The Definition of Aggregate Planning in Business

Aggregate planning (AP) in business is defined as the process of development, analytics and maintenance of a schedule for the business' overall operations. It is usually medium range in nature, lasting anywhere from three to 18 months. The planned output levels, targeted sales and intended inventory levels are taken into account while preparing an aggregate plan. An efficient aggregate plan should do away with day-to-day scheduling.

Characteristics

A good aggregate plan must attempt to match the demand for a product/service and its supply by ascertaining the required quantities and timings. The plan must consider a horizon with scope for intermittent updating. That is, the demand and supply both must be able to be influenced, with changes in production rates, inventories and workforce levels.
There are two types of aggregate plans used by businesses: production aggregate plans and staffing aggregate plans. The production plan prepares a managerial report for the said period with respect to production rates, inventories and customer specifications. The staffing plan details out the staff sizes and labor capacities.

Objectives

The main objective is to minimize total cost across the planned period. To achieve this, inventory and investment, changes in workforce and production rates should be minimized. Also, customer satisfaction and utilization of the plant and equipment should be maximized.

Types

There are three main types of AP strategies that businesses worldwide use. There are active strategies, passive strategies and mixed strategies. Each has its advantages and drawbacks.

Active Strategies

By following this method, the business attempts to grip demand fluctuations by stressing demand management. For this, the management uses pricing strategies and develops products that are counter-cyclical.

Passive Strategies

This method attempts to handle demand fluctuations by stressing supply and capacity. The businesses that use this strategy build and draw from inventories and have mutual agreements with other firms in the same line of business. These strategies account for backlogs and stock-outs and allow the business to vary use of labor through overtime and/or idle time.

Mixed Strategies

Businesses using these strategies use a mix of active and passive strategies. Firms that use this methodology use experience, preset rules and conditions, managerial instinct and insight. More often than not, these strategies involve the use of computers for graphical interpretation and spreadsheet analysis. There is a major drawback to this. Though many solutions are possible, the optimal one is rarely found.

References

• Aggregate Planning