Aggregate Planning Essay 2

2460 Words Dec 14th, 2009 10 Pages
Aggregate Planning

Aggregate Planning Aggregate planning is essentially a big-picture approach to planning. It is intermediate-range capacity planning that typically covers a time horizon of two to twelve months, although in some companies it may extend to as much as eighteen months. Aggregate planning is also sometimes known as sales and operations planning. Sales and operations planning is the intermediate-range decisions to balance supply and demand, integrating financial and operations planning. It is hard for organizations to predict the exact quantity and timing of demands for specific products and services in advance. In order to assess their capacity needs and costs months in advance in order to handle the demand, aggregate
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By subcontracting work to an alternative source, additional capacity is temporarily obtained" (2006). As an alternative to subcontracting, an organization may consider outsourcing whereas; they contract with another organization to supply some portion of the goods or services on a regular basis. There are a number of options aggregate planners can consider for achieving a balance of demand and capacity. With these options, there are a number of strategies aggregate planners might use to give the demand forecast for each period in the planning horizon, determine the production level, inventory level, and the capacity level for each period that maximizes the firm’s supply chain’s profit over the planning horizon.
Strategies
There are two main strategies aggregate planners can choose from. The first is a level capacity strategy. Under a level capacity strategy, variations in demand are met by using some combination of inventories, overtime, part-time workers, subcontracting, and back-orders while maintaining a steady rate of output. The firm maintains a level workforce and a steady rate of output when demand is somewhat low. In order to help maintain a constant level of output and still satisfy varying demand, an organization may sometime resort to a combination of subcontracting, backlogging, and use of inventories to absorb