  • Work Study and Industrial Engineering
  • Quantitative Techniques
  • What is Learning Curve ?
  • Reliability and Redundancy
  • Productivity and Its Role in Shaping Economies and Businesses
  • What is Productivity and Why it is Important to Corporates, Nations, and Professionals?
  • On-Demand Manufacturing
  • Operational Transparency

Get started

  • Project management
  • CRM and Sales
  • Work management
  • Product development life cycle
  • Comparisons
  • Construction management
  • monday.com updates

Aggregate planning and its effect on fluctuating needs

what is aggregate planning in operations management

There are some aspects of business that are completely unpredictable. Natural disasters, for example, have the potential to upend your business plans, but a system built on stability and consistency can help protect you from factors outside your control. One effective strategy is aggregate planning, which allows you to save money, stabilize your workforce, and increase efficiency.

In this article, you will learn what aggregate planning is and how it can serve as a cost-saving measure for your business. By understanding the different kinds of aggregate plans and how they play out in management and operations, you can better evaluate whether this strategy would be beneficial in your own business.

What is aggregate planning?

Aggregate planning is the process of developing an approximate schedule that details how an organization will operate over a particular period, typically ranging from 3 to 18 months. It allows you to approach inventory and staffing with clear eyes, assess and minimize risks , and build more efficient systems.

How it works

Rather than evaluating only certain points, such as current inventory or expected sales, you will get a full picture of what you can expect in the future and then plan accordingly. When creating your plan, you will use data related to customer demand and capacity from several sources of information, including:

  • Sales and demand forecasts
  • Production history
  • Inventory levels
  • Customer backlogs

With this information in hand, you can determine whether there are times when your company tends to have excess or insufficient capacity, anticipate future peak sales times, and assess whether your staffing levels have been and are currently appropriate. Once you have developed and implemented a plan, you can make adjustments to capacity when demand rises or falls without excessive spending.

While you can never be certain of the future, aggregate planning is a comprehensive approach that helps you to realistically outline the future of your business over the coming months.

Instead of making rash decisions when demand suddenly increases, you can make decisions that are informed by a carefully considered strategy.

There are several benefits to implementing aggregate planning within your business:

  • It is an effective strategy for both goods and services.
  • It matches production demand with production capacity, thereby minimizing operating costs.
  • It maximizes a business’ productivity and efficiency.
  • It specifies what materials and resources will be necessary and when to procure them.

As this list makes clear, developing an effective aggregate plan can have a positive effect on your overall business outcomes, from production to profit levels.

Despite the advantages of aggregate planning, there are certain challenges that are worthy of consideration. First, keep in mind that aggregate planning is intended for a limited time range.

While this is a limitation, it offers an opportunity to be more proactive in your management practices. External and internal factors change over time, and creating an aggregate plan encourages you to make note of them and incorporate them into your business strategies. Regularly developing a new plan that best reflects current circumstances best positions you for long-term success.

Additionally, aggregate planning operates under the assumption that some factors are relatively certain when in reality there can be massive disruptions at any time. This emphasizes the importance of creating and implementing an aggregate plan with the knowledge that you will need to remain flexible and responsive to changes and difficulties in real-time.

“Aggregate planning” is a part of our Project Management Glossary — check out the full list of terms and definitions!

Creating a mid- to long-term strategy with aggregate planning

While all forms of aggregate planning can help businesses avoid the kinds of last-minute decisions that create a turbulent work environment, not every business follows the same format. There are three types of aggregate plans that companies commonly use for their mid- to long-term strategies.

Level strategy

A business that relies on a level strategy tries to create a plan that will keep production rates and employment relatively steady. Rather than resorting to layoffs and temporary hires, a business with a level strategy might:

  • Use a constant workforce and produce a level number of units
  • Establish a larger inventory than necessary when demand is low
  • Use back orders or backlogs to address sudden increases in demand

A level aggregate plan can create a more predictable workload for employees. However, it can also be expensive as businesses often have excessive inventory and are constantly running at a full level of production.

Chase strategy

Chase strategy, in contrast, is focused on constantly matching demand and capacity. Rather than maintaining a constant level of production and a fully-staffed workforce, a business implementing a chase aggregate plan:

  • Keeps inventory levels low until customer demand justifies an increase
  • Hires, fires, and lays off employees as necessary based on production levels
  • Introduces new strategies and methods of production when demand increases

Using a chase strategy can be problematic because of the constant changes. Businesses that employ this strategy may have problems with fluctuating quality levels because of frequent staffing changes, and they may have conflicts with employees and labor unions due to the frequent need for layoffs.

Hybrid strategy

Hybrid strategies combine elements of chase and level strategies and are often the most profitable and effective method that a business can employ. In a hybrid strategy, a business attempts to find a balance of flexibility and stability. For example, a hybrid aggregate plan might include minimal layoffs and a relatively steady level of inventory. Many businesses prefer hybrid strategies because they tend to be the most cost-effective of the three available forms of planning.

Aggregate planning in manufacturing and production

In manufacturing and production environments, aggregate planning can empower businesses to make sound decisions. The plan addresses all the production activities that are necessary to maintain uninterrupted production and helps businesses allocate resources appropriately despite variables like customer demand and problems with the supply chain.

Businesses can use aggregate planning to guide their choices in a number of important areas, including:

  • Pricing modification
  • Delayed deliveries
  • Promotional activities
  • Staffing increases
  • Inventory increases
  • Complementary demand
  • Overtime requirements
  • Temporary hiring
  • Subcontracting work
  • Cross-training of employees

Each of these aspects of a business is consequential for consistent and sustainable operations management. For example, a manufacturer that does not have an aggregate plan might use a period of high demand as justification for ordering excess materials and hiring additional employees for the upcoming quarter. However, the manager might fail to recognize that the business has historically had significantly less demand in this period. The additional materials now sit unused, and the employer lays off the recently hired employees.

How aggregate planning can lead to consistent production

Consistent production allows businesses to better meet demand without wasting resources. Because an effective aggregate plan creates equilibrium between demand and capacity, it allows a business to level out production rather than having sudden surges or reductions. A facility with an aggregate plan can level out production planning to serve customers over the entire period rather than ramping up or rapidly decreasing production based on the current environment.

How aggregate planning affects your team

In addition to maximizing business profits and making production consistent, aggregate planning is important to create a stable, reliable work environment for your team. Without an appropriate aggregate plan, your business’ workforce and resource needs can fluctuate wildly. As a result, you might be constantly laying off and hiring employees. This erodes trust, makes it difficult to recruit new talent, and may inspire current workers to seek employment elsewhere. It can also reduce work quality as it is difficult for employees to operate at their highest potential if they are constantly worried about when their jobs will end.

Aggregate planning with monday.com

Although aggregate planning can be an excellent tool for business and project management, it is only as strong as the data that goes into it. To build a strong plan, you will need to have access to reliable reports  with information that is not only accurate but also up-to-date. monday.com’s Work OS  allows you to manage your workflow in a way that incorporates all of the components of both creating and implementing an aggregate plan, including:

  • Resource allocation
  • Sales forecasts
  • Inventory management

In addition, you can use monday.com to communicate with team members and stakeholders so that everyone is on the same page and fully understands the plan and its implications.

Frequently asked questions

Aggregate planning is the process of analyzing data and developing a projected schedule for your business. Project and business managers create aggregate plans using information from different aspects of a business, including inventory, sales forecasts, and production levels.

Why is aggregate planning important?

Aggregate planning is vital to a business’ ability to schedule production, allocate resources, and adjust staffing. It allows businesses to minimize costs and keep production running consistently.

What can poor aggregate planning result in?

Poor aggregate planning can result in significant issues with supply and demand. Businesses with ineffective aggregate planning might have excessive inventory taking up space in warehouses or waste resources and staffing on unnecessary production. On the opposite side, they may find themselves unable to meet customer demand.

Strengthening your business with aggregate planning

There are many ways to reduce costs and improve business strategies, but aggregate planning is unique in the way that it combines information and addresses issues with demand and capacity from a more holistic viewpoint. If you want to stabilize production, create a more reliable workplace for your team, and minimize costs, you can begin creating an aggregate plan by taking advantage of the resources available on monday.com. Whether you need to run accurate reports, manage inventory, or communicate with team members and stakeholders, monday.com’s Work OS has the tools necessary to develop an effective aggregate plan.

what is aggregate planning in operations management

Send this article to someone who’d like it.

What is Aggregate Planning? – Strategies, Types & Examples

What is Aggregate Planning?

Aggregate planning stands as the cornerstone in the world of strategic business management. As businesses navigate the ever-evolving landscape of demands, resources, and market fluctuations, mastering the art of aggregate planning becomes an imperative. 

It is a business strategy that helps companies plan how to use their resources and produce what people want in the future.

This blog post will define aggregate planning and discuss its benefits, strategies, and examples. We’ll also provide some tips on creating an effective aggregate plan. Stay tuned!

Areas of Aggregate Planning

Aggregate planning is a way to plan the production of all products for a company over a period of time. It starts by listing all the important requirements for uninterrupted production. The usual planning horizon ranges from three to twelve months .

The word ‘aggregate’ comes from the Latin word ‘aggregāre.’ It means ‘to add to.’ It is frequently used in economics or business. This is why aggregate production planning is the exercise of developing an overall production schedule for all products combined for a company. 

Aggregate planning does not differentiate colors, sizes, and features. For example, in a mobile handset manufacturing company, aggregate planning considers only the total number of handsets, not the separate models’ colors.

Key insights

  • Aggregate planning acts as the strategic conductor, shaping a company’s production schedule for months ahead.
  • Derived from ‘Aggregāre’: Rooted in the Latin term ‘aggregāre,’ meaning ‘to add to,’ this method consolidates all product requirements for seamless production flow.
  • For example, in mobile handset manufacturing, it disregards specific model features or colors, focusing on the total handset count for streamlined operations.

Why is aggregate production planning needed?

The demand for the various products of a company could vary. If the need changes, how do you commit your resources to meet this variation in the market?

Let us take an example.

Aggregate planning examples

Some companies make different products. The demand for two products might increase, but the demand for the other three might decrease. The company only wants to know about the overall growth and what resources (people, machines, storage, and raw materials) it will need next year.

If the company forecasts how much each product will sell separately, it is likely that each prediction will have some errors. However, combining these forecasts will give a more accurate idea of the total demand. This is because high and low tend to cancel each other out when you look at them together.

Having an aggregate production plan is better than discussing individual production plans because it considers all potential changes in demand instead of selective changes.

The planning covers various elements, such as

  • Human resources
  • Raw material
  • Financial planning
  • Engineering
  • Marketing and distribution

It is an essential tool for companies to help streamline the immediate production processes. That is by aligning them with the organization’s long-range plans and goals.

Aggregate planning is crucial to achieving the long-term goal of the company.

  • It helps to reach financial goals by decreasing overall variable costs.
  • It reduces the cost of inventory stocking.
  • It helps to utilize the maximum available production capacity.
  • It helps achieve the demand on time and reduces the customer’s waiting time.
  • It enables the organization to meet scheduled goals and satisfies workforce planning .

What is the criterion that influences aggregate planning?

  • Is the hiring and firing of employees allowed?
  • Is overtime allowed based on the fluctuation in demand?
  • Are backorders allowed?
  • It is crucial that before planning, complete details about the product must be collected and analyzed. The inventory and production capacity have to be thoroughly understood.
  • A reliable demand prediction helps in planning better.
  • Every process of the firm contributes to successful aggregate planning. Therefore, all organizational factors must be considered, from quality control to labor morale management.
  • Proper financial management ensures appropriate costing.

It assures that all production factors are scrutinized to achieve the firm’s goal.

Two main factors while calculating aggregate planning are aggregate demand and aggregate capacity .

Aggregate demand and aggregate capacity

Aggregate planning starts with the establishment of aggregate demand and aggregate capacity.

What is Aggregate demand?

Aggregate Demand (AD) is the quantitative assessment of the requirement for all goods and services at a given price level for a specific period.

The demand curve depicts the correlation between the price level and the demand. In addition, it is observed that both factors share a hostile relationship called “total spending.”

It is understood that when the price level of a product or a service is high, the demand for the same goes down, and when the price level is low, the market steadily increases.

What is the aggregate capacity?

Aggregate capacity  is the required or available capacity to carry out a function.

The process of ascertaining the company’s overall volume and ability to perform its entire resources is called aggregate capacity management .

An organization needs to understand the capacity of its resources. That will help the business know its production capacity, leading to proper sales forecasting and prompt supply of products to the customers.

That will also ensure the right balance between the demand and supply without stressing the resources.

The resources can vary from company to company, but aggregate capacity considers manual and machinery resources and does not differentiate between the two.

For instance, if the company is into the production of bikes, the aggregate capacity will consider only the end product numbers.

It will not consider the complexity of each bike, the variations, and the specialties. Instead, it looks from a macroscopic view.

Aggregate planning becomes successful when both aggregate demand and aggregate capacity are equal.

When there is an imbalance between them, the organization must decide whether to add or reduce capacity to attain demand or add or reduce the need to achieve capacity.

Here are some tips to increase demand to meet the available capacity .

  • Price : Lessen the cost of the product or service to increase the demand. For example, cloth industries offer discount sales at the end of the season to increase demand. Some hotels also fix seasonal rates to attract customers.
  • Advertise: Many companies promote their products through advertising and direct marketing.
  • Generate new demands: Industries like hotels and bars offer some complimentary services to create some extra demands. Likewise, grocery shops offer home delivery services to create demand.
  • Backorders : To smooth the demand, some companies shift the current orders to the next period when the capacity is not used correctly.

Here are some tips to increase or decrease the capacity to meet the existing demand .

  • Overtime : The organization can create additional capacity by making the employees work extra time in a day or work another day per week. It is an excellent choice to increase capacity without much investment in hiring workers.
  • Hiring or firing workers: It is one of the ways to make capacity and demand balanced. The company can hire employees to increase the capacity required for the increased demand or fire some current employees to decrease the capacity for reduced demand.
  • Part-time workers : The company can hire workers on a contract or on-call basis to meet the demand.
  • Final product inventory : It is one of the common methods companies use. The company can stock the finished products when demand is less and capacity is high to use those products to fulfill the current demand without increasing the capacity.
  • Sub-contracting : The organization can obtain temporary capacity by subcontracting to another manufacturer or service provider.
  • Cross-training : Train the employees so that they will be able to do not only their work but also they can do some flexible work if it is needed.

Steps involved in aggregate capacity management

  • Understanding the aggregate demand and supply for a specific period
  • Preparation of suitable plans and contingency plans for situations where the demand levels might fluctuate
  • Finalizing an appropriate plan

Aggregate planning objectives

Aggregate Planning Objectives

  • Decrease expenditures in different inventories
  • Increase the usage of devices and equipment
  • Decrease the variations in the production rate
  • Provide good customer service
  • Decrease the workforce level variations
  • Decrease the cost of planning outline

Aggregate planning flowchart

Aggregate Planning Flowchart

How to manage demand fluctuations through aggregate capacity management?

Generally, the business will have pure strategies ready to meet such unexpected situations. However, a combination is also used based on the needs.

  • Altering the size of the workforce: This involves getting more people to work or laying off people when there is an excess of resources.
  • Altering the usage of human resources : Utilizing the existing workforce by providing overtime, incentives, and such schemes.
  • Changing the size of inventory : Depending on how much the production can be leveraged, the inventory is ordered.
  • Outsourcing, sub-contracting, varying the plant capacity : Passing on the work and meeting the production requirements

Manage Demand Fluctuations through Aggregate Capacity Management

Types of aggregate planning strategies

Two types of aggregate planning strategies are level strategy and chase strategy. The third approach is utilizing the best of both methods.

Aggregate Planning Strategies

Level strategy

This is also known as a production-smoothing plan or a stable plan.

It focuses on maintaining consistent production and human resources in a company. The expected demand rate is achieved by varying the associated factors such as finance and human resources.

Though this strategy helps maintain human resources, it also stocks inventory. There are also chances of not meeting the expected targets, resulting in backlogs costing a lot more to the firm.

The level strategy is best suited to situations where inventory carrying costs are not high.

Read more on Level Production Strategy

Chase strategy

It is also known as a just-in-time production plan.

Just in time (JIT) is a manufacturing methodology designed to decrease waste by receiving goods only as needed. JIT was developed in Japan to make the best use of limited resources.

It focuses on matching the anticipated demand with rigorous production. Unfortunately, though this strategy aims to meet the market, it usually results in stressed employees, which increases attrition.

This strategy is best suited to situations where the cost of changing the production rate is relatively not high.

Read more on Chase Production Strategy

Hybrid strategy

A hybrid strategy in aggregate planning uses a combination of methods to arrive at the final production plan.

For example, a company may use a mathematical model to calculate the optimal production plan and then adjust it based on their actual production process feedback. The combination gives them the best of both worlds – the accuracy of a level strategy combined with the flexibility of a chase strategy.

The hybrid strategy blends both level and chase strategies for better and more fruitful results.

The hybrid strategy in aggregate production-planning balances production rate, hiring/firing, and stock level.

Advantages of aggregate planning

  • If you forecast production planning with the help of aggregate planning, it avoids the requirement of extra employees. It helps the organization save money and time.
  • We know that holding excess inventory demands more money. Maintaining the condition of finished goods in the warehouse will be a big challenge for the organization. With the help of aggregate planning, you can easily avoid that situation.
  • Production orders change more frequently. An organization can’t stick to one plan all the time. Sometimes businesses rotate between mixed strategies. They will fluctuate between level strategy and chase strategy.

The mathematical approach to aggregate planning

We will list some mathematical techniques used in more composite aggregate planning applications.

Linear Programming

It is one of the refinement techniques that help the customer generate more revenue with minimum resources or available capacities.

The transportation model (special linear programming) allows customers to balance capacity and demand with minimum cost.

Mixed-inter Programming

This technique will be helpful when the aggregate planning is intrinsically the sum of plans for individual production lines.

In this case, mixed-integer programming allows finding out the number of units produced in each production line.

Linear decision rule

It is one more optimization technique. It helps attain a single quadratic equation by using cost-approximating functions ( three of them are quadratic) to reduce production costs.

Then you can derive two linear equations from that quadratic equation and use one equation for planning the output for each period and another for planning the workforce for each period.

Management co-efficient model

This method is formed on the production rate for any period that this equation will set

ie P  t  =  aW  t-1  −  bI  t  -1  +  cF  t+1  +  K , where a,b,c,K are constants and using regression analysis you can find their values.

P  t  – the production rate set for period  t W  t  –  1  – is the workforce in the past period I  t-1 – the ending inventory for the past period F  t+1 – the forecast of demand for the next period

Search decision rule

This technique helps overcome some of the limitations of linear programming techniques about cost assumptions.

It enables the customer to express cost data inputs in standard terms. First, it needs computer programming to evaluate any production plan’s cost. Then it searches for alternative methods with minimum prices among them.

Advanced planning and scheduling (APS) software can quickly assist in aggregate planning. APS is a process that enables organizations to plan and schedule activities more precisely.

This process helps to keep the total cost of an organization’s projects low by minimizing disruptions caused by unplanned events. 

APS uses two main techniques: activity duration management (DPM) and work progress tracking (WPT). DPM involves using past data on past project tasks to predict future task durations; WPT involves monitoring assigned tasks and taking corrective action when necessary so as not to interrupt current work assignments .

Aggregate planning is a method of planning for the future. Organizations should use it to help them understand how their current activities will affect other areas soon and what could happen if they change their strategies or policies.

There are many benefits to using a holistic process. These include increased efficiency, lower costs, improved innovation and creativity, and reduced risks from unanticipated events. However, there are also some drawbacks, such as the high upfront cost and complexity.

References:

  • https://www.researchgate.net/publication/280529822_how_to_control_my_product_portfolio
  • https://online.ben.edu/programs/mba/resources/aggregate-planning-and-forecasting

Related Articles

  • What is Master Production Schedule (MPS)? - Examples, Steps &…
  • Advanced Planning and Scheduling (APS) - 5 Ms & Components
  • What is Long Range Planning? (Process Steps, Tools, and…
  • What is Rough Cut Capacity Planning (RCCP)? - with Examples
  • Capacity Requirements Planning (CRP Plan and Strategies)
  • Make-To-Order (MTO) - Definition, Examples
  • ERP Production Planning Module (Features, Types, Objectives)

What is Aggregate Planning?

A business plan is an essential aspect for every organization, and it’s critical in establishing business strategies. After finalizing the business strategies, they should scrutinize them reversely—from final sales to raw materials needed.  

What is Aggregate Planning?

Typically, an aggregate plan runs from three to 18 months. The plan splits down into labor, raw materials, capital, and so on—required over a medium-range time—quarterly or annually. 

What is Aggregate Planning? 

Aggregate planning refers to developing, maintaining, and analyzing the approximate scope of operation of an organization . In other words, an aggregate plan incorporates the targeted sales , production level, inventory level, and backlogs. 

You should design a good aggregate plan in a way that it can reduce the impact of shortsighted daily routines. For instance, only small amounts of raw material should be ordered when employees are laid-off and more raw material when they are reinstated. Such a longer-term approach to resource consumption can help in reducing unexpected short-term expenses.

Understanding Aggregate Planning Better 

Aggregate planning tries to balance the organization’s capacity and the demand while minimizing cost. The term aggregate is used because at this level; planning consumes all resources in the aggregate —as a product portfolio. 

Aggregate resources may include the total number of employees, hours of machine time, or tons of raw materials. In product-oriented industries, the total units of output may consist of gallons, feet, or pounds. In contrast, the service industries use aspects such as hours of service delivery, numbers of patients attended, etc., as the aggregate units. 

Elements such as size, colors, features , and the likes are not distinguished during aggregate planning. For instance, during aggregate planning, an automobile company would focus on the total number of vehicles and not the model or color options.

At times units of aggregation can be difficult to determine—when the difference in output is extreme. In such a case, the equivalents units are determined. These units can be based on cost, value, work period, or similar quantifiers. 

Most aggregate plans are rolled out to cover a period of three to 18 months. Therefore, the aggregate plan is widely perceived as an intermediate-term in nature (neither long-term nor short-term). 

Future short-term planning such as production scheduling, sequencing, and loading relies on aggregate plans. The aggregate plan has been described as “disaggregated” in the master production schedule (MPS) that’s used in material requirements planning (MRP).

The determination of demand and the existing production capacity are given priority when making an aggregate plan. 

Capacity can be expressed as the total output per production period—only an average number of units are calculated as the total may include a product mix using different production periods. On the other hand, demand can be expressed as the total number of units required. 

If demand and capacity are not balanced, the organization should try to strick the balance by adjusting the levels of either capacity or demand.

The Advantages of Aggregate Planning

Aggregate planning offers tons of advantages to the organizations that adopt it. The following are some of the expected benefits: 

1. Minimize Staffing Fluctuations

The aggregate planning approach is popular because of its ability to foresee production demand which helps businesses in the staff planning process . If a company needs temporary employees due to unexpected changes, it can consult a temporary employment agency. 

The reduction or elimination of excess employees will help the firm save money to invest elsewhere. Moreover, it’ll help the firm save time needed to train and supervise the extra workers. Instead, they can use that time to improve their production and service delivery. 

2. Reduce Overhead

Aggregate planning helps businesses to estimate demand. The primary purpose of evaluating demand is to enable a company to know the right amount of inventory they need for a specific period. 

Overstocking remains to be one of the leading economic severe issues. Holding costs for excess inventory such as inventory financing, storage space, and inventory servicing attract extra expenses that businesses can evade through adopting the aggregate plan strategies. Additionally, merchandise tied up capital and having an excess of it will expose you to opportunity costs.  

Aggregate planning promotes the lean production approach. Organizations implementing the aggregate planning model can better foresee the amount of material they will require and when. Besides the costs mentioned above, overstocking also exposes businesses to risks associated with spoilage. Therefore, adapting aggregate planning is economical.

3. Increase Production Rates

Aggregate planning fosters maximum utilization of production resources which results in a significant increase in production rates. 

Maximum resource utilization creates a smooth-running process that allows the businesses to precisely determine the time it will take to deliver orders and plan their production process duly. 

The objective is to meet the deadlines, but still, the organization should be keen to complete production almost on the projected time for delivery—to avoid the costs associated with holding inventory. 

What is Aggregate Planning?

4. Accommodate Changes

In business, there are tons of uncertainties—price fluctuations, production order variance, etc. Since production order often changes, companies cannot stick to one strategy at all times. 

Aggregate planning incorporates contingency measures that allow the business to accommodate changes in customer orders and production. 

If need be, businesses can revolve between active, passive, or mixed strategies. Additionally, they can shift between chase strategy (production levels match the predicted demand) and the level strategy—production level is constant despite the changes. 

Aggregate Planning Strategies

Aggregate planning has two pure planning strategies—the level strategy and the chase strategy, and the combined strategy. Let’s take a look at the strategies;

What is Aggregate Planning?

1. Level Strategy

The level strategy favors an aggregate plan that maintains a more steady production and steady employment levels. To accommodate the changes in customer demand, organizations must either increase or decrease inventory levels regarding the foreseen demand trends. 

When demand is relatively low, the organization keeps a level labor force and a constant production rate, which will enable them to create surplus inventory at the time. As demand rises, the organization can absorb the previously extra inventory, thereby maintaining the production and employment levels. 

Alternatively, the organization can use a backlog or backorder. A backorder refers to a promise by the supplier to deliver a product at a later date. In other words, backorder shifts demand from a period where a firm’s capacity cannot match demand to a period when the capacity starts to catch up with diminishing demand. 

The main benefit of the level strategy is that it enables a firm to maintain a constant production level and still meet demand. This approach is more convenient to the employee since working conditions remain constant—there isn’t time that the organization pushes them to work excessively to meet demand.   

However, from the employer’s angle, it may be expensive to adopt this approach. The strategy dictates that production levels should be constant regardless of the market changes, which can attract unnecessary costs—excess inventory, subcontracting/overtime cost, and backorder cost. 

2. Chase Strategy

The chase strategy champions a production plan that matches the existing demand and capacity. This approach makes a firm flexible as it involves considerable internal changes to accommodate external changes, such as hiring, firing, laying off employees, increasing or decreasing inventory levels, etc. 

Most firms that implement the just-in-time (JIN) production concept utilize a chase strategy. The primary benefit of a chase strategy is that it allows inventory to be held at the lowest level possible, saving the business lots of money. Additionally, the approach fosters maximum utilization of resources which utterly increases the production levels .

Despite these advantages, the chase strategy also has some significant drawbacks. First, companies that embrace chase strategy are often at loggerheads with the labor unions because of their untimely firing and lay-offs. 

Secondly, they are prone to high levels of inconsistency—in operations and skill levels. The consistent changes expose firms to the aftermath of inconsistency. 

For example, when a company tries to adjust to accommodate the rising demand, it may introduce new production methods or machinery, or new employees. Consequently, the employees will need time to adjust to the changes. Or laying off skilled and loyal employees when the demand drops. 

3. Combined Strategy

A combined strategy (a.k.a hybrid or mixed strategy) utilizes the level and chase strategy jointly. Most companies adopt this approach because it’s more advantageous than using a pure strategy in isolation. A mixed strategy can better realize organizational goals and policies at a considerably lower cost than the pure strategy used separately.  

Aggregate Planning Techniques 

Aggregate planning consists of techniques that range from informal trials, which use simple tables or graphs, to more formal and advanced mathematical methods. William Stevenson’s Production/operation management focuses on informal yet helpful outline procedures for aggregate planning. The outline consist of the following steps:

  • Determine demand levels for every period
  • Determine the firm’s capacity for every period. The capacity should be equal to demand. Therefore overtime and subcontracting must be included
  • Identify the relevant departmental, company, and union policies. For example, inventory levels, workforce level, and overtime policies, respectively
  • Determine the unit costs for units produced. The cost usually includes production costs (fixed and variable and direct and overhead costs), the inventory holding costs (storage, insurance, spoilage, and obsolescence costs), and the backorder costs
  • Determine alternative plans and calculate the cost for each
  • Select the one that best suits your objectives ( plan with the least cost)

Aggregate Planning Mathematical Techniques 

The following are some famous mathematical techniques that businesses can utilize in more complex aggregate planning applications.

What is Aggregate Planning?

1. Linear Programming

Linear programming is an optimization approach that enables the user to determine the maximum profit or a minimum operating cost based on the availability of the limited resources and other constraints. 

A unique linear programming model known as Transportation Model can get the aggregate plans that balance capacity and demand while minimizing cost. 

However, only a few real-world aggregation planning decisions can adopt linear programming. A book by Sunil Chopra and Peter Meindl, The Supply Chain Management (SCM): strategies, planning, and operations , demonstrates excellent examples of linear programming in aggregate planning. 

2. Mixed-Integer Programming

Mixed-integer programming is more beneficial to an aggregate plan prepared for a product family where the plan is the sum of the plan for independent product lines. Mixed-integer programming approaches can offer a method for determining the number of units to be produced in each product family. 

3. Linear Decision Rule

The linear decision rule is an optimization technique that minimizes the total cost of production using a set of cost-approximation functions (three are quadratic) to get a single quadratic equation.

The calculus concept is then applied to the quadratic equations to derive two linear equations. One linear equation is used to plan the output for each period, while the other is applied to plan the workforce for each period. 

Bottom Line 

Aggregate planning is an essential tool for the success of any business organization. It comes with tremendous benefits—minimizes staffing fluctuation, reduces overhead cost, increases production rate, and accommodates changes. 

However, businesses should understand all the concepts of the aggregate plan strategy before they implement it. They must understand the pros and cons to expect and how to apply the concepts properly. 

what is aggregate planning in operations management

About Sonia Kukreja

I am a mother of a lovely kid, and an avid fan technology, computing and management related topics. I hold a degree in MBA from well known management college in India. After completing my post graduation I thought to start a website where I can share management related concepts with rest of the people.

Related Posts...

How to Know You Need Project Portfolio Management Software

How to Know You Need Project Portfolio Management Software

Importance of Time Tracking and Can You Do It in Asana & How?

Importance of Time Tracking and Can You Do It in Asana & How?

Advantages of Pursuing a Higher Education

Advantages of Pursuing a Higher Education

Investing with a Gold IRA Company in 2023

Investing with a Gold IRA Company in 2023

What Is the Significance of Time Reporting?

What Is the Significance of Time Reporting?

3 Strategic Management Decisions to Take Your Business to the Next Level

3 Strategic Management Decisions to Take Your Business to the Next Level

  • Professional Services
  • Creative & Design
  • See all teams
  • Project Management
  • Workflow Management
  • Task Management
  • Resource Management
  • See all use cases

Apps & Integrations

  • Microsoft Teams
  • See all integrations

Explore Wrike

  • Book a Demo
  • Take a Product Tour
  • Start With Templates
  • Customer Stories
  • ROI Calculator
  • Find a Reseller
  • Mobile & Desktop Apps
  • Cross-Tagging
  • Kanban Boards
  • Project Resource Planning
  • Gantt Charts
  • Custom Item Types
  • Dynamic Request Forms
  • Integrations
  • See all features

Learn and connect

  • Resource Hub
  • Educational Guides

Become Wrike Pro

  • Submit A Ticket
  • Help Center
  • Premium Support
  • Community Topics
  • Training Courses
  • Facilitated Services

The Definitive Guide to Aggregate Planning

November 23, 2021 - 10 min read

Kelechi Udoagwu

Managers must learn to forecast a balance between demand and capacity to make sound decisions when planning projects. Good managers develop a sixth sense for achieving an intricate balance between the two, maximizing their chances of project success over time. 

Before we go on, let's define both words: 

  • Capacity is the number of units that can be produced within a timeframe
  • Demand is the number of units required to fulfill customer or stakeholder needs

You must conduct effective aggregate planning and strategy to ensure your team delivers successful products efficiently and consistently. 

If capacity frequently exceeds demand, there's wastage. If demand frequently outweighs capacity, it could lead to poor outcomes, missed opportunities, and a strain and possible breakdown of available resources.

What is aggregate planning?

Aggregate planning is the process of balancing the relationship between demand and capacity to create stability in a workflow. In project management , it is used to manage and schedule activities related to capacity and demand, such as analyzing requirements , deploying resources, and maintaining the set timeline of projects and operations.

Oxford Reference defines aggregate planning as "an approach to planning that enables overall output levels and the appropriate resource input mix to be set for related groups of products over the near to medium term. Thus, the aggregate plan for a car factory would consider the total number of units produced per month but would not be concerned with scheduling individual models or colors. It would, instead, be concerned with the labor and machine hours available in a given period."

Aggregate planning helps teams and managers operate at maximum efficiency by influencing and adjusting workload and capacity to match changing demands.

Aggregate planning examples

Here are a few aggregate planning examples to help you understand the concept of aggregate planning better. 

Aggregate planning example 1

A mobile phone manufacturer planning for the first half of 2022 would consider fluctuating trends and changes that may affect sales and marketing in the first quarter of the new year. The aggregate forecast may look like this:

Next, they would calculate the accompanying cost of the demand forecast.

The input data provided helps create a proper aggregate plan, as separate elements are assembled to create a clearer picture for accurate project planning.  

Aggregate planning example 2

A software company creates ten products. The demand for seven of these products is increasing, while demand for the last three is dwindling. The company is focused on the overall growth and resources (people, technology, storage, and materials) needed for all ten products for the following year.

If the company makes a forecast for the ten products individually, each forecast may have errors. However, if they combine all ten forecasts, the aggregate demand figure would likely have fewer errors.

This happens because aggregate forecasts are more accurate than individual or disaggregated forecasts . The demand variation for each product is smoothed when aggregated with other products, providing a more accurate prediction. This is also known as risk pooling .

Aggregating the demands of individual products into one software creation plan is a better option than developing software creation plans for each product. The former often leads to better resource and time utilization, improving the company's bottom line. 

You gain more efficiency and benefits when you create an aggregate demand forecast rather than isolated demand forecasts.

Aggregate planning example 3

Imagine your company's working-hour policy for full-time employees is eight hours a day, four days a week. The organization's work capacity would be 32 hours a week for one full-time employee or a four-person day.

If demand requires eight full-time employees per week and the organization's capacity is seven full-time employees per week, there is an obvious shortage of one full-time employee per week. 

This reveals a problem with human resource capacity planning . You can restore balance by hiring a part-time workforce , encouraging team members to work overtime, or subcontracting knowledge vendors . 

What is the purpose of aggregate planning in project management?

In project management, aggregate planning reduces costs in project planning by detailing how much capacity, e.g., production time, inventory, and workforce, is required to respond to fluctuating organizational demands in the short to medium term. 

Aggregate project plans help managers categorize projects based on the number of resources they consume and contribute to their product line. This helps the management team and stakeholders have visibility into ongoing projects and programs and see where gaps exist to make timely and informed decisions. 

Other purposes of aggregate planning in project management include: 

Efficient time management

Most successful projects are timeline-driven and split into defined, actionable items. Aggregate planning helps project managers predict how much time a project will take and allocate sufficient pockets of time to complete different aspects of the project, paying particular attention to critical paths .

Resource management

Aggregate planning utilizes an organization's resources to meet or surpass the expected demand. This reduces resource wastage on individual projects, which can easily lead to demand outweighing capacity. 

Cost management

Aggregate planning creates a comprehensive budgeting framework to help companies achieve financial goals, rein in excesses, and improve the bottom line by maximally utilizing available resources and capabilities.

Big-picture perspective

Aggregate planning provides critical data to inform the big-picture perspective in an organization. When it is clear what resources and capacity are needed to satisfy certain demands, it is easier to make data-driven decisions that enable the organization to make the best of every situation. 

Types of aggregate planning strategies

Three common aggregate planning strategies are: 

Level strategy

This strategy focuses on balancing capacity and human resources in a program or company. The primary requirement for level strategy is a good demand forecast, which determines how much human resources and inventory are needed to meet current demand. 

When demand is low, management keeps a level labor force and sustains the production rate. When demand increases, the company can absorb any extra inventory, maintaining the production and employment levels. 

Chase strategy

This strategy, as the name implies, means that you are chasing demand. The company produces only when there is a demand and nothing more. 

Chase strategy is often used for lean manufacturing and production. Money and resources are saved by waiting until an order is placed. This is an excellent strategy for relatively low-cost production companies.

Hybrid strategy

Hybrid strategy in aggregate project planning is a combination of the level and chase strategy. It seeks to create an equilibrium between the capacity (or production rate), workforce, and inventory levels while responding to demand as it changes. 

The hybrid strategy realizes project goals and organizational policies at a considerably lower cost than the level or chase strategy. 

The Definitive Guide to Aggregate Planning 2

Challenges with aggregate project planning

Even with the purpose and advantages of aggregate planning, it comes with some challenges, including:

Bottlenecks

Bottlenecks arise when there are sudden changes in demand and congestion occurs in the project workflow. Bottlenecks reduce team efficiency and create long wait times, higher production costs, and high stress levels.

Changing production, capacity, and other resource levels from one period to another has its wear and tear. Smoothing refers to the cost that comes with making these changes.

Planning horizon

Aggregate planning challenges managers to draw insights from data and customers to forecast demand for a certain period with a degree of certainty. This comes with its risks, such as changing market forces and unpredictable events like COVID-19, which can render project plans useless. 

How to create in-depth aggregate planning strategies

The fundamental building block of aggregate planning is the forecast. You cannot correctly deploy an aggregate plan without a thorough forecast containing a vast pool of crucial information.

To get started creating an in-depth aggregate plan, follow the steps below:

  • Determine the demand forecast for the period covered in the project.
  • Assess organizational capacity for that period. Capacity can include resources, labor, and equipment. Ensure your capacity can match demand.
  • Identify necessary policies that must be considered, e.g., internal company policies, outsourcing policies, inventory, workers' overtime, market forces, and regulations.
  • Estimate the total cost for all the required inputs. Calculate the unit cost of materials, workers' wages, production, inventory, and indirect expenses.
  • Create alternative or contingency plans to account for varying degrees of change. For example, individual plans may have different backup timelines, schedules, and business process outsourcing workflows to meet demand requirements.
  • When you have your alternative plans, select the one that best satisfies corporate objectives. Compare your plans and determine how well each one meets these objectives. Usually, this is the plan with less cost or a better timeline.
  • Do a pilot test to see how well it performs in different scenarios and conditions.

More proactive aggregate planning strategies to create a balance between capacity and demand

Here are a few other proactive activities that help create an in-depth aggregate plan:

Back ordering

Lean into back-order systems. Back ordering is the process of allowing your customers to place orders even if you don’t have sufficient stock on hand. Businesses implement back-ordering when a sudden increase in demand means that products are getting sold faster than they’re being stocked. This helps smoothen the demand process. You can have a process where delivery is delayed until demand catches up with capacity. Advance booking of flights is an excellent example of this.

Pricing as a strategy

Make changes to the pricing during low-demand seasons. For example, when demand is low, give discounts or reduce the price to match capacity. When demand is high, you can increase the price. This is a good way to bring some balance into your product planning.

Use marketing to your advantage

Leveraging advertising and promotional activities can increase demand when executed properly. Regardless of the aim of the project or product, even in internal company projects, advertising strategies are useful for influencing demand.

Create new demand

Create secondary or supplementary demands that boost your existing product. A good example is to offer additional services, up-sell a service, or promote complementary products that work with the ones purchased to keep up demand.

Vary the workforce

Managing human resources and labor can be particularly challenging when demand and capacity have the tendency to shift drastically. Create a balancing system to ensure project success. You can make use of a temporary workforce or subcontract to avoid a high churn rate. This will help balance the scale of human resource capacity in relation to demand.

Using Wrike for aggregate planning

Using a project management software like Wrike helps you match capacity with demand by providing visibility on all the variables that make up your project plans and management. 

With Wrike's cloud-based software, you can gain detailed insight into your processes, timelines, workload, etc. This way, you can maximize efficiency, which is the backbone of aggregate planning.

Using views like the Gantt chart and Kanban boards , managers can visualize the different timelines and schedule projects using a phased approach to ensure development runs on time, budget, and specification. A transparent approach to aggregate planning eliminates chaos, enabling teams to share their workflow, calendars, and backlog, offering transparency on how capacity matches demand.

Are you ready to improve efficiency in your team by strengthening your aggregate planning skills? Get started with a two-week free trial of Wrike today.

Mobile image promo promo

Kelechi Udoagwu

Kelechi is a freelance writer and founder of Week of Saturdays, a platform for digital freelancers and remote workers living in Africa.

Related articles

The Ultimate Guide to Creating a Strategic Annual Plan

The Ultimate Guide to Creating a Strategic Annual Plan

The first step to achieving goals is to come up with an annual plan. A strategic annual plan makes it easier for managers, team leaders, and company owners to execute their vision for growth. Not only does creating an annual plan give you time to reflect on past accomplishments, but it’s also a great way to make ideas actionable. Keep reading to learn more about what annual planning is and how you can create one that has a significant impact on your organization.  What is an annual plan? An annual business plan is a set of goals and milestones that guide a company's operations for the year ahead. It helps guide employees and investors in the right direction. For many people, this year's new year begins with a review of their previous year. They then set goals and make plans for the coming year. Annual planning is a combination of two other important elements: a business plan and an annual plan.  A business plan is a document that a company or organization uses to set goals and improve performance. It's similar to a belt-tightening exercise. An annual plan is a strategy that a company uses to set goals and expectations for the coming year. It helps employees visualize where they are headed and how they can get there. The annual plan also sets out a company's long-term goals and helps guide how it will reach these targets. An annual business plan helps workers set goals and holds them accountable for achieving those goals for the upcoming 12 months. Then, there’s strategic planning. A strategic planning process helps an organization identify its mission, vision, and strategic goals. The strategic plan combined with the annual business plan are two key components of a successful strategy. The former provides a framework for the company's goals and intentions, while the latter provides the necessary tools and processes to execute those goals. Overview of a strategic annual plan Here is what is typically included in a strategic annual plan:  Analysis of past performance. Reviewing your goals can help you identify areas where you can improve and become more productive. Budget estimations. Financial projections are often included in budget planning. They help you plan for the coming year and identify the right course of action for your projects. A clear vision statement. Expectations must be clearly stated, as well as responsibilities and clear OKRs. Having these elements in place can help keep teams on track and motivated. SMART goals. Set specific, measurable goals and deadlines for your company. This will help you measure how far you've come in terms of meeting the key results. Buffer room. A well-written annual plan should include space for emergencies as well. Having a contingency plan can help avoid unexpected expenses. In a nutshell: the annual plan is a strategy used to plan and execute the organization's goals and objectives. It is usually composed of three phases which are strategy, projects, and timing. The importance of an annual plan Annual planning helps define what's important to achieving goals and driving performance. An annual plan also helps keep the workforce united and can be used to motivate and retain employees. A well-written annual plan can help you set the direction for your company while providing the team with a sense of direction. Examples of annual strategic planning Here are some ideas to get you started with your own strategic annual plan:  1. Coca Cola HBC 2020 Integrated Annual Plan  Coca-Cola's 246-page report details all aspects of their business. They start by celebrating their wins with statistics. They also include photos of actual customers and partners. Their CEO writes a letter to their stakeholders sharing their biggest accomplishments over the past year.  Then they go through their vision. Throughout the strategy, you can see that they are using the pillar method for goal planning. Key areas of focus include leveraging existing business, continuing to win the beverage marketplace, making competitive investments, focusing on employee growth, and expanding their licensing. The overall report is designed well and is reminiscent of a well-crafted white paper. Because the CEO's letter was addressed specifically to stakeholders, we know that this is a tool for increasing investment as well as project planning. Because of this, a lot of the content within it answers the question, “why should I invest in you?” Throughout the rest of the annual plan, each pillar gets its own section. At the top of each section, there is a list of accomplishments from the past year and priorities for the coming year. They also summarize risks, stakeholders, and KPIs. This makes the packet easy to skim but also easy to remember. 2. pep+ (PepsiCo Positive) PepsiCo recently announced that their new 2022 initiative will revolve around “the planet and people.” While this is a long-term process for the brand, the launch will mark the core of their strategic annual plan for the foreseeable future. Their keywords include positivity (hence the “+”), sustainability, and “a fundamental transformation of what we do and how we do it.”  On their dedicated landing page, readers can dig deeper into their annual plan. Also well designed, this presentation shows what the future looks like for PepsiCo through refreshed branding and imagery. Symbols such as smiling farmers and healthy, green fields drive the message home.  To achieve these new goals, the company will focus on supply chains, inspiring consumers, and driving sustainable change among all its product lines.  They link several documents throughout the report, including a comprehensive list of goals which is a great example for your own annual plan template inspiration. This three-page chart names pillars on the left-hand side and targets or actions with due dates on the right.  If their goals have numerical metrics, they include data from past years, along with key benchmarks they hope to reach by the end of the year or in the future. Otherwise, their goals are measured in actions.  For example, as part of their sustainability pillar, they plan to “develop and deploy disruptive sustainable packaging materials and new models for convenient foods and beverages.” This task is specific and clear, despite the fact that it’s not as quantifiable as some of their other goals.  3. Nestlé Global’s Annual Report  Their annual plan is not public but they have shared an annual report on past wins from 2020. In addition to a financial review, Nestlé also shares a new strategy. Starting with important facts and figures the company highlights statistics from organic sales growth and more. They also visualize data about which types of products are selling most and where in the world the company has grown over the past year. As Coca-Cola did, Nestlé also includes a letter to shareholders. They discuss ways in which they plan to grow in the coming year. This includes what product areas they will invest more in and where they will pause or halt efforts. They also emphasize a new product area which will be the focus moving forward in the short term. In this section, Nestlé touches on long-term strategies and how these short-term goals will affect them.  In general, their annual report focuses on the word innovation. It mostly has to do with developing new products and revamping old ones. Like PepsiCo, they are using sustainability as a pillar as well as e-commerce. The report goes on to elaborate on each strategy individually. Nestlé lists action steps and provides clear evidence as to why each is important. They also highlight statistics for growth in key areas and name even bigger numbers for where they hope to be in a year.  Throughout the report, they include images from ad campaigns that demonstrate the change they wish to continue implementing as part of their marketing plan. Again, branding imagery makes a big difference when creating your own strategic annual plan. It sets the tone for what's written on the page and can help visual learners better understand what you're going for at a glance.  Although Nestle's strategic annual plan is designed more like a white paper than a chart, this layout is the most magazine-like by far. It serves as a great example of how you can organize ideas on the page in a way that is interesting and attention-grabbing. One of the most notable aspects of their annual plan is the Materiality Matrix. They use this chart to visualize key areas of interest and prioritize them according to stakeholder values. Within each box, they’ve listed bullet points of business areas this value will impact. It’s a great method for summarizing goals that cover a wide variety of departments and business engagements.  Understanding strategic planning best practices Everyone has their own way of thinking about annual plans. Regardless of what you’re trying to achieve, the following strategic planning best practices will help you get there:  1. Use SMART goals A variety of SMART goals are commonly used to help guide and motivate people. They help set realistic benchmarks and are designed to help teams achieve success. It will also help you plan for the ups and downs of your business. To reach your goals, divide them up into smaller goals and set specific deadlines. These goals will help you measure how successful you are at reaching them. 2. Include contingencies For example, having an emergency financial reservoir is a good idea to prevent a potential financial disaster. It can help your company navigate slower seasons while still sticking to your annual plan.  3. Build in flexibility  Even minor shifts in external factors can significantly impact on how effective you are at creating and implementing your strategic plan. Never forget that, while we are creating our annual plans in a vacuum, the world will undoubtedly go through more changes this coming year. Even though we can’t predict the future, we can make our plans foolproof by being flexible now.  What is an annual plan template? An annual plan template is a document or tool that can be utilized repeatedly to outline the various stages involved in creating an annual plan. Its purpose is to provide a clear understanding of the annual planning process by specifying the actions to be taken and the timeline to follow in order to develop an effective business plan. By utilizing the annual planning template, individuals or organizations can ensure that they have a systematic approach to reaching specific goals, and can enhance the quality of their business plans. Using Wrike to assist with an annual plan template Wrike’s project management software can help you keep track of all your company-related information in one place. It can also streamline your work and help you stay on track. It can also help you keep track of your annual plans and develop a strong strategy. Start by using last year as a reference. By understanding the issues that affected the previous year, a company can improve its performance in the following year. Draw reports of time spent per project and see where your team went over or underestimated. Then look at which tasks tend to drain resources the most. Determine whether or not the ROI is worth it moving forward.  Next, set realistic goals. Reflect on last year's statistics from Wrike Reports and put together a plan with a realistic metric for improvement.  After, break down big plans into individual steps. Start by focusing on the business goals of the company then outline your key objectives that align with those. Make sure that everyone knows who is responsible for executing and approving each task.  Draft a Gantt chart that includes each step broken down into relevant tasks. Remember to add deadlines to every action to keep teammates accountable and keep to realistic deadlines. Then, delegate tasks according to strengths and weaknesses. Use project reporting and individual job performance to assess team members. You may find that those with specialized talent are being tasked with unskilled work when they could help solve major problems elsewhere.  Don’t forget to involve the whole team. Start early, plan ahead, and keep everyone involved in the process. Doing so will make it easier to overcome obstacles once the projects are underway.  Additionally, ask them for direct feedback on your ideas for the next year. You will learn from the front line what obstacles they may be facing that will affect the timeline.  Another bonus of getting your team involved is that it creates more transparency in the workplace. Using Wrike as a part of the process is not only helpful, but the team also keeps learning how to use the system more efficiently as they go.  Having a work management platform that enables you to plan and execute annual plans is a good idea. Plus, it's also a good idea to use tools that allow you to collaborate and manage complex processes. Create an effective annual plan today with Wrike’s free trial. 

Everything You Need to Know About Rough Order of Magnitude (ROM) Estimates

Everything You Need to Know About Rough Order of Magnitude (ROM) Estimates

A rough order of magnitude estimate, also known as ROM, is an estimation of a project’s level of effort and cost to complete. ROM estimates take place early in a project life cycle and guide strategy and planning choices. In this article, you’ll learn more about ROM estimates and how they are used in project management. Plus, keep reading to discover examples and how Wrike could be used to assist in creating a template for your own rough order of magnitude.  What is the rough order of magnitude? A rough order of magnitude estimate is a general estimate of a project's level of effort and cost. It's usually performed during the selection and approval stage of a project. Generally, it’s used for estimating a project budget that doesn’t have a lot of detail.  Project estimating is a vital aspect of project management because it helps determine the total budget for the project and whether or not it’s feasible companywide. It also helps keep track of the project's milestones and budget at the very beginning (more on that later).  A rough order of magnitude is most commonly used for project screening. ROM is typically meant to be given to executives who need a high-level overview of how much work might cost. This is especially helpful when they don’t yet have the mandate to do a deep dive into the scope and requirements of the work.  Comparing the ROMs of different projects helps identify which projects should be prioritized and which ones should be shelved. It can also help uncover and prevent scope creep later on.  This tool also helps decision-makers at other levels of the organization make informed choices regarding the project's complexity and costs. That information is critical for proper scope planning before project kickoff. It’s important to know that a ROM estimate is often used for information purposes at the beginning of a project and it’s suitable for use for the lifetime of the project.  How to make a rough order of magnitude estimate Estimating a ROM is often thought of as an art. They are quick to make, but the trick is learning how to make them well.  Those who are more experienced in coming up with these estimates may have their own way of executing this process. Regardless of how well you understand the rough order of magnitude, it is important to consider the various factors involved in developing one. These include:  A guesstimate range of what resources the project will require based on the information you have on hand Opinions from experts and/or higher-ups who hold a stake in the project A variance of at least -25% to +75% Keep in mind that, when calculating ROM, the goal is to provide a rough estimate that is largely accurate even if it’s not necessarily convenient for your plans. By this, we mean you may find it tempting to choose figures on the more conservative side in order to achieve a more desirable outcome.  Unfortunately, using inaccurate stats defeats the entire point of creating the estimation in the first place. Great research can help illuminate areas of your rough order of magnitude estimate where it may be tempting to let bias enter into the equation.  All that being said, a ROM estimate's variance is not significant enough to deter you from creating one. A ROM estimate provides a starting point for moving forward in much the same way a budget estimate is also used to determine your base. For example, instead of just presenting single-point estimates, managers should present budgets as a range. Remember: the estimate is derived from the available information. If information is missing, you’ll have to make do with what you do know for sure and move forward from there.  In fact, you can expect to improve the estimate as the project moves forward. During the planning and implementation phases, the requirements and information will be refined. As you go along, you’ll learn through trial and error what the reality of the project actually is.  Rough order of magnitude techniques One technique for creating a rough order of magnitude estimate is known as a definitive estimate. A definitive estimate is a technique that involves estimating an individual project phase or task's level of effort. Planning with this information upfront makes it easier to plot out workloads on visual charts while keeping your team on the same page.  This step typically takes a number of hours to complete, but it is a successful way to get an accurate idea of the time and cost of any project.  Other popular techniques and procedures for estimating costs include PERT time estimation, COCOMO, and function point analysis. Program Evaluation Review Technique (PERT) PERT charts are used to plan out tasks that will take a certain amount of time to complete. They can also be used to coordinate team members. Constructive Cost Model (COCOMO)COCOMO is a regression model that can be used for estimating the various factors involved in tech and software project management. It is typically used for estimating the size, effort, cost, and quality of a project. Function Point Analysis (FPA)Function Point Analysis is a method of estimating a company's clear business significance. It helps in the evaluation, management, and control of software development. When estimating ROM, it is best to try and estimate in buckets of time and costs. Doing so helps minimize the number of, well, numbers that are required to provide a complete and accurate estimate.  Rough order of magnitude examples There are two ways to think about estimating ROM. You can create effort ranges or buckets with approximate figures that any task can fit into. Alternatively, you can use historical data to guide decision-making. Here are some hypothetical rough order of magnitude examples:  Creating buckets In this example, a project manager will define effort ranges such as small, medium, and large. Within each range is a total number of hours, personnel, and/or budget needed for tasks that fall in that category. For example, a small bucket may indicate that a task will take two to four hours and is relatively simple or affordable to complete. It all depends on the specific project.  Here is a very simple example. Let's say you're considering eating a sandwich for lunch. You know that tasks such as spreading peanut butter and jelly onto two slices of bread would fall into the small category — low effort, low time, and perhaps even a single knife instead of two.  However, if you noticed that you're currently out of bread and you know it would take 20 minutes to drive to the store, that task would fall into the medium category because it would take considerably more resources to complete when compared to the spreading task. Historical data Historical data means pulling information from past projects. These projects may have similar tasks, goals, or outlines. This information is good to have on hand in your project management solution.  You can use data from projects that didn't go as well as you'd hoped in order to refrain from repeating his mistakes. You can also use data from projects that went above expectations to see where you can replicate those choices here. Let’s continue with our sandwich example. You may have found that in the past when you were craving peanut butter and jelly, it was worth it to you to make the drive. In fact, it also allowed you to run several other errands (a.k.a. projects) at the grocery store.  Based on this historical data, you may find that, despite the effort involved, the payoff was worth it in the end. So choosing this path again will be profitable. First-hand experience First-hand experience refers to how experienced the person creating the rough order of magnitude is in this particular field, project type, or as a project manager in general. An expert who understands project management will likely come up with a more accurate ROM than someone on their first day of work.  First-hand experience is valuable because you have plenty of anecdotal evidence to back up your estimations from other related projects. It's also helpful because it allows planners to be intuitive about the process and consider the people involved. For example, you may find that a particular supplier often experiences delays. Although the supplier representative promises otherwise, you've seen it happen time and time again. Knowing this, you can factor that into your rough order of magnitude. Now we’ve come full circle with our peanut butter and jelly project. You may have learned from first-hand experience that, despite your intense craving for it, these sandwiches aren't actually worth it for you.  You may even have regretted eating them right after you finished and wished you’d opted for a turkey sandwich instead. Knowing this, you may draft an estimate that confirms the amount of resources and effort needed will not have the ROI expected and it would be better to not move forward with it after all.  This information isn’t something you can necessarily track with a report. It’s simply a memory of what you’ve experienced in the past. Using this knowledge will help you make better, more informed decisions in your ROM with information you can’t find elsewhere.  How to use ROM in project management Project estimation techniques help managers identify the most critical elements of a project and provide them with accurate estimates. These techniques can also be used to plan for resource allocation.  It is important that you have an estimate in place before you start a project. Without an estimate, you may not know how long it will take or what resources will be needed. Cost is often one of the most challenging constraints in project management. Having enough money to complete the project is one of the most critical factors in managing it. Creating a ROM will help you understand whether or not it’s financially viable before you even begin.  Another key component of a project is time. Having the ability to determine the duration of the work and when specific tasks will take place is very important to project planning. By estimating your project schedule, you can arrange for the people and resources that you need when they are needed. It also allows you to set expectations for the clients. You can create a rough order of magnitude for any project. But there are several project management situations in which it may be necessary to come up with a ballpark idea of what resources will be needed:  Larger than normal projects where you will need to provide more detailed information about the project  Projects that involve teams across different countries where there may be varying costs and exchange rates Projects that are customized to the client or unique to your team where the product or service is innovative and the scope of the project is being managed through Agile project management methods Even if your project doesn’t fall into one of these categories, a ROM can be used to determine whether or not it’s viable. This is helpful when you’ve got limited resources and more than one project to choose between.  Using Wrike to create a rough order of magnitude template Wrike is a project management tool that streamlines the process of organizing, creating, and coordinating a rough order of magnitude.  First, start by checking for any historical data from relevant projects you’ve successfully completed. All Wrike users have access to their own detailed project reports. If you have historical data, you can go straight to a more detailed cost figure. It will give you a more accurate and detailed estimate. If you don’t, continue creating your ROM.  Then, start breaking the big components of the project down into smaller pieces. Some planners use the top-down approach or the bottom-up approach, both of which can be accomplished with the help of Wrike.  A top-down estimating technique breaks down a project into discrete phases and tasks. This method works by estimating the overall time for the project, as well as the phases and work tasks that will be completed within that time frame. If a client tells you that the project has to be done in six months, a top-up approach allows you to estimate how much time you can dedicate to each activity within the project. A bottom-up estimate is a technique that works by estimating multiple tasks and aspects of a project. This step-by-step process combines the various estimates into one final project estimate. In project management, orders of magnitude are typically referred to as broad-brush categorizations of sizes. So use a range when adding in timelines for individual phases and expenses.  Tip: don’t forget about project costs spent preparing the ROM and the project management itself. This will take up about 20% of your estimated total time allotted to the project.  Next, go above and beyond by using Wrike to calculate risk. Project risk is a set of events that could significantly affect the quality or schedule of a project. It can be triggered by various factors such as unforeseen delays, budget cuts, and legal issues. By estimating the risks involved in a project, you can plan for how those risks will affect the project and develop a risk management strategy later on if you feel that the ROM is convincing enough to adopt the project.  Tip: If you’re stuck, talk to your finance department to see if they can help you get a better idea of what things cost. Finally, consider what project planning may look like. Project planning for Agile projects is usually done in phases, with estimates being created initially before the beginning of the sprint. These estimates are then updated during the sprint. Estimation can also happen during a sprint retrospective, where you update the backlog based on the outcomes of the previous sprints. It can also be done during the sprint planning session. The project team is responsible for estimating projects and managing the estimates. They are also involved in the development of the project's documents and databases.  Having one central hub for all project estimates makes it easier to organize and communicate your vision and ROM results.  As you progress through the project, you should start to produce smaller ranges for accuracy. Over time you will reach a cap for each category that is both realistic and attainable. As the project details become more detailed, the accuracy of the ROM estimates decreases until they are no longer accurate. In conclusion The more data you have about your project, the better it is to draft current project estimates. A project estimation tool can help you build up estimates and track against actuals. It can also help you improve your estimates by recording errors and lessons learned. Discover how Wrike can help you improve your planning and execution with our free trial.

The Ultimate Guide to Parametric Estimating in Project Management

The Ultimate Guide to Parametric Estimating in Project Management

Parametric estimating is a method of calculating the time, cost, and resources needed for a project. Learn more about parametric estimating techniques with Wrike.

Wrike

Get weekly updates in your inbox!

You are now subscribed to wrike news and updates.

Let us know what marketing emails you are interested in by updating your email preferences here .

Sorry, this content is unavailable due to your privacy settings. To view this content, click the “Cookie Preferences” button and accept Advertising Cookies there.

Filter by Keywords

Project Management

Aggregate planning: strategies for effective resource management.

Sarah Burner

ClickUp Contributor

January 8, 2024

Why does any business exist? To meet market demand by producing and selling a product/service in exchange for a price. 

If demand exceeds production, you miss revenue opportunity. If production exceeds demand, you will be unable to sell your goods, leading to wastage and losses. 

In essence, success lies in a business’s ability to forecast demand accurately and appropriately manage production capacity. Operations strategy and resource management rely on one critical tool to achieve this: Aggregate planning.

What is Aggregate Planning?

Benefits of aggregate planning, common aggregate planning challenges, how to implement effective aggregate planning, make the most of your resources with clickup.

Aggregate planning is the process of designing a formula to ensure uninterrupted production at a manufacturing plant in order to meet customer demand for the products.

Operations teams forecast future demand, typically for the next 3-18 months, and then perform aggregate planning to manage the capacity to meet it.

Let’s take the example of a car manufacturer with an aggregate demand forecast of 150,000 units of three types of cars over the next 18 months. The aggregate plan designs the right production planning—including labor, machinery, logistics, and financial resources—to meet that demand. 

Typically, aggregate production planning is performed for all activities at a production facility, not just individual runs or products. In the above example, aggregate planning isn’t performed for each type of car individually. It is always performed as an aggregate of all the company’s products and facilities.

ClickUp Workload Time Estimate

While used primarily in manufacturing and supply chain management, aggregate planning can also be applied to service businesses.

For instance, if your sales team is pursuing a software development project that needs 20 developers over the next year, your aggregate plan would outline the acquisition, training, and utilization of these resources.

What are the objectives of aggregate planning?

  • Capacity planning to match production demand : Aggregate planning ensures that the organization’s capacity is primed to meet the long-term market demand
  • Optimum resource management : Aggregate planning helps utilize existing resources optimally, be it labor, raw materials, machinery, or production rate
  • Stability in labor force : Aggregate planning supports strategic and staggered hiring, ensuring maximum productivity and employee satisfaction
  • Eliminating unnecessary overheads : Buying and storing unused raw materials or maintaining unused machinery adds to unnecessary overheads that good aggregate planning prevents

Aggregation planning is a critical and popular operational tool in the manufacturing and supply chain industry, offering several benefits.

Cost savings

With a good aggregate plan, you can prevent two unwelcome scenarios: Unused capacity and unmet demand. Aggregate planning helps forecast the resources needed accurately, preventing wastage or storage-related expenses. It prevents excess inventory levels that might go unsold or be sold at heavy discounts.

Better inventory management

The most significant advantage of aggregate planning is that it makes inventory management efficient on multiple levels.

  • Prevents purchase of extra raw materials
  • Schedules purchase/delivery of raw materials just in time for production
  • Ensures that the assembly line is at optimum utilization
  • Eliminates the need to store unnecessary inventory

Improved employee productivity

Employees can better plan and organize their lives with a clear view of what lies ahead. Managers can hire the resources they need and train them adequately. Team members can reskill/upskill for future demand. Various teams/departments can collaborate more effectively.

Most importantly, organizations can avoid firing/layoffs with effective aggregate planning.

Better decision making

Aggregate plans give a big picture of an organization’s production capacity, facilitating several business decisions.

For example, aggregate planning balances market demand with the organization’s ability to supply. With these metrics, you can effortlessly make pricing decisions. If the aggregate plan shows that you’re likely to have more inventory than forecast demand, you can up your promotions to affect the customer side.

Most importantly, aggregate planning clarifies your investment decisions. It helps answer the question, “Do we need to invest in additional equipment or people?” 

In line with the demand, aggregate planning shows how to optimize the production plan without additional capital investment.

Improved bottom line

Aggregate planning helps control variable costs while increasing the efficiency of the assembly line. This contributes directly to the organization’s profitability. 

Moreover, it strengthens the organization’s ability to make on-time-in-full (OTIF) delivery—a critical metric in retail supply chains.

Despite its significant benefits, aggregate planning isn’t easy. It brings with it several challenges, which we explore next.

In its simplest form, aggregate planning forecasts future demand and builds capacity to meet it. For an aggregate plan to be effective, it needs accurate data on demand and supply from sales, operations management, procurement, human resources, and finance teams.

For most organizations, collecting this data is the biggest challenge to aggregate planning. But that’s not all.

Demand fluctuations: Demand isn’t easy to predict. Demand fluctuates depending on the economy, market, pricing, competition, and technological advancement, affecting aggregate planning.

Planning horizon : Organizations typically plan for anywhere from three to 18 months. A lot can happen during this time. A global pandemic or a swing election can change a lot quickly.

Supply chain disruptions : A supply chain is a complex web through which the product travels. A war or a natural disaster in any corner of the world can affect even the best-laid plans.

Bottlenecks : Planning tightly might create bottlenecks in the assembly line, causing the very inefficiencies aggregate planning aims to prevent. 

Smoothing : Frequently changing production, resources, etc., comes with smoothing costs that often go unconsidered.

While these challenges can derail aggregate planning initiatives, a good project management tool and thoughtful processes can help. Here’s how.

Collect data

For effective aggregate planning, you need data around demand and capacity, which any resource management tool can help consolidate. 

For example, on the demand side, collect data around:

  • How many products you’ve sold in the last five years
  • What is the rate of growth of sales
  • What internal/external factors influence sales

On the capacity side, learn:

  • How much raw material, machinery, and resources are needed to produce the product
  • What is the incremental cost of producing each product
  • What is your current capacity
  • What is your current level of inventory

When you use a project management software like ClickUp, much of this data might be instantly accessible. Some of ClickUp’s customers use the tool as a customer relationship management (CRM) solution to track sales.

Workload view in ClickUp Main Feature

Service organizations use the workload view to manage human resources’ capacity. ClickUp Reports offer deep insights into who is doing what, how long it takes, how the team performs, etc. 

Map your demand to the expected capacity

Now that you have data from both sides, it’s time to visualize how they map with each other. This step is essential to assign appropriate capacity to various stages in the process. 

For example, a car manufacturer wouldn’t need seat covers or people to fit them until the end of the process. A sound mind map of the process helps identify this flow.

ClickUp Mind Maps is a great way to draw the demand curve and the corresponding capacity requirements. It serves as a capacity planning tool to align resources with the demand.

Logistics Management

If your current processes are too scattered, use these ClickUp project increment (PI) planning templates . They help you streamline project communication, enable better collaboration, and set a shared vision. 

Estimate costs

Good aggregate planning considers all the costs involved in the entire product lifecycle. This helps with allocating your existing capacity and budgeting for future requirements.

ClickUp Project Cost Management Template

Don’t know where to start? No problem. ClickUp’s estimate templates give you a great starting point. Download any of the templates and customize them for your needs. 

Choose your aggregate planning methodology

Once you have all the information handy, it is time to choose how you will build your aggregate plan. There are three commonly used aggregate planning strategies.

Level strategy : This method aims to keep production and employment stable without sudden investments in manufacturing capacity. While this keeps the workload steady, it runs the risk of always running at maximum capacity or creating unnecessary inventory despite low demand.

Chase strategy : In this method, capacity chases demand. As a result, you might outsource production to another facility, buy/rent equipment, or hire/fire resources. This approach can be disruptive for the teams and runs the risk of quality issues. 

Hybrid strategy : This method combines the best of both worlds. It retains a stable capacity with space for additional production available at short notice.

On the other hand, you can also manage the demand side of this equation by:

  • Taking backorders : Accept orders but fulfill them later based on capacity
  • Delay delivery : Extend the delivery timeline or choose to deliver during low-demand periods
  • Create complementary demand : Cross-sell/upsell complementary products to customers to compensate for high demand

Plan and schedule the project

ClickUp task view

Based on how you visualize the production workflow, break it down into tasks and subtasks. ClickUp tasks allow you to set deadlines, indicate dependencies , and even add checklists for better quality control.

Allocate resources

Use your chosen aggregate planning methodology to allocate resources to each project or production run. 

ClickUp’s resource management software is an excellent solution for resource scheduling . Use the Workload view for capacity planning . Use the Calendar view to visualize significant milestones. Create visual roadmaps with the timeline view and collaborate on priorities.

Identify potential risks

However meticulous your plan is, threats and risks will always arise from external factors. A good aggregate plan includes project forecasting to identify risks and design ways to mitigate them. 

Manage the project and calibrate the aggregate plan

An effective way to overcome the challenges of aggregate planning is to be agile. ClickUp’s features enable effective resource management throughout the project’s lifecycle. 

It gives the visibility to adjust resource allocation throughout the project in case of unexpected delays or disruption.

Whether you’re a product or a service business, profitability depends on meeting demand, maximizing resource utilization, and minimizing wastage. Aggregate planning is a tried and tested tool that helps organizations optimize their operations consistently.

For aggregate planning to be effective, it needs several business tools to collect data, manage tasks, assign resources, track time, manage sales/purchases, collaborate among team members, document processes, etc.

Organizations often use a different tool for each of these activities, wasting precious time and resources in consolidating information. What they lose in this process is context.

ClickUp’s all-in-one project management software is designed to be your single most powerful tool to perform all these activities and more. It combines all your business intelligence in one place, powering your plans to success. Try ClickUp for free today !

Questions? Comments? Visit our Help Center for support.

Receive the latest WriteClick Newsletter updates.

Thanks for subscribing to our blog!

Please enter a valid email

  • Free training & 24-hour support
  • Serious about security & privacy
  • 99.99% uptime the last 12 months

Book cover

Aggregate Planning pp 1–15 Cite as

Introduction to Aggregate Planning and Strategies

  • Seyyed Amir Babak Rasmi 3 &
  • Metin Türkay 4  
  • First Online: 26 January 2021

891 Accesses

1 Citations

Part of the SpringerBriefs in Operations Research book series (BRIEFSOPERAT)

In this chapter, we discuss what aggregate planning is and how managers exploit various strategies in aggregate planning. A demand prediction for the planning time frame (usually 2–18 months) is required to establish an aggregate plan. Then, this aggregate plan provides an intermediate-term plan that determines the production rate, subcontracting/outsourcing, inventory, backlogs, and promotions in the supply chain for the next 2–18 months. Different strategies can be used in aggregate planning: constant workforce, constant production rate, or chase strategy. A planner decides between several pure strategies and mixed strategies. Moreover, an aggregate plan results in an optimal solution that may be against environmental and social concerns. Aggregate planning possesses sufficient flexibility to be improved such that some sustainability considerations can be taken into account.

  • Supply chain management
  • Aggregate planning
  • Optimization
  • Sustainability

This is a preview of subscription content, log in via an institution .

Buying options

  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
  • Available as EPUB and PDF
  • Compact, lightweight edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info

Tax calculation will be finalised at checkout

Purchases are for personal use only

Anvari S, Türkay M (2017) The facility location problem from the perspective of triple bottom line accounting of sustainability. Int J Prod Res 55:6266–6287

Article   Google Scholar  

Bibowei AA (2015) Workers knowledge of causes of workplace accidents in Bayelsa state. Int J Dev Res 5(06):4741–4757

Google Scholar  

Bitran GR, Hax AC (1981) Disaggregation and resource allocation using convex knapsack problems with bounded variables. Manag Sci 27(4):431–441

Chopra S, Meindl P (2007) Supply chain management. strategy, planning & operation. In: Das summa summarum des management. Springer, Berlin, pp 265–275

Chapter   Google Scholar  

Haksever C, Render B (2013) Service management: an integrated approach to supply chain management and operations. FT Press, Upper Saddle River

Nahmias S, Cheng Y (2009) Production and operations analysis, vol 6. McGraw-Hill, New York

Rasmi SAB, Kazan C, Türkay M (2019) A multi-criteria decision analysis to include environmental, social, and cultural issues in the sustainable aggregate production plans. Comput Ind Eng 132:348–360

Russell RS, Taylor-Iii BW (2008) Operations management along the supply chain. Wiley, London

Stevenson WJ, Hojati M (2007) Operations management, vol 8. McGraw-Hill/Irwin, Boston

Türkay M, Ozturk S, Arslan MC (2016) Sustainability in supply chain management: aggregate planning from sustainability perspectiv. PLoS ONE 11(1):e0147502

Wagstaff AS, Lie JAS (2011) Shift and night work and long working hours—a systematic review of safety implications. In: Scandinavian journal of work, environment and health, pp 173–185

Zimara V, Eidam S (2015) The benefits of social sustainability reporting for companies and stakeholders-evidence from the German chemical industry. J Bus Chem 12(3):85–103

Download references

Author information

Authors and affiliations.

Department of Industrial Systems, Engineering and Management, National University of Singapore, singapore, Singapore

Seyyed Amir Babak Rasmi

Department of Industrial Engineering, Koç University, Istanbul, Turkey

Metin Türkay

You can also search for this author in PubMed   Google Scholar

Rights and permissions

Reprints and permissions

Copyright information

© 2021 The Author(s), under exclusive license to Springer Nature Switzerland AG

About this chapter

Cite this chapter.

Rasmi, S.A.B., Türkay, M. (2021). Introduction to Aggregate Planning and Strategies. In: Aggregate Planning. SpringerBriefs in Operations Research. Springer, Cham. https://doi.org/10.1007/978-3-030-58118-3_1

Download citation

DOI : https://doi.org/10.1007/978-3-030-58118-3_1

Published : 26 January 2021

Publisher Name : Springer, Cham

Print ISBN : 978-3-030-58117-6

Online ISBN : 978-3-030-58118-3

eBook Packages : Business and Management Business and Management (R0)

Share this chapter

Anyone you share the following link with will be able to read this content:

Sorry, a shareable link is not currently available for this article.

Provided by the Springer Nature SharedIt content-sharing initiative

  • Publish with us

Policies and ethics

  • Find a journal
  • Track your research

what is aggregate planning in operations management

What is Aggregate Planning?

There are times when organizations are not able to meet consumer demands because of limited supply. Maybe while you were…

What Is Aggregate Planning?

There are times when organizations are not able to meet consumer demands because of limited supply. Maybe while you were doing inventory you miscalculated capacity that in turn affected your supply.

Production has its own share of limitations—from workforce levels to changing demands. What an organization must do is assess what it needs to minimize cost by scheduling production over a period of time. This is known as aggregate planning.

What Is Aggregate Planning?

Aggregate planning strategies, problems in aggregate planning.

Usually undertaken for 3 to 18 months, aggregate planning is how organizations plan their production process depending on what resources they have and the cost of production.

It means that planning is concerned with a certain amount of time that factors into long-term goals. Matching demand and supply by taking care of challenges and setbacks is what aggregate planning methods are set out to do.

Here’s what organizations need for aggregate planning:

Relevant data and information about available resources—employees, inventory and equipment

Trend analyses of demand-supply for the relevant period

Assessing alternative costs of production and maintaining inventory in case of setbacks

Internal policies and regulations with respect to alternatives

Aggregate planning methods help organizations communicate goals and ways to achieve them. The only way to reach these objectives is by using resources efficiently. Aggregate planning is typically done 12 months into the future. Some examples of aggregate planning are hiring temporary workers, laying off employees for a specific period or cross-training. This works as an effective benchmark to measure resource utilization and implementation.

In any organization, there are three types of aggregate planning strategies.

Pure Chase Strategy

The purpose of the pure chase strategy is to match or chase demands by minimizing final inventory. It absorbs demand fluctuations effectively for successful aggregate planning. Organizations can either maintain workforce level or output rate to match demand.

Pure Level Strategy

Pure level strategies are concerned with maintaining workforce or output rates at all times. Production will be consistent within the same period of time for which aggregate planning was done. Inventory and backorders help manage demand fluctuations and market changes. Organizations may even employ different ways to put inventory to good use—especially if there’s a change in demand.

Hybrid or Mixed Strategy

A hybrid or mixed strategy combines both inventory and workforce/output rate. It can include maintaining additional inventory ahead of time to match demands or even use backorders to keep up. Organizations can hire temporary workers if needed or they may even furlough or lay off workers temporarily in case of low demand. Job rotations may form a part of mixed strategies to make sure that workers’ skills are being fully-applied.

Organizations react to changes in demand depending on their resources. Whether they focus on inventory or workforce is subjective. Operations can rely on backorders and higher inventory to tackle high demand. Alternatively, they may rely on shifting the workforce if needed.

Aggregate planning isn’t restricted to production or operations. It may be used in services or project management to control employee hours and scheduling tasks. It’s an effective strategy that helps organizations stay on top of their resources and take action without delays.

Aggregate planning is a short to mid-term plan for a particular department in an organization. It’s not part of the greater planning strategy to achieve organizational goals. Rather, it’s concerned with matching demand and supply by manipulating workforce, output rate and inventory. Therefore, it has its set of challenges, including:

Smoothing refers to the cost of changing inventory, relying on backorders and hiring or laying off workers temporarily. Anything that stands outside the norm of day-to-day business has certain costs associated with it. Aggregate planning may be an additional cost to the organization.

Planning Horizon

Aggregate planning is associated with a particular period of 3-12 months. So, it’s important to specify the exact period beforehand or well in advance to keep track of what needs to be done. In terms of workforce and inventory, organizations have to determine the levels at which they need to be maintained. This may require extensive planning on their part.

When it comes to fluctuating demand, it’s not always black and white. Even if organizations ascertain demand at a certain level, it may not be accurate. So, bottleneck planning has to do with an inability to match demand due to capacity limitations. ( thebiem.com )

Aggregate planning strategies are based on forecasting and assumptions. For this, you need to understand the logic behind problems. There are many ways you can analyze problems to break them down into smaller chunks. Harappa’s Creating Solutions will teach you how to navigate challenges associated with aggregate planning. Learn about the five characteristics of good analysis to pick the right numbers. Become an expert in forecasting and make accurate assumptions based on relevant information.

Explore topics such as the  Fishbone Diagram  and Analysis,  Locus of Control  &  5 Whys Analysis  from Harappa Diaries and learn to become an effective problem-solver.

Thriversitybannersidenav

TranZact

What Is Aggregate Planning?: Strategies and Tips

Aggregate production planning is a strategic planning process that helps businesses to know about their overall production and resource requirements for a certain time span. Optimum utilization of resources is the objective of every manufacturer. For this, they first analyze and forecast demand for their goods and then focus on the best ways to fulfill it using the resources at hand most cost-effectively.

This article talks about aggregate planning, its objective, approaches, factors affecting aggregate planning, aggregate planning benefits, aggregate planning best practices, and more. Read ahead to learn more about this strategic approach.

TranZact - Best Inventory Management Software

  • What Is Aggregate Planning?

Aggregate planning is a strategic action plan for about three months to a year or more where a schedule is developed regarding production and operations. The focus is on resource allocation and the objective is to streamline the processes and reduce production costs. Another goal of aggregate planning is to make the production capacity effective enough to meet demand.

A manufacturing plan is prepared months in advance after analyzing factors such as inventory capacity, availability of workforce, and cost of production among others. It aims to ensure that production is as per the demand forecast and remains uninterrupted.

Aggregate planning provides a strategic roadmap that is completely inclined with business goals or objectives. This process is commonly used in manufacturing, retail, and service industries to ensure that the right products or services are available at the right time, in the right quantities, and at the right cost. It is highly beneficial to improve production efficiency, improve customer satisfaction, and ensure long-term success.

  • Aggregate Planning Objectives

The main goal of aggregate planning is to balance the production capacity of a business with the demand for its products or services over a specific planning horizon. It seeks to determine the optimal production level that meets customer demand while minimizing production and inventory costs , maximizing efficiency, and maintaining a stable workforce.

During the production period, many problems can arise. However, using this comprehensive production plan, businesses can easily identify and rectify those problems. It is possible because production planning takes market trends, production capacity, demand forecasts, inventory levels , and labor availability into account.

With this information, it becomes easy for businesses to make informed choices when it comes to production levels, staffing, and inventory management to optimize their resources and meet both customer satisfaction goals and financial goals.

  • Aggregate Planning Approaches

Aggregate production planning (APP) is the process of ideating and developing a production plan that balances supply and demand patterns over a certain time horizon, typically ranging from a few months to a year.

There are different approaches to aggregate planning, and businesses can choose the most suitable approach depending on their vision, constraints, and resources.

Aggregate planning can be done by following various approaches as listed below:

  • The Level Strategy approach aims at a consistent production rate.
  • Chase's Strategy approach aims at matching production speed with demand.
  • The Hybrid approach is a combination of level and chase strategy where production is done consistently as per demand.
  • The Outsourcing approach means outsourcing production to another manufacturer.
  • The Backorder approach means accepting orders but completing them later involving a longer lead time.

These approaches are explained in detail, later in this blog.

  • Factors Affecting Aggregate Planning

Aggregate planning in operations management is an essential process for companies that need to plan their production operations to meet demand while minimizing costs and maximizing efficiency. It needs to be done carefully considering the below-listed factors:

  • A comprehensive demand forecasting for 3 to 18 months periods.
  • Production costs including the cost of raw materials, workers, and inventory planning.
  • Production capacity i.e. machine and other resources available for production.
  • The current level of inventory.
  • The number and capability of the workforce.
  • Lead time i.e. the time for the production of goods and meeting orders.
  • The production efficiency of the organization based on technology and processes.
  • Government regulations also affect the status of aggregate planning.
  • Aggregate Planning Benefits

Here are some points to understand the advantages of aggregate planning:

Balancing supply and demand: Creating a balance between demand and supply is one of the main mottos of APP. It ensures that there is no overproduction or underproduction.

Resource allocation: APP plays an important role in allocating resources as effectively as possible. It integrates labor, equipment, and material requirement parameters to improve efficiency and reduce waste.

Cost control: When demand and production are aligned together, it highly reduces the cost by helping production houses buy only the required materials.

Improving customer service: When the production matches the demand, it helps in maintaining a healthy customer-seller relationship.

Strategic planning: APP helps in the future planning of production businesses. Analyzing all the key factors involved, APP methodologies help businesses to make informed and calculative decisions.

  • How to Create an Aggregate Plan

Creating a good aggregate plan requires a systematic approach. Here are some key steps to follow when creating an effective APP:

  • Develop a demand forecast: Gather data on historical sales trends, market conditions, and customer demand to develop a reliable forecast for planning. This forecast helps to gauge the inventory and production requirements.
  • Analyze production capacity: For high-level aggregate production planning, consider factors, such as technology, equipment, staffing, production capacity, and capabilities.
  • Make the production plan: One must also determine the production plan by using factors, such as demand forecast. Comprehensive planning helps in balancing demand and production. Considering some other production strategies such as level, chase, or mixed production will also help in fitting the best requirements and goals for the business.
  • Optimize inventory levels: While conducting the aggregate production planning process, it is required to determine the proper inventory level so that it can match demand and production objectives. This optimization helps to reduce inventory carrying costs while ensuring that sufficient inventory is available to meet customer demand.
  • Monitor and adjust the plan: Regularly monitor actual production and demand data to ensure that the plan is on track. Adjust the plan as necessary based on changes in demand or production capacity.
  • Types of Aggregate Planning Strategies

Here are some effective aggregate production planning methods or strategies that businesses can use based on the importance of aggregate planning for their business.

Level production strategy helps to keep the workforce and inventory levels constant, which reduces the costs associated with hiring and training new employees and managing excess inventory.

Chase production strategy: This strategy involves adjusting the production levels to match the demand for products. The company ramps up production during peak periods and slows down during slow periods. Chase's production strategy helps to minimize inventory costs, but it requires a flexible workforce and efficient production scheduling.

Mixed production strategy: This strategy combines the level and chase production strategies, depending on the demand for products. The company maintains a base level of production to meet the minimum demand, and then ramps up or slows down production as needed. A mixed production strategy offers the benefits of both level and chase production strategies, but it requires a more complex production planning process.

Subcontracting strategy: This strategy involves outsourcing some of the production tasks to other companies or suppliers. Subcontracting strategy helps to reduce production costs and increase flexibility, but it requires careful selection of suppliers and effective management of the outsourcing process.

  • Aggregate Planning Best Practices

Following best practices will help you make an effective plan.

  • Always take inputs from all the key departmental heads to ensure all aspects are taken care of at the planning stage itself.
  • To have an effective plan, you must consider past data, market, and demand trends, and other business assumptions and variables to plan better.
  • Do ascertain accurate demand and production capacity to know the real picture. Analyze capacity constraints and always have a Plan B just in case your Plan A fails for some reason.
  • List and understand all the company policies and regulations related to how much production can be done, and what compliances need to be adhered to.
  • Before making a plan have a clear idea of the costs involved i.e. fixed and variable costs and direct and indirect labor costs.
  • Review the aggregate plan from time to time and make changes as per sales, production, and inventory levels.
  • Enhance Production Efficiency With Precise Aggregate Planning

Effective aggregate planning is essential for ensuring the long-term success of a business. By carefully considering these strategies and selecting the one that best fits their production needs, businesses can optimize their production processes, minimize costs, and meet the demands of their customers.

TranZact offers a dedicated production module that assists SMEs with real-time information on orders and inventory movements so that they can plan their production to suit demand and save costs!

  • FAQs on Aggegrate Planning

1. What are the steps in the aggregate planning process?

The steps in the aggregate planning process include determining demand forecasts, evaluating the plans, selecting the best plan, developing alternative plans, and implementing the plan.

2. What is an example of aggregate planning?

An aggregate production planning example is when a company manufactures smartphones. The company needs to plan its production and workforce levels to meet the expected demand for its smartphones over the next year. In this way, it creates a strategy to meet future demand by adjusting production levels, labor, and inventory.

3. What are the types of aggregate planning?

Types of aggregate production planning include level strategy, chase strategy, hybrid strategy, backorder strategy, and inventory strategy.

4. What are the 5 costs in aggregate planning?

The five costs in aggregate planning include regular time cost, overtime cost, subcontracting cost, inventory holding cost, and back-ordering or stockout cost.

Table of Contents:

Grow your business with tranzact., it's trusted by 10,000+ indian smes., tranzact blogs, pick the blog emails you want to receive.

Period Cost

Period Costs Meaning, Types, Advantages and Examples

Explore the guide to period costs. Understand better how period...

Cash Conversion Cycle in Manufacturing

Mastering The Cash Conversion Cycle In Manufacturing Businesses: Key To Sustainable Cashflow

Learn what is Cash Conversion Cycle in Manufacturing industry. Learn...

Gross Domestic Product

Gross Domestic Product (GDP): Formula and How to Use It

Discover how Gross Domestic Product impacts Indian SME manufacturers. Get...

Procurement

Procurement: Process, Types, Steps, and More

An effective procurement process helps you to handle the acquisition...

Factor of Production

Factors Of Production

Understand the factors of production in simple words. Knowing it...

Product cost

What Is Product Cost?

Are you facing a problem with pricing your product accurately?...

Prime cost

What Is Prime Cost?

Knowing the prime costs and ways to calculate them will...

Production Planning Frontier

Production Possibility Frontier (PPF)

Discover the Production Possibility Frontier (PPF) on TranZact. Learn how...

Production Rate

Production Rate: Definition and Calculation Formula Example

Unlock secrets to increasing production rate. Discover strategies and tips...

TranZact is a team of IIT & IIM graduates who have developed a GST compliant, cloud-based, inventory management software for SME manufacturers. It digitizes your entire business operations, right from customer inquiry to dispatch. This also streamlines your Inventory, Purchase, Sales & Quotation management processes in a hassle-free user-friendly manner. The software is free to signup and gets implemented within a week.

Marketing91

Aggregate Planning – Definition, Importance, Strategies And Advantages

August 24, 2020 | By Hitesh Bhasin | Filed Under: Operations Management

Definition:

Aggregate planning is a planning method in the production process which is also considered a marketing activity used to determine the required resource capacity to meet expected demand. Aggregate planning

The aggregate planning is done in advance of 6 – 18 months and includes a combination of sub-contracting, sourcing, outsourcing, employment, labor overtime, amount of inventory and planned output to match demand and supply cost-effectively.

Aggregate planning is critical to an organization which wants to optimize its operational activity because it helps in balancing short term production plans and long term strategic plans.

Table of Contents

Importance of aggregate planning

Aggregate planning is a proven technique that brings an element of foresight and stability into manufacturing. It helps the management to achieve the long-term objectives of a company. The importance of aggregate planning include-

  • Creates a satisfied and happy workforce
  • Reduce changes in the levels of the workforce
  • Helps to determine resources for the short-term
  • Helps in maximum utilization of space
  • Meets the overall goals and objectives of a company
  • Helps to adjust capacity to meet demand
  • Minimizes costs associated with inventory stocking
  • Reduce investments related to various inventories
  • Matching demand with supply and minimizing the waiting time for the customers to maximize customer service
  • Offers better customer value
  • Proper utilization of production facilities
  • Maximum usage of various types of equipment
  • Reducing the changes in production rates
  • Removes variable cost and improves the bottom line of the financial statement for achieving the business goals of an organization

Management and Planning Strategies

Strategies for management and users

The aggregate planning strategies include-

1. Level strategy

This type of aggregate planning deals with producing goods of similar quantities over equal duration. This is done to handle a peak in market demand by filling out back orders or by sending the extra products to inventory. The level strategy is considered a traditional aggregate planning method that maintains a steady production rate as well as the level of the workforce by continuing consistent human resources and production in the organization.

It is best suited where the inventory carrying costs are not high and are adopted by mainly manufacturing companies. The advantages of using level strategy are well-trained workforce as their changes are not so frequent, experienced workers and a low rate of absenteeism and employee turnover. An essential disadvantage of level strategy is building up inventory costs during the lean period when the demand is low.

2. Chase strategy

The chase strategy of aggregate planning puts its onus on reducing inventory. It keeps pace with demand fluctuations by varying either actual level of output or the workforce number. It is considered not as rigid as a level strategy as it allows room for some deviation from the conventional approach. This methodology helps to minimize waste by receiving goods when needed. It often leads to stressed employees.

This strategy is popular in several industries like hospitals, hospitality business and educational centers like schools. The advantage of chase strategy is high flexibility to meet the fluctuations in demand and the disadvantages related to the strategy include high costs associated with hiring as well as training the workforce.

3. Hybrid strategy for an aggregate planning

As the name indicates, the Hybrid strategy is an integration of both level and chase strategies to get a better result. It maintains a sufficient balance between stock level, recruiting, termination and production rate. In the hybrid strategy of aggregate planning, the organizations build up inventory before rising demands. It uses backorders to level with high peak periods.

It can easily cover short-term peaks by hiring workers temporarily or by subcontracting production. Hiring, lay-off and reassigning workers is a normal part of the hybrid strategy.

plan Advantages for Management and Users

The advantages associated with aggregate planning include-

  • It helps the organization in dealing with production facilities in a lean manner. If a manufacturing facility has an excess of finished products, then it is not suitable for it. The chance of product damage before reaching the end target is higher and this means loss. Moreover, excess inventory costs mean additional expense for the company. The only way to minimize these costs is by implementing a proper aggregate planning process.
  • The process helps to develop effective strategic plan as well as relationships with distributors and suppliers. It also assists in making developing accurate market research
  • The planning helps in the optimization of inventory. Carrying excessive inventory will mean additional expenses for a manufacturing company. It also results in more storage space to keep it properly because the chances of damage increase if the storage space is not proper. The organization will also have to invest in more resources, labor and equipment to manage the inventory and for its movement. The process makes an adequate estimation for the anticipated inventory that will be sufficiently able to meet projected demands.
  • An essential advantage is that it serves as a useful tool for making viable forecasts about product demand. A business entity is now able to make predictions about staff requirements, for instance, the number of additional workers it will need temporarily or the number of employees it will need to lay-off. Proper forecasting helps the company to fill the positions with temporary staff from agencies. The need for additional hires is easily met without other expenses that are part of the full-time workforce. The aggregate planning method helps the organization to make considerable savings in terms of both money and time that would have to be spent on the hiring and training process.
  • It helps to adjust capacity so that it can meet demands
  • The aggregate planning process helps to calculate capacity, for instance, how many units can be produced daily or in a week or a month.
  • Production orders cannot be constant throughout the year. It will vary and this makes it difficult for the business entities to keep up with a similar production plan for all times. The aggregate planning process takes this thought into consideration and allows for contingency measures. These are put in place so that the manufacturing facilities can accommodate the changes that occur in production as well as orders from the customers. The organization keeps shifting between the level strategy, chase strategy and hybrid strategy to keep up with the changes.
  • It helps the organization to identify the best options so that it can meet the demands easily.
  • It assists in knowing about the inefficiencies that exist within the organization
  • It helps to determine resources for instance amount of raw materials on hand, availability of total machine hours and the total number of workers along with products in progress, packaging materials, and tools required for manufacturing finished goods
  • An advantage of the planning process is that it helps to project demand and figure out the units in need for the short-term by factoring in advertising campaigns, special pricing, and promotions.
  • It encourages the optimized utilization of space. The facilities that are used by organizations for manufacturing purposes are too costly and it is not feasible to own or rent it at all times. Besides paying for space, an organization also has to pay for maintenance and utilities. The planning helps the company to avoid any scenario where the space is unused for an extended period and it has to bear unnecessary expenses
  • It helps to offer optimized value to both the direct buyers from which it is getting raw materials etc. and end customers to which it will sell the products. The process reduces the production costs and this helps them to pass on savings. Ultimately the end consumer gets the best quality products at the minimum price levels

Thank you for reading our article about of aggregate planning

Liked this post? Check out the complete series on Operations Management

Related posts:

  • Capacity Planning: Meaning, Strategies, Importance and Procedure
  • Production Planning – Definition, Objectives, Need, Types, Importance
  • What is Capacity Management? Role in Planning
  • 10 Strategies to Minimize Waiting Time of Customer
  • Process Control: Meaning, Objectives, Types, Importance, and Advantages
  • Mass Production – Definition, Meaning, Understanding, Advantages
  • Process Analysis – Definition, Meaning, Objectives, Advantages
  • Quality Audit – Definition, Meaning, Types, Advantages
  • Bonded Warehouse – Definition, Types and Advantages
  • Capacity Utilization Rate – Definition, Meaning, Importance

' src=

About Hitesh Bhasin

Hitesh Bhasin is the CEO of Marketing91 and has over a decade of experience in the marketing field. He is an accomplished author of thousands of insightful articles, including in-depth analyses of brands and companies. Holding an MBA in Marketing, Hitesh manages several offline ventures, where he applies all the concepts of Marketing that he writes about.

All Knowledge Banks (Hub Pages)

  • Marketing Hub
  • Management Hub
  • Marketing Strategy
  • Advertising Hub
  • Branding Hub
  • Market Research
  • Small Business Marketing
  • Sales and Selling
  • Marketing Careers
  • Internet Marketing
  • Business Model of Brands
  • Marketing Mix of Brands
  • Brand Competitors
  • Strategy of Brands
  • SWOT of Brands
  • Customer Management
  • Top 10 Lists

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Marketing91

  • About Marketing91
  • Marketing91 Team
  • Privacy Policy
  • Cookie Policy
  • Terms of Use
  • Editorial Policy

WE WRITE ON

  • Digital Marketing
  • Human Resources
  • Operations Management
  • Marketing News
  • Marketing mix's
  • Competitors

How to Implement Aggregate Planning Strategies to Achieve Optimal Production SchedulingAggregate Planning Strategies In Operations Management

Introduction.

Aggregate planning strategies are an important part of operations management. They are used to plan and coordinate the production of goods and services over a certain period of time. Aggregate planning strategies help to ensure that the right amount of resources are available to meet customer demand. They also help to minimize costs and maximize efficiency. Aggregate planning strategies involve analyzing customer demand, forecasting future demand, and developing a plan to meet that demand. This includes determining the right mix of resources, such as labor, materials, and equipment, to meet customer demand. Aggregate planning strategies also involve scheduling production and managing inventory levels. By using aggregate planning strategies, businesses can ensure that they are able to meet customer demand while minimizing costs and maximizing efficiency.

Exploring the Benefits of Aggregate Planning Strategies for Improved Operations Management

Aggregate planning strategies are essential for effective operations management. By utilizing these strategies, businesses can improve their overall efficiency and profitability. Aggregate planning strategies involve the coordination of resources, such as labor, materials, and capital, to meet the demands of customers. This type of planning helps businesses to better manage their resources and ensure that they are being used in the most efficient manner.

The primary benefit of aggregate planning strategies is that they allow businesses to better anticipate customer demand. By understanding customer demand, businesses can better plan for the resources they need to meet that demand. This helps to reduce the risk of overstocking or understocking resources, which can lead to costly delays or shortages. Additionally, aggregate planning strategies can help businesses to better manage their inventory levels, which can help to reduce costs associated with storage and transportation.

Aggregate planning strategies can also help businesses to better manage their labor costs. By understanding customer demand, businesses can better plan for the number of employees they need to meet that demand. This helps to reduce the risk of overstaffing or understaffing, which can lead to costly delays or shortages. Additionally, aggregate planning strategies can help businesses to better manage their labor costs by allowing them to better forecast labor costs and adjust their staffing levels accordingly.

Finally , aggregate planning strategies can help businesses to better manage their capital investments. By understanding customer demand, businesses can better plan for the capital investments they need to meet that demand. This helps to reduce the risk of overinvesting or underinvesting in capital, which can lead to costly delays or shortages. Additionally, aggregate planning strategies can help businesses to better manage their capital investments by allowing them to better forecast capital costs and adjust their investments accordingly.

Overall , aggregate planning strategies are essential for effective operations management. By utilizing these strategies, businesses can improve their overall efficiency and profitability. By better anticipating customer demand, managing inventory levels, managing labor costs, and managing capital investments, businesses can ensure that their resources are being used in the most efficient manner.

How to Implement Aggregate Planning Strategies to Achieve Optimal Production Scheduling

Aggregate planning is a key component of production scheduling and is essential for achieving optimal production scheduling. Aggregate planning strategies involve the use of various techniques to plan and manage production levels over a given period of time. These strategies can be used to ensure that production levels are maintained at the most efficient level possible.

The first step in implementing aggregate planning strategies is to identify the objectives of the production scheduling process. This includes determining the desired production levels, the desired production rate, and the desired inventory levels. Once these objectives have been identified, the next step is to develop a plan that will meet these objectives. This plan should include the use of various techniques such as capacity planning, inventory management, and scheduling.

Capacity planning involves determining the amount of resources needed to meet the desired production levels. This includes determining the number of machines, personnel, and other resources needed to meet the desired production levels. Inventory management involves determining the amount of inventory needed to meet the desired production levels. This includes determining the amount of raw materials, finished goods, and other inventory items needed to meet the desired production levels. Scheduling involves determining the timing of production activities to ensure that production levels are maintained at the most efficient level possible.

Once the plan has been developed , it is important to monitor and adjust the plan as needed. This includes monitoring production levels, inventory levels, and other factors to ensure that the plan is meeting the desired objectives. If adjustments are needed, they should be made in a timely manner to ensure that production levels remain at the most efficient level possible.

By implementing aggregate planning strategies , companies can ensure that production levels are maintained at the most efficient level possible. This can help to reduce costs, improve customer satisfaction, and increase profits.

Analyzing the Impact of Aggregate Planning Strategies on Supply Chain Management

Supply chain management (SCM) is a critical component of any successful business. It involves the coordination of activities across the entire supply chain, from the procurement of raw materials to the delivery of finished products to customers. Aggregate planning strategies are an important part of SCM, as they help to ensure that the supply chain is operating efficiently and effectively.

Aggregate planning strategies involve the use of forecasting and scheduling techniques to determine the most cost-effective way to meet customer demand. These strategies can include the use of inventory management, production scheduling, and capacity planning. By utilizing these strategies, businesses can better manage their supply chain and ensure that they are able to meet customer demand in a timely and cost-effective manner.

The impact of aggregate planning strategies on SCM can be significant. By utilizing these strategies, businesses can reduce costs associated with inventory management, production scheduling, and capacity planning. Additionally, businesses can improve their customer service by ensuring that they are able to meet customer demand in a timely and cost-effective manner. Furthermore, businesses can improve their overall efficiency by reducing the amount of time and resources spent on managing the supply chain.

In conclusion , aggregate planning strategies are an important part of SCM and can have a significant impact on the overall efficiency and effectiveness of the supply chain. By utilizing these strategies , businesses can reduce costs, improve customer service, and increase their overall efficiency. As such , businesses should consider implementing aggregate planning strategies in order to maximize the efficiency and effectiveness of their supply chain.

Examining the Role of Technology in Aggregate Planning Strategies for Operations Management

Technology has become an integral part of operations management , and aggregate planning strategies are no exception. Aggregate planning is the process of developing, analyzing, and maintaining a broad and approximate schedule of the operations of an organization. It is a crucial part of operations management, as it helps to ensure that resources are allocated efficiently and that production goals are met.

Technology has had a major impact on the way aggregate planning strategies are developed and implemented. In the past , aggregate planning was done manually, with planners relying on their own experience and intuition to make decisions. This approach was often time-consuming and prone to errors.

Today , technology has made it possible to automate many of the processes involved in aggregate planning. For example , software programs can be used to analyze data and generate forecasts, allowing planners to make more informed decisions. Technology can also be used to track and monitor production levels, allowing planners to adjust their strategies in real-time.

In addition , technology has enabled planners to access a wealth of data from a variety of sources. This data can be used to develop more accurate forecasts and to identify potential problems before they arise. Technology can also be used to create simulations that allow planners to test different strategies and determine which ones are most effective.

Overall , technology has had a major impact on the way aggregate planning strategies are developed and implemented. By automating processes, providing access to data, and enabling simulations, technology has made it easier for planners to develop and implement effective strategies. As technology continues to evolve, it is likely that aggregate planning strategies will become even more efficient and effective.

Understanding the Challenges of Aggregate Planning Strategies in Operations Management

Aggregate planning is a key component of operations management that involves the development of strategies to meet the demand for a product or service. It is a critical process for businesses as it helps to ensure that resources are allocated efficiently and that production costs are kept to a minimum. However, aggregate planning can be a challenging process due to the complexity of the factors involved.

One of the main challenges of aggregate planning is the need to accurately forecast demand. This requires a thorough understanding of the market and the ability to anticipate changes in customer demand. Additionally, the process must take into account the availability of resources, such as labor and materials, and the cost of production. This can be difficult to predict, as it is often subject to external factors such as economic conditions and competition.

Another challenge of aggregate planning is the need to balance short-term and long-term objectives. Short-term objectives may include meeting customer demand and minimizing costs, while long-term objectives may include maintaining a competitive advantage and ensuring the sustainability of the business. This requires careful consideration of the trade-offs between short-term and long-term objectives.

Finally , aggregate planning must take into account the impact of changes in the external environment. This includes changes in customer demand, economic conditions, and competition. As these factors can have a significant impact on the success of the business, it is important to be able to anticipate and respond to changes in the external environment.

Overall , aggregate planning is a complex process that requires careful consideration of a range of factors. It is essential for businesses to understand the challenges of aggregate planning in order to ensure that resources are allocated efficiently and that production costs are kept to a minimum.

Evaluating the Cost-Effectiveness of Aggregate Planning Strategies for Operations Management

The cost-effectiveness of aggregate planning strategies for operations management is an important consideration for any business. Aggregate planning strategies are used to determine the most efficient and cost-effective way to meet customer demand while minimizing costs. By carefully analyzing the costs associated with different strategies, businesses can make informed decisions about which strategies are most beneficial for their operations.

When evaluating the cost-effectiveness of aggregate planning strategies , businesses should consider the following factors: production costs, inventory costs, labor costs, and overhead costs. Production costs include the cost of raw materials, labor, and other resources needed to produce goods or services. Inventory costs include the cost of storing and managing inventory, as well as the cost of lost sales due to stockouts. Labor costs include the cost of hiring and training employees, as well as the cost of wages and benefits. Overhead costs include the cost of utilities, rent, and other expenses associated with running a business.

Businesses should also consider the impact of aggregate planning strategies on customer service. Aggregate planning strategies can help businesses meet customer demand in a timely and cost-effective manner, which can lead to increased customer satisfaction and loyalty. Additionally, businesses should consider the impact of aggregate planning strategies on their overall profitability. By carefully analyzing the costs associated with different strategies, businesses can identify the most cost-effective approach to meeting customer demand.

In conclusion , the cost-effectiveness of aggregate planning strategies for operations management is an important consideration for any business. By carefully analyzing the costs associated with different strategies, businesses can make informed decisions about which strategies are most beneficial for their operations. Additionally, businesses should consider the impact of aggregate planning strategies on customer service and overall profitability. By taking these factors into account, businesses can ensure that they are making the most cost-effective decisions for their operations.

  • What Is Aggregate Planning? Strategies & Tips – ProjectManager
  • What is Aggregate Planning ? – Importance and its Strategies
  • Why You Should Use Aggregate Planning in Your Business

admin

  • Previous Advanced Management Strategies Group Inc
  • Next Aggregate Planning Strategies In Supply Chain Management

Accommodating Conflict Management Strategy

Accommodating Conflict Management Strategy

Business Planning Horsham

Thought Leadership Strategy

Exploring the Benefits of Needle Exchange Programs in Reducing Drug-Related Harm

Exploring the Benefits of Needle Exchange Programs in Reducing Drug-Related Harm

Your email address will not be published. Required fields are marked *

  • Sample Page

U.S. flag

An official website of the United States government

The .gov means it’s official. Federal government websites often end in .gov or .mil. Before sharing sensitive information, make sure you’re on a federal government site.

The site is secure. The https:// ensures that you are connecting to the official website and that any information you provide is encrypted and transmitted securely.

  • Publications
  • Account settings
  • Advanced Search
  • Journal List

Logo of plosone

Sustainability in Supply Chain Management: Aggregate Planning from Sustainability Perspective

Metin türkay.

Department of Industrial Engineering, Koç University, İstanbul, Turkey

Öztürk Saraçoğlu

Mehmet can arslan.

Conceived and designed the experiments: OS MCA MT. Performed the experiments: OS. Analyzed the data: OS MT. Contributed reagents/materials/analysis tools: OS MCA. Wrote the paper: OS MT.

Associated Data

All data is supplied in S1 and S2 Tables. The optimization model and the implementation of the epsilon-constraint algorithm used in this the study is supplied in GAMS format as S1 Model .

Supply chain management that considers the flow of raw materials, products and information has become a focal issue in modern manufacturing and service systems. Supply chain management requires effective use of assets and information that has far reaching implications beyond satisfaction of customer demand, flow of goods, services or capital. Aggregate planning, a fundamental decision model in supply chain management, refers to the determination of production, inventory, capacity and labor usage levels in the medium term. Traditionally standard mathematical programming formulation is used to devise the aggregate plan so as to minimize the total cost of operations. However, this formulation is purely an economic model that does not include sustainability considerations. In this study, we revise the standard aggregate planning formulation to account for additional environmental and social criteria to incorporate triple bottom line consideration of sustainability. We show how these additional criteria can be appended to traditional cost accounting in order to address sustainability in aggregate planning. We analyze the revised models and interpret the results on a case study from real life that would be insightful for decision makers.

Introduction

Supply chain management has become one of the most important core functions of companies in manufacturing and service sectors. Supply chain management considers all of the stages from raw material procurement to consumption by the end users in fulfilling the demand for a certain product or service. In the simplest terms, whenever there is a demand either for a product or a service and supply to fulfill this demand, a supply chain emerges.

“The supply chain encompasses all activities associated with the flow and transformation of goods from raw materials stage (extraction), through to the end user, as well as the associated information flows. Material and information flow both up and down the supply chain.”[ 1 ]

In particular, a supply process receives certain inputs that are then turned into desired outputs via a transformational process to satisfy the demand. Therefore, any activity in fulfilling the demand is in the scope of the supply chain system under consideration. Any business entity either being a manufacturing or a service business has an underlying supply chain system and in the core of this system is what is called the production or operations function of the business. Production and operations functions focus on the flow of information, and material between stages of the supply chain.

Complexity of supply chains shows significant varieties depending on its structure, products and services provided by companies. For example, Apple Corp. is considered to manage one of the most efficient supply chains in the world these days. The supply chain of Apple starts with the R&D phase where new products and services are designed and the design concepts are tested. Then, in the Pre-Launch stage involves mainly building up inventories for the products in accordance with the expected demand. The launch stage involves forecasting the demand for the next two quarters and resolving backlog problems. The quarterly reviews focuses on managing inventory levels, adjusting demand forecast and monitoring sales, demand and product life cycle. The last three stages that include Pre-Launch, Launch and quarterly review is considered as part of the Aggregate Planning activity. The supply chain management problems deal with long-term, medium-term and short-term decision. The medium-term decisions affect the system performance between 3–9 months and generally include the capacity utilization, workforce management and inventory management decisions. In general, these decisions are considered simultaneously in aggregate planning problem [ 2 ]. The aggregate planning problem sets production capacities, labor utilization, inventory profiles, backordering in the case of not being able to satisfy the demand on time, and subcontracting. Therefore, the aggregate planning problem is a key instrument in applying the strategic level decisions while determining the principles of operational level problems. In addition, the aggregate planning problem encompasses economic, environmental and social factors.

In managing the supply chains, integrating sustainability in the decision-making process had become one of the focal subjects due to increasing awareness from the customers who use the products supplied by companies.

In this paper, we propose a methodological approach to incorporate sustainability considerations in the aggregate planning problem of supply chain management and illustrate our approach on household refrigerator industry in Turkey.

Sustainability

Sustainability is used either as the ability to sustain a practice or process or to refer to environmental consciousness in the literature and most non-academic resources. Both comprehensions are valid but incomplete. Sustainability is closely related to the concept of sustainable development, which is defined as “the development that meets the needs of the present without comprising the ability of future generations to meet their own needs” [ 3 ].

The traditional method for posing the aggregate planning problem is based on a purely economic model. However, sustainability suggests that environmental and social criteria need to be considered along with economic criterions, which are called the “three pillars” or the “triple bottom line” of sustainability [ 4 ]. To address the sustainability in supply chain management, the decision maker should incorporate these three pillars of sustainability simultaneously into the decision-making process. The application of the triple bottom line accounting on economic order quantity (EOQ) was shown to provide very useful insights [ 5 ]. It was shown that inclusion of environmental and social factors in addition to economic considerations allows the decision makers to assess their decisions from sustainability perspective.

In this paper, a methodological approach to incorporate sustainability considerations in the aggregate planning problem is presented. The standard model is extended to according to additional environmental and social criteria. The revised models are then analyzed to drive insights into the aggregate planning problem from sustainability perspective. The analysis shows how environmental and social criteria can be appended to traditional cost accounting in order to address sustainability in supply chain management with the aggregate planning problem.

The literature on sustainability of supply chains focus on reviews and also a number ideas to incorporate sustainability. However, most of the existing literature considers only economic and environmental aspects of sustainability. Beamon [ 6 ] and Handfield et al. [ 7 ] both present a review of environmental management issues in supply chain planning and provide a framework of achieving and maintaining a greener supply chain. These papers consider sustainability from environmental perspective only. They analyze the impact of environmental policies on the supply chains. They show that environmental policies must be considered in the decision-making framework in order to have greener supply chains. Toptal et al. [ 8 ] analyze different regulations for carbon emission policies. An important consideration is the cap-and-trade policy that allows trading of carbon emissions through a system such as EU Emissions Trading System. The firms have two options: they either buy or sell carbon allowances at a specified market price or they pay their carbon emissions costs as taxes. Boulanger and Breechet [ 9 ] survey the genetic methods that can be used by the policy-makers in assessing the sustainability performance of their policies. They also discuss the appropriateness of these methods using sector-based applications and conclude that the multi-agent simulation models are best suited with decision-making for sustainability. Turkay [ 10 ] reviews methods for environmentally conscious supply chain management and categorizes them as product centric (closed-loop supply chains), production system centric (environmentally conscious production) and transportation system centric (sustainable transportation) approaches. Under environmentally conscious production, supply chain systems with environmental extensions are studied. Carter [ 11 ] deals with purchasing social responsibility (PSR) as an application of corporate social responsibility (CSR) to supply chains. Carter and Jennings [ 12 ] analyze the effect of social responsibility projects on supply chain performance and conclude that these projects enhance the supply chain performance. The main message in [ 11 ] and [ 12 ] is the necessity to include social factors in the models in order to achieve sustainability along with the environmental factors. It is clear from the literature that inclusion of social factors in the aggregate planning of sustainable supply chains has not attracted attention and we aim to fill this gap in this paper.

The Aggregate Planning Problem

The standard aggregate planning problem aims to determine the production levels, inventory kept in the supply chain, hiring and firing employees, overtime production, backorders and demand satisfaction levels with the objective of having the minimum cost or maximum profit. It is the most widely solved supply chain management problem. In this paper, the standard aggregate planning model is extended to include carbon footprint, energy consumption, employee job-security and morale-motivation, employee health and work-family balance, and customer satisfaction considerations with the purpose of incorporating the triple bottom line accounting of sustainability. The carbon footprint consideration is quantified by GHG emissions and the energy consumption consideration by the electricity/heat usage metrics during manufacturing. On the other hand, hiring and firing quantify employee job-security and morale-motivation factors whereas employee health and work-family balance factors are considered by the overtime hours. Finally, the customer satisfaction consideration is quantified by the fill rate of the demand metric. Based on these metrics we develop six models: two environmentally revised models (emissions cap and energy consumption cap), three socially revised models (smoothing and layoff limits, overtime limit, and service level target), and one TBL accounting model. For all of the revised models, mathematical programming formulations are analyzed with data from real-life along with numerical sensitivity analyses.

In aggregate planning, the decision maker first estimates aggregate cost components including labor costs, capacity changing costs, production costs, inventory holding costs, stock-out and backlogging costs, and subcontracting costs. The estimation of these costs is not an easy task; however, it is a prerequisite for aggregate planning. Apart from the cost components, other factors including the demand forecast, D t , for each period, t ; the number of working days in each period, labor hours required per item of production, and the initial inventory, backlog and workforce levels are required to devise the aggregate plan. Once all these inputs are determined, the aggregate planning problem can be formulated as a mathematical programming problem and solved. The resulting plan should then be disaggregated to form Master Production Schedule (MPS) and obtain the Materials Requirement Plan (MRP) [ 13 ]. In other words, the aggregate planning is a prerequisite for many operations including production planning, scheduling, and inventory management.

The decision maker not only reveals information on production, inventory, and capacity levels but also on the required capital, machinery, and warehouse space, sourcing decisions and supplier purchase level, customer service levels, and product pricing by deducing the aggregate plan. Clift [ 14 ] proposes metrics for sustainability in all aspects; i.e. economic, environmental and social. The author argues that social metrics are not so common and a public consensus is needed to define and use them in decision-making processes. Moreover, aggregation across the dimensions such as expressing ecological impact through monetary units is both unnecessary and undesirable. Koplin et al. [ 15 ] provides a case study of an automobile company regarding environmental and social impacts management and present a sustainable supply chain management concept. Sarkis [ 16 , 17 ] presents a decision-making framework for environmentally conscious business management using analytic network process (ANP). Arslan and Turkay [ 5 ] examine the sustainability considerations in the inventory management problems. They include the economic, environmental and social factors of the triple bottom line accounting of sustainability in the deterministic inventory management problem using the EOQ model. Bonney and Jaber [ 18 ] provide a list of non-cost metrics for incorporating environmental footprint in the inventory context. Although [ 18 ] uses similar models that are available in [ 5 ], [ 18 ] focuses on the environmental factors of the EOQ model. Cai et al. [ 19 ] present a dynamic linear programming (LP) model for large-scale energy generation plants in Waterloo region of Canada. They observe the trade-offs between system costs and GHG emission for the system under consideration. They also state that their model enables analysis of alternative technologies over a number of periods and may be extended to cover a large variety of complexities common in energy systems. Letmathe and Balakrishnan [ 20 ] present a linear and a mixed-integer program for firms to determine the optimal product mix and production quantities under environmental constraints in addition to the production constraints. Lineras and Romeo [ 21 ] give a multi criteria decision-making method for electricity planning and model GHG emissions as well as radioactive waste as minimization objectives. Penkuhn et al. [ 22 ] present a constrained nonlinear program (NLP) for a production planning problem in the process industry.

It is necessary to consider the social factors in addition to the environmental and economic ones in order to analyze supply chains from sustainability perspective. Past literature on sustainable supply chains mainly focuses on the environmental factors. The main conclusion from these papers is to include carbon tax as the environmental factor that gives favorable results in terms of environmental dimension of sustainability. The social factors, on the other hand, has not attracted attention due to lack of understanding and data on their impact on the performance of sustainable supply chains.

This paper presents three novel contributions to the aggregate planning problem: the introduction of sustainability through triple bottom line accounting that includes social aspects in addition to economic and environmental aspects, the use of the learning curve in reflecting the workers performance on the production efficiency with time, and the smoothing limit that decreases the hiring and firing employees on the system performance. Then, the effects of all of the aggregate planning decisions with the realistic model are analyzed from sustainability perspective. From environmental perspective, carbon footprint and carbon tax are added to the classical model. Carbon footprint is used for greenhouse gases emission per unit production and its cost effect is calculated by carbon tax perspective. The electricity usage is also added to traditional model from environmental perspective because electricity used for production is a major source of environmental pollution. This situation is also highlighted by the fact that electricity generation processes in developing counties like Turkey, India and China are focusing on coal, oil and gas power plants. Layoff limit is considered in the model to incorporate the social perspective of sustainability and to analyze the effect of higher number of worker hiring and firing due to negative effect on coordination of the workers.

In this paper, the learning curve is considered as an integral part of the aggregate planning process to reflect the performance improvement of newly hired workers realistically. Learning curve implies that workers who are newly hired cannot achieve high performance before becoming proficient in their tasks. The experts of worker performance assessment and monitoring agree that a newly hired worker can achieve the maximum performance level after they work for approximately one year. Adler and Clark [ 23 ] state that experience of the workers affect the total production capacity. According to their findings, the production quantity of the previous month determines that of the next month. A newly hired employee works at 70% of maximum performance for first three months. Between the third and sixth months, hired workers perform at 80% on the average. For the rest of the 6 months before complete first year, they work at 90% performance level. Learning curve helps to model the problem more realistically instead of using hired workers at maximum performance level that contradicts with the reality. In addition, layoff of experienced workers and substituting them with inexperienced workers leads to lower production capacity utilization in the manufacturing systems. Learning curve is one of the original contributions of this paper to the aggregate planning problems.

Smoothing limit is another novel concept that we add to the aggregate planning model to reflect reality. Smoothing limit decreases the effects of hiring or firing more people based on the initial number of workers. If a large fraction of the employees are laid off, this causes a significant decrease in the morale and motivation of workers. When a large number of new employees is hired, the coordination among the workers decrease and this can cause conflict between old and new workers leading to a decrease in the performance of workers. We consider a smoothing limit of 35%: the total number of fired and hired people during a year cannot exceed 35% of initial number of workers. There is also smoothing limit for each month as 10%.

The aggregate planning is a fundamental step in the entire supply chain and operations management. In this paper, the methodological approach to incorporate sustainability considerations in the aggregate planning problem is presented. The standard model is enhanced with realistic considerations including the learning curve of new employees and smoothing limits on the hiring and firing of employees. Moreover, the aggregate planning model is revised to incorporate environmental and social effects to conduct a triple bottom line accounting analysis of sustainability and the solutions obtained with the model are analyzed to obtain insights. The analysis shows how environmental and social criteria can be appended to traditional cost accounting in order to address sustainability in supply chain and operations management based on the aggregate planning problem. The sensitivity analysis is done to understand the effects of carbon cap, overtime limit, smoothing limit, and service level on total cost. And each of these analyses is done according to different subcontracting limit (between 0 percent and 100 percent) on the demand for each month.

Materials and Methods

In this section, we discuss the aggregate planning problem in detail, provide discussion of the sustainability metrics that we use, and also the case study that we use to illustrate the concepts and results.

Aggregate Planning Problem

The standard aggregate planning model considers all of the available cost components related to aggregate plan. The model sets the production capacity according to regular and overtime production. Hiring or firing employees to meet the customer demand with the minimum total cost is usually practiced to balance the workforce according to demand for the products and services. Inventory level is another aspect of the aggregate plan: inventory level is a function of production, subcontracting and stock-out. The cost function defined by these cost components that needs to be minimized at optimality.

The standard mathematical programming formulation of the aggregate planning problem is given below (please refer to S1 Table for the notation used in the model):

We use this standard model as the base case and compare the change in the optimal solution when the sustainability considerations in terms of environmental factors and social factors are considered. Since this model is a multi-period problem, production amounts, inventory levels, the number of workers and most importantly demand for product can change every period. So, decisions for each period must be determined separately. However, the nature of supply chain management dictates that the decisions at each period are affected by the decisions in the previous period and the decision at each period affect the decisions in the subsequent periods.

Sustainability Considerations

The traditional aggregate planning model only considers the economic aspects of aggregate planning. However, social and environmental aspects had become an important issue about supply chain in the 21 st century. Decision makers should integrate environmental and social aspects in addition to economic aspect to accomplish sustainability in supply chain.

Economic Factors

The economic factors of aggregate planning are the first step of sustainability approach. These factors consist of raw material costs, inventory holding cost, labor production cost, overtime cost, backlog cost, and subcontracted cost of product. These cost elements constitute the economic side of sustainable aggregate planning problem.

Environmental Factors

The environmental factors that affect the aggregate planning decision are examined in this subsection.

Carbon Footprint: Carbon footprint refers to the set of greenhouse gases including carbon dioxide released by an organization [ 24 ]. In order to assess the environmental performance of an organization, the amount of GHG emissions is commonly used in the green/environmentally friendly supply chain management literature.

The cap on the amount of GHG emissions released by the organization during the entire planning horizon, as in the case of Kyoto Protocol [ 25 ], is given by ε C . The parameter, c ′ I denote the amount of GHG emissions due to inventory holding, c ′ P denote the amount of GHG emissions due to regular time production, and c ′ S denote the amount of GHG emissions due to subcontracting. Then, the total GHG emissions from the aggregate planning over the planning horizon T is given by,

In this paper, we base our calculations for each product on the amount of GHG emission for 1 million dollar production of products. The unit cost of CO 2 is known [ 26 ] and the cost of GHG emissions per product can be estimated by multiplying the amount of CO 2 when producing one product. We added this cost as an environmental cost to the problem and we set an upper bound for total CO 2 amount released to air.

Energy Consumption: One of the fundamental considerations in environmental impact assessment is the amount of energy used by the organization. Energy, particularly in the form of electricity, is a fundamental entity that is consumed in most industrial operations [ 6 , 9 , 27 ]. We consider a cap, ε E , on the amount of electricity used by organization.

The parameter c ″ I denote the amount of electricity used due to inventory holding, c ″ P denote the amount of electricity used due to regular time production, and c ″ S denote the amount of electricity used due to subcontracting. Then, the total electricity consumption is given by,

Social Aspects

The social factors that affect the aggregate planning decision are examined in this subsection.

Employee Job Security and Morale-Motivation: One of the standard practices in aggregate planning is hiring and firing of employees at some periods depending on the demand for products, and the available inventory. This in return requires regular changes in capacity, which eliminates job security of the employees, impairs their morale-motivation and leads to voluntary retention [ 7 ]. To avoid decrease in the morale-motivation of employees, an upper limit on the total number of fired and hired employees during the entire planning horizon must be considered. The workforce smoothing limit ( S lim ) can be defined in Eq (12) and this limit can be changed to observe the sensitivity of the system to this limit. The following constraint is added to the standard aggregate planning model to account for employee job security and morale-motivation:

Furthermore, an upper bound on the number of employees fired at each period of the planning horizon ( L lim ) may also be imposed with the following constraint:

The information on firing, hiring and overtime costs are defined by company in the case study that we consider in this paper. We included production labor cost as a social cost beside economic cost because it effects the employees and it needs to be considered as social cost since people are employed in the production processes.

Employee Health and Work Family Balance: The standard aggregate plan also allows overtime work for employees under the time flexibility strategy. This provides overtime working during peak in demand periods and this helps the company in achieving a high service level for the customers. However, overtime has physical and psychological strain on employee health [ 28 , 29 ]. Moreover, extended number of hours worked creates additional risks for accidents and damages the social life and work-family balance of the employees [ 30 ]. For this reason, labor rights limit the overtime working hours [International Labor Organization (ILO)].

The daily limit of overtime hours for each worker is given by the parameter, O lim ; then, the limit on overtime production is given by modifying Eq (5) to:

The overtime limit is given by company as 15% of the working hours for each worker. Manufacturer does not exceed 15% to establish family and work balance.

Customer Satisfaction: The standard aggregate planning formulation allows stock-outs when the production is not sufficient to meet the demand. The stock out is available for the traditional model and has a unit cost, c B . However, stock out is not desirable by customers since they will not be able to meet their demand on time. Besides, if the products are related to physical health and safety, stock out is not option. Therefore, the minimum service level is economically desirable not for producer only but also a requirement for the customers. The desired service level as the fraction of the demand satisfied at each period is represented by α . Then, the following constraint models the customer satisfaction:

Each company has a target service level for its products that helps company to satisfy customer needs at desired level. Higher service level constitutes higher customer loyalty for companies. Therefore, service level of company is one of the key points of production.

Model Assumptions

In this model, we have the following assumptions:

  • Social factors are added to the model as constraints in the form of smoothing, overtime limit and demand satisfaction. Social cost is defined as a function of worker related costs only in the production system.
  • The purchase cost of electricty includes the carbon tax; so there is no need for adding carbon tax for electricity.
  • There is no back ordering in the supply chain. The lost demand cannot be recovered in the subsequent months.
  • Subcontracting incurs a carbon tax. When a subcontractor charges the total cost, the same carbon tax to each product applies whether it is manufactured or subcontracted.
  • The learning curve is the same to all newly hired workers regardless of the classification of workers.
  • Hiring cost includes training costs for workers and social security payments at the initial step. Firing cost includes indemnity payment for the workers as avarage.

The validity of the above assumptions were tested with two independent manufacturers.

Case Study: A Refrigerator Manufacturer in Turkey

Refrigerator industry has been steadily increasing its production capacity for the last 15 years in Turkey reaching 7.5 million units produced per year. About 5.5 million of this production is exported to mainly UK, Central Europe and Eastern Europe. We consider a company that has a share of 33% in the domestic market.

Sustainability has become one of the most critical issues for refrigerator manufacturers in Turkey. They have to reduce environmental pollution and increase social welfare for workers to sustain their presence in the market. To achieve sustainability, companies started to take action such as using materials that have lower total GHG emission than previous materials from environmental perspective, understand the problems faced by the workers and increase social welfare of workers. The data for the case study is provided in S2 Table .

Mixed-Integer Programming

The mathematical programming model presented in the previous section includes both continuous and integer decision variable. Continuous variables can take any value and integer variables are restricted to only integers as long as the constraints given in the model are satisfied. This type of problems is categorized as mixed-integer programming (MIP) problems. Special algorithms must be developed for MIPs, in order to make sure that the integer variables take the proper integer values at the optimal solution. Solving a mathematical programming problem that contains integer variables as a linear programming problem and rounding the integer variables to the nearest integer is not possible due to infeasible and non-optimal solutions. In addition, the aggregate planning problem presented I this paper contains multiple objectives to reflect the triple bottom line accounting of sustainability. The ϵ –constraint method is used for solving the multiple objectives models to determine the effect of each objective function on other objective functions [ 31 ]. GAMS [ 32 ] optimization platform and CPLEX [ 33 ] solver can be used to solve the MIP problem. The optimization model and the implementation of the ϵ –constraint method in the GAMS optimization platform are given in S1 Model .

We present the results of the sustainability analysis for the case study in this section. First, the effects of social and environmental factors on the total production cost are discussed and a comparative analysis of the results from the Standard Aggregate Planning Model with the results from the models those including sustainability considerations are compared. Next, carbon footprint from production operations and electricity consumption are added to the model in order to analyze the impact of the system on the environment. Then, the model is solved and the results are analyzed by including social factors only to understand the impact of operations on the social side. Last, all social and environmental factors are included to analyze the aggregate planning from the triple bottom line accounting of sustainability perspective. It is important to assess the change in the cost structure when environmental and social factors are considered together with the standard aggregate planning problem. Fig 1 shows the change in the total cost when the environmental and social factors are included separately and the triple bottom line accounting is included for the case study of the refrigerator industry in Turkey.

An external file that holds a picture, illustration, etc.
Object name is pone.0147502.g001.jpg

As shown in Fig 1 , when the environmental factors alone are included the increase in the total cost is 4.47% relative to the standard model. On the other hand, the social factors incur an increase of 2.47% in the total cost over the solution of the standard model. These results indicate that the inclusion of environmental factors (carbon footprint and electricity consumption) increase the total cost more than the social factors (worker smoothing limit, layoff limits, and limits on the overtime work hours). For the case study, the demand for products and also carbon emissions per unit production are high, the environmental cost is higher. This result is expected to be similar for energy intensive production sectors. The increase in the total cost when the social factors alone are considered is mainly due to seasonal demand profile (max demand is 291,000 units/month and the minimum demand is 157,000 units/month). In the standard model, it is possible to lay-off workers when the demand is low and also new workers are hired during high demand season without paying attention to workforce smoothing limits. However, the model with social considerations sets a limit on the number of workers hired and fired in each period, the worker turnover cannot exceed 10% of the total workforce and the change in the number of employees in a year could be at most 35%.

When all of the factors of the triple bottom line accounting method (with social and environmental aspects simultaneously) are considered, the increase in the total cost is 6.51%. This change is lower than the total change when environmental and social factors are implemented separately. Therefore, this case study indicates that the implementation of the triple bottom line accounting as a whole increases the total cost by a smaller margin than when the environmental and social factors were implemented separately (6.51% versus 4.47+2.47 = 6.94%). The reason for smaller increases in total cost when triple bottom line accounting is implemented is mainly due to subcontracting. When only environmental factors are included in the standard model, the manufacturer does not use subcontracting and hire and fire workers without any constraint. When the social considerations are included in the model, manufacturer uses subcontracting and this leads to decrease in environmental, social, and production cost while the increase in the subcontracting cost is less than the increase in other costs such as raw material, social, production costs.

We also conduct a sensitivity analysis of the results with respect to important parameters of the model. We identify carbon cap, workforce smoothing limit, overtime limit and service level as important parameters and provide a thorough analysis of the results with respect to changes in their values.

Carbon Footprint Capacity

According to Kyoto protocol, carbon footprint must decrease in the next years for preserving the ecology and the environment. Recently, US Government announced that the total carbon emissions in the US will be decreased by 32% by 2030 [ 34 ]. Other developed nations are also expected to announce similar reductions in their carbon emissions. Therefore, analysis of the manufacturing systems under different carbon emission reduction goals will provide important insight from the triple bottom line accounting perspective of sustainability. Our results show that changing carbon caps leads to changes in the total cost as shown in Fig 2 . Fig 2A shows the change in the total cost is proportional to the decrease in the carbon cap. The main reason behind this reduction is not due to efficiency gain, but the decreasing production amount as shown in Fig 2B . The production amount is directly linked to carbon cap; as long as the carbon emission per product does not change, the production amounts must decrease. When production amount decreases, the service level of company decreases as shown in Fig 2C . This decrease in production quantity leads lower service levels. So, carbon cap dictates the production quantity. Production capacity can be increased under carbon cap by improving the resource consumption rate (such as improving the production system to generate less waste and consume less energy) per unit product.

An external file that holds a picture, illustration, etc.
Object name is pone.0147502.g002.jpg

(A) Carbon Cap vs Total Cost. (B). Carbon Cap vs Production Quantity. (C) Carbon Cap vs Service Level. (D) Carbon Cap vs Environmental Cost. (E) Carbon Cap vs Social Cost.

The environmental cost is directly linked to the carbon footprint of the company and electricity consumption: because the amount of production decreases due to carbon cap, environmental cost decreases due to lower production quantities under reduced carbon cap levels. Fig 2D shows the change in the environmental cost with respect to change in the carbon cap.

The relationship between the social cost and the carbon cap is shown in Fig 2E . The social cost decreases with the decreasing carbon cap. When the production amount decreases due to decreasing carbon cap ( Fig 2B ), the number of employees is enough to operate the manufacturing facility at maximum capacity under carbon cap and no overtime is needed and worker production cost also decreases due to lower production quantity. However, this reduction in the production quantity is reflected as financial cost due to not meeting the demand or a lower service level as shown in Fig 2C .

Smoothing Limit

According ILO, there is an upper limit on the number of people fired and hired for each period. When the smoothing limit changes, the total cost for production also changes. The effect of smoothing limit on the total cost is shown in Fig 3 . When the smoothing limit increases up to a certain point, the total cost decreases as seen in Fig 3A . There is a shortage of workers in the manufacturing facility and if the smoothing limit is low, the company cannot hire new workers and needs to subcontract more, leading to an increase in the total cost. When this limit is high, company can hire workers immediately and the social cost increases while smoothing limit increases. Fig 3B shows the change in the social cost with respect to the smoothing limit. The social cost increases when smoothing limit increases because the manufacturer can hire more workers; it starts to manufacture product in its own facilities rather than subcontracting and it costs as social cost to manufacturer. Fig 3C shows the change in the subcontracting cost change with respect to smoothing limit. Lower smoothing limit does not affect the service level due to subcontracting, manufacturer can subcontract its production accounting the service limit targets and demand levels. As shown in Fig 3A , the total cost decreases when smoothing limit increases. In Fig 3C , the subcontracting cost is decreasing because manufacturer can produce its products and producing its own products is cheaper than subcontracting. So, manufacturer does not prefer to subcontract more.

An external file that holds a picture, illustration, etc.
Object name is pone.0147502.g003.jpg

(A) Smoothing Limit vs Total Cost. (B) Smoothing Limit vs Social Cost. (C) Smoothing Limit vs Subcontracting Cost.

Overtime Limit

Overtime limit is another factor that affects the social cost and the total cost. If the overtime limit increases, total cost decreases because workers can produce more by overtime as shown in Fig 4 . So, smaller number of workers is needed to produce the same amount of product and it decreases the total cost after a breakpoint as shown in Fig 4A . When overtime limit increases, one worker needs to work more when the production capacity without overtime is not enough to satisfy demand in some periods and social cost effect increases. In Fig 4B , the effect of increasing overtime limit is shown. After a breakpoint (which is 17% for this particular case) the total cost decreases although social cost increases. Because subcontracting cost decreases more than social cost increases, the manufacturer wants to produce at its own manufacturing facility instead of subcontracting. A break-point for overtime limit is observed at 17%. This is due to the fact that the manufacturer should hire workers considering the entire planning horizon of one year: if the manufacturer does not employ the required workforce that is used to satisfy the demand with regular and overtime production, company does not want to hire new workers and thus prefers to use subcontracting as seen in Fig 4C . With the overtime limit of 18%, the company can satisfy demand by producing it in its own facilities. The total cost decreases since subcontracting is more expensive than producing, and producing increases the social cost.

An external file that holds a picture, illustration, etc.
Object name is pone.0147502.g004.jpg

(A) Overtime Limit vs Total Cost. (B) Overtime Limit vs Social Cost. (C) Overtime Limit vs Subcontracting Cost.

We interpret overtime production as an important social factor affecting the life standards of workers more than wages because their life standards decrease due to working more than the standard working hours. But there is no measurement tool and data available to calculate this decline in the standards of living for a worker with overtime.

The Service Level

The service level is directly related to customer demand satisfaction; if manufacturer cannot satisfy the demand, there is a stock-out cost. For the case study that we consider in this paper, the manufacturer can satisfy up to 40% of demand by subcontracting. As shown Fig 5A , when the service level increases, the total cost also increases due to two reasons. One of sources of this increase is the social cost. When the service level increases, the number of workers increases to satisfy the demand. As shown in Fig 5B , the social cost remains stable at high service levels since the necessary production is supplied through subcontracting (see Fig 5C ). When the service level decreases, social cost decreases since smaller workforce is needed for production and idle workers are fired; there is no need to employ excess number of workers.

An external file that holds a picture, illustration, etc.
Object name is pone.0147502.g005.jpg

(A) Service Level vs Total Cost. (B) Service Level vs Social Cost. (C) Service Level vs Subcontracting Cost.

Another factor for the increase in the total cost is subcontracting. After the specific service level, manufacturer cannot satisfy the demand because the workforce is not enough to satisfy the demand; so the manufacturer needs to subcontract. When the service level decreases, manufacturer does not want to subcontract anymore because subcontracting is more expensive than production. In Fig 5C , the subcontracting cost decreases and after the some level of service level manufacturer do not need to subcontract since the manufacturer satisfies the market demand by producing at its own facilities only.

Discussion and Conclusions

Sustainability and its interpretation in supply chain management is an emerging requirement for decision-makers. The proposed approach is based on the revision of standard mathematical programming (optimization) models of classical aggregate plan with environmental and social factors. It incorporates economic, environmental and social dimensions of sustainability simultaneously: Social and environmental factors are added as the second and third objectives in addition to the economic objective function.

In the aggregate planning model, the decision-maker deduces an optimal production plan that is comprised of the production, inventory, capacity and workforce levels for a finite and medium-term planning horizon with the objective of minimizing the total cost. Standard formulation is revised with additional environmental and social criteria instead of pure-economical comprehension. The numerical results on a case study from real life show that optimal plan changes when such considerations are present. Although it is possible to gain environmental and social benefits, these gains result in an increase in the total economic cost. Furthermore, the analysis also shows that certain legislations and incentives should be placed by regulatory agencies or market mechanisms in order to enforce the adoption of the proposed approach in decision-making.

It is possible to include further extensions to the aggregate planning model for sustainable supply chain model presented in this paper. Here, we consider single commodity model without backorders. The current model can be extended to incorporate multiple commodities and backordering decisions for single or multiple commodities would be interesting extensions of this work.

The contemporary supply chains of the 21 st century is required to consider sustainability due to public and legislative pressures. Observing and respecting the public perspective and operating within the legislative restrictions and market requirements is a requirement for public and private organizations. First, the organizations need to identify and measure environmental and social factors that affect the sustainability of their operations. Meanwhile, regulatory agencies need to enforce regulations and policies that consider the triple bottom line accounting of sustainability. The analysis conducted for refrigeration industry in this paper indicates that carbon taxes and caps could be effective in reducing the environmental impact. The social factors are mainly affected by the number of hours worked in a given period such as the number of hours worked in a week. Regulations and restrictions on the number of hours worked and overtime limits are important in achieving sustainability from the social perspective.

When the environmental and social factors are included in the aggregate planning model, the cost structure changes and the optimal policies differ considering three objectives (economic, environmental, and social) rather than conventional economic objective. As shown in Fig 1 , it is possible to quantify the changing cost structure when the environmental and social factors are included. The model based approach to aggregate planning of sustainable supply chains presented in this paper gives significant insights into the production planning problem and can be applied to all manufacturing supply chains after collecting the necessary data regarding environmental and social factors.

In this paper, the standard aggregate planning model is modified according to the triple bottom line principles of sustainability. The results show social and environmental factors must be considered as a part of aggregate planning model. When these two factors are considered as a part of aggregate planning model, the total cost of the system increases. In addition, the case study prepared from the real life provides useful insight when the sustainability considerations are included in the decision-making process. This paper aims to show how to create more sustainable production system for electronic industry by taking example of refrigerator manufacturer from Turkey. The decision-makers in the manufacturing and electronic industries can use the modified model to analyze aggregate plans for their operations from sustainability perspective. The manufacturers can implement this model in their production planning system by incorporating environmental and social factors outlined in this paper. Environmental factors can be included considering the energy consumption and greenhouse gas emission per unit product manufactured. The social factors, however, are more challenging to incorporate into the model since they cannot be defined and measured directly. For this purpose, it is necessary to conduct statistical analysis of social factors such as employee job security and morale-motivation, employee health and work-family balance and customer satisfaction on the supply chain. The social cost consists of all worker related costs in the production system. Manufacturers can measure the effect of social factors, by analyzing all worker related costs in their production system.

Supporting Information

Acknowledgments.

The financial support for this work from European Commission through Log4Green project (Grant No: 287091) is gratefully acknowledged.

Funding Statement

Funded by European Commission, Log4Green project, Grant No: 287091, http://www.log4green.eu .

Data Availability

404 Not found

IMAGES

  1. What is Aggregate Planning?

    what is aggregate planning in operations management

  2. What is Aggregate Planning?

    what is aggregate planning in operations management

  3. What is Aggregate Planning?

    what is aggregate planning in operations management

  4. What is Aggregate Planning?

    what is aggregate planning in operations management

  5. What is Aggregate Planning?

    what is aggregate planning in operations management

  6. Chapter 13 Aggregate Planning Operations Management by R

    what is aggregate planning in operations management

VIDEO

  1. Aggregate Planning part1

  2. | 5th sem BBA| Calicut University

  3. | 5th sem BBA|Calicut University

  4. Aggregate planning _ Supply Chain Management

  5. | 5th sem BBA| Calicut University|Operations management

  6. OPERATIONS MANAGEMENT (MGT345) AGGREGATE PLANNING

COMMENTS

  1. What Is Aggregate Planning? Strategies & Tips

    Aggregate planning is a method for analyzing, developing and maintaining a manufacturing plan with an emphasis on uninterrupted, consistent production. Aggregate planning is most often focused on targeted sales forecasts, inventory management and production levels in the mid-term (3-to-18-month) future.

  2. What is Aggregate Planning

    Aggregate planning is a method for developing an overall manufacturing plan that ensures uninterrupted production at a facility. Aggregate production planning typically is applied to a 3- to 18-month period.

  3. What is Aggregate Planning?

    Aggregate planning is an operational activity critical to the organization as it looks to balance long-term strategic planning with short term production success. Following factors are critical before an aggregate planning process can actually start; A complete information is required about available production facility and raw materials.

  4. Aggregate Planning And Its Effect On Fluctuating Needs

    Aggregate planning is the process of developing an approximate schedule that details how an organization will operate over a particular period, typically ranging from 3 to 18 months. It allows you to approach inventory and staffing with clear eyes, assess and minimize risks, and build more efficient systems. How it works

  5. What is Aggregate Planning?

    Definition Aggregate planning is a way to plan the production of all products for a company over a period of time. It starts by listing all the important requirements for uninterrupted production. The usual planning horizon ranges from three to twelve months. The word 'aggregate' comes from the Latin word 'aggregāre.' It means 'to add to.'

  6. What Is Aggregate Planning? (Plus Strategies and Tips)

    Aggregate planning is the process of determining the scope of a company's operations. It involves forecasting the potential demand for an organization's goods or services and preparing the company to fulfill this demand.

  7. What is Aggregate Planning?

    Aggregate planning refers to developing, maintaining, and analyzing the approximate scope of operation of an organization. In other words, an aggregate plan incorporates the targeted sales, production level, inventory level, and backlogs. You should design a good aggregate plan in a way that it can reduce the impact of shortsighted daily routines.

  8. The Definitive Guide to Aggregate Planning

    Aggregate planning is the process of balancing the relationship between demand and capacity to create stability in a workflow. In project management, it is used to manage and schedule activities related to capacity and demand, such as analyzing requirements, deploying resources, and maintaining the set timeline of projects and operations.

  9. Aggregate Planning Strategies for Effective Resource Management

    Aggregate planning is the process of designing a formula to ensure uninterrupted production at a manufacturing plant in order to meet customer demand for the products. Operations teams forecast future demand, typically for the next 3-18 months, and then perform aggregate planning to manage the capacity to meet it.

  10. Introduction to Aggregate Planning and Strategies

    Aggregate planning—which is also termed as sales and operations planning or macro production planning by Russell and Taylor-III [ 8] and Nahmias and Cheng [ 6 ]—is a process to support a company in determining levels of capacity, production, subcontracting, inventory, stock-outs, and pricing over a specified time horizon [ 4 ].

  11. Aggregate Planning

    Pure Chase Strategy The purpose of the pure chase strategy is to match or chase demands by minimizing final inventory. It absorbs demand fluctuations effectively for successful aggregate planning. Organizations can either maintain workforce level or output rate to match demand. Pure Level Strategy

  12. What Is Aggregate Planning?: Strategies and Tips

    Aggregate planning in operations management is an essential process for companies that need to plan their production operations to meet demand while minimizing costs and maximizing efficiency. It needs to be done carefully considering the below-listed factors:

  13. THE ROLE OF AGGREGATE PLANNING

    Aggregate planning is an integral part of the business planning process. This process begins when your company's top management gathers input from finance, marketing, operations, and engineering to develop a strategic business plan. The strategic business plan, with its long-term focus, provides your company's direction and objectives for the ...

  14. Aggregate Planning in Operations Management

    Definition: Aggregate Planning in Operations Management determines production and resource allocation strategies to meet the uncertain and fluctuating future demand at minimum production cost for the Intermediate Time Horizon. Here, the word ' Aggregate ' signifies the product lines and families.

  15. Aggregate Planning

    Aggregate planning is a proven technique that brings an element of foresight and stability into manufacturing. It helps the management to achieve the long-term objectives of a company. The importance of aggregate planning include- Creates a satisfied and happy workforce Reduce changes in the levels of the workforce

  16. Why You Should Use Aggregate Planning in Your Business

    Aggregate planning is the practice of balancing a business's capacity and demand over a period of time -- usually a year -- to maximize profits. Basically, it's how management figures out how ...

  17. Aggregate planning

    The aim of aggregate planning is to set overall output levels in the near to medium future in the face of fluctuating or uncertain demands. Aggregate planning might seek to influence demand as well as supply. Aggregate Plan Strategies Level plans Use a constant workforce & produce similar quantities each time period

  18. Operations Management: Aggregate Planning

    This video demonstrates how to develop an aggregate plan using a chase demand strategy by varying the workforce.

  19. CHAPTER 13: Aggregate Planning

    Explain sales and operations planning. Identify different aggregate planning strategies and options for changing demand and/or capacity in aggregate plans. Develop aggregate plans, calculate associated costs, and evaluate the plan in terms of operations, marketing, finance, and human resources. Describe the differences between aggregate plans ...

  20. How to Implement Aggregate Planning Strategies to Achieve Optimal

    Aggregate planning is a key component of operations management that involves the development of strategies to meet the demand for a product or service. It is a critical process for businesses as it helps to ensure that resources are allocated efficiently and that production costs are kept to a minimum.

  21. The Nature of Aggregate Planning

    The Nature of Aggregate Planning An S&OP team builds an aggregate plan that satisfies forecasted demand by adjusting production rates, labor levels, inventory levels, overtime work, subcontracting rates, and other … - Selection from Operations Management: Sustainability and Supply Chain Management, Twelfth Edition [Book]

  22. Sustainability in Supply Chain Management: Aggregate Planning from

    Aggregate planning, a fundamental decision model in supply chain management, refers to the determination of production, inventory, capacity and labor usage levels in the medium term. Traditionally standard mathematical programming formulation is used to devise the aggregate plan so as to minimize the total cost of operations.

  23. What Is Aggregate Planning? Strategies & Tips

    Aggregate plan helps you match capacity to demand, which saves time and more while making thou more productive. We shows you why.

  24. Solved 233. In operations management, what is 'aggregate

    Operations Management; Operations Management questions and answers; 233. In operations management, what is 'aggregate planning' used for?A. Determining the Corporate BudgetB. Planning Marketing StrategiesC. Developing Employee Training ProgramsD. Setting Long-term Financial GoalsE.