After a firm determines its corporate strategy and establishes its long-term capacity needs and production operation policies, focus shifts to aggregate planning. Aggregate planning usually presents a detailed plan for sales and operations that covers a period of 2 to 12 months. A company’s aggregate plan typically addresses the following three specific operational considerations:
Employment levels: How much manpower is needed to meet the set production rates?
Inventory levels: How much inventory (both raw material and finished goods) does the company need?
Production or output rates: How much will the company produce in the designated time period?
Develop an aggregate plan by following these steps:
Determine demand for each time period covered in the plan.
You can use forecasting methods to predict demand.
Determine the available capacities for each time period.
Be sure to calculate capacities for all resources, including labor and machine capacities.
Identify corporate policies and external constraints such as regulation and market forces that may influence the plan.
These policies include limitations on workers over time, inventory targets, and outsourcing policies.
Determine product cost, based on direct labor and material costs as well as indirect or overhead (fixed) manufacturing expenses.
Develop contingency plans to account for surges and downturns in the market.
For example, each plan may utilize different levels of overtime, outsourcing, and inventory to meet the demand requirements, thus resulting in a different product cost and availability.
Select the plan that best meets the corporate objectives.
Compare your various plans and determine how well each one meets your business objectives. Some plans may present tradeoffs in different performance metrics such as utilization versus inventory levels.
Test the plan for robustness (its ability to perform well under varying conditions).
This may involve changing the demand requirements or the unit costs for things such as overtime to simulate different scenarios. If the outcome of the plan varies greatly from your ideal scenario, revisit one of the alternative plans available in Step 5.
Aggregate planning is an ongoing process. A plan usually provides details at the monthly level over the course of a year, and you should update it as conditions change. For example, you need to account for changes in expected demand as well as unexpected events such as material shortages and production disruptions.
Avoid the temptation to change your aggregate plan too often. The purpose of the plan is to provide an intermediate path into the future. Reacting too quickly to perceived changes in demand or variability in production output can create unnecessary disruptions in your overall plan, such as layoffs, unnecessary hiring, or changes in supply purchasing contracts.
Until you recognize an undisputable, reoccurring change in demand or production output, allow your short-term planning to accommodate the blips in demand that are only temporary because of such things as weather events or short-term shifts in customer preference.