Posted in Operations and Supply Chain Terms, Total Reads: 1127
Definition: Aggregate Planning
Aggregate Planning is an immediate (annual) planning method used to determine the necessary resource capacity a firm will need in order to meet its expected demand. Aggregate planning generally includes combination of planned output, employment, sourcing, sub-contracting etc that can be planned for a period of 9-12 month. The goal of aggregate planning is to match 'demand' and 'supply' in the aggregate using mentioned combination in a cost effective manner.
Supply chains are easier to manage when demand is stationary. But when demand is seasonal, we face tradeoffs. Aggregate planning uses following 2 basic strategies or combination of both to deal with seasonal demand:
1. Level output: It's a fixed output scheme where demand variability is met by inventory, subcontracting, overtime, cross-training etc.
2. Chase demand: It's a make to order scheme where production rate is changed to meet demand.
Suppose you are a car manufacturer. In aggregate planning, you don't differentiate a car based on model, color etc. but you decide aggregate units of cars that can be produced. Everything like capacity, time periods, work-force etc is taken in aggregate. It gives flexibility to change plan in case of variation from expected demand.