Aggregate Planning

Posted in Operations and Supply Chain Terms, Total Reads: 2040
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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.


Example:

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.

 

Hence, this concludes the definition of Aggregate Planning along with its overview.

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