1. Chapter 13
Aggregate Planning
Operations Management - 5th Edition
Roberta Russell & Bernard W. Taylor, III
Beni Asllani
Copyright 2006 John Wiley & Sons, Inc. University of Tennessee at Chattanooga

2. Aggregate Planning
 Determine the resource capacity needed to
meet demand over an intermediate time
horizon
 Objectives
 Establish a company wide game plan for allocating
resources
 Develop an economic strategy for meeting
demand
Copyright 2006 John Wiley & Sons, Inc. 13-2

3. Meeting Demand Strategies
 Adjusting capacity
 Resources necessary to meet demand
are acquired and maintained over the
time horizon of the plan
 Minor variations in demand are handled
with overtime or under-time
 Managing demand
 Proactive demand management
Copyright 2006 John Wiley & Sons, Inc. 13-3

4. Strategies for Adjusting Capacity
 Level production  Overtime and under-time
 Producing at a constant rate  Increasing or decreasing
and using inventory to working hours
absorb fluctuations in  Subcontracting
demand
 Let outside companies
 Chase demand complete the work
 Hiring and firing workers to
match demand
 Part-time workers
 Hiring part time workers to
 Peak demand complete the work
 Maintaining resources for
high-demand levels
 Backordering
 Providing the service or
product at a later time period
Copyright 2006 John Wiley & Sons, Inc. 13-4

5. Level Production
Demand
Production
Units
Time
Copyright 2006 John Wiley & Sons, Inc. 13-5

6. Chase Demand
Demand
Production
Units
Time
Copyright 2006 John Wiley & Sons, Inc. 13-6

7. Strategies for Managing Demand
 Shifting demand into
other time periods
 Incentives
 Sales promotions
 Advertising campaigns
 Partnering with suppliers
to reduce information
distortion along the
supply chain
Copyright 2006 John Wiley & Sons, Inc. 13-7

8. SMILE
 A man checked into a hotel in Pretoria. There was a computer in his
room, so he decided to send an e-mail to his wife. However, he
accidentally typed the wrong e-mail address, and without realizing his
error, he sent the e-mail. Meanwhile... somewhere in Cape Town a widow
had just arrived home from her husband's funeral. The widow decided to
check her e-mail, expecting messages from relatives and friends. After
reading the first message, she fainted. The widow's son rushed into the
room, found his mother on the floor, and saw the computer screen which
Read:
To: My Loving Wife
Subject: I've arrived
I know you're surprised to hear from me. They have computers here now.
And you are allowed to send e-mails to your loved ones. I've just arrived
and have been checked in. I see that everything has been prepared for
your arrival tomorrow. Looking forward to see you then!
13-8
13-8

9. Aggregate Versus Detailed
Forecasts
 Sales forecasts can be aggregated with
respect to time:
January February March Aggregate
Product A 100 150 200

10. Aggregate Versus Detailed Forecasts
 Sales forecasts can be aggregated with
respect to time:
January February March Aggregate
Product A 100 150 200 450

11. Aggregate Versus Detailed Forecasts
 Sales forecasts can be aggregated with
respect to product:
January
Product A 100
Product B 200
Aggregate

12. Aggregate Versus Detailed Forecasts
 Sales forecasts can be aggregated with
respect to product:
January
Product A 100
Product B 200
Aggregate 300

13. Aggregate Versus Detailed Forecasts
 Why? Aggregate forecasts are more
accurate than individual detailed forecasts
January January Forecast
Forecast Actual Error % Error
Product A 100 120
Product B 200 180
Aggregate 300

14. Aggregate Versus Detailed Forecasts
 Why? Aggregate forecasts are more
accurate than individual detailed forecasts
January January Forecast
Forecast Actual Error % Error
Product A 100 120 -20 -17%
Product B 200 180 20 11%
Aggregate 300 300 0 0