Aggregate Planning

375. Aggregate Planning

A mid-term (3–18 month) production / staffing plan that matches aggregated output to aggregated demand, deciding levels of:

Formulated as a linear program.

For periods :

Variables:

Costs per unit / hire / firing:

Objective:

Constraints (workforce balance, production capacity, inventory balance):

Strategy	Description	Best when
Chase	Match production to demand each period; vary workforce	Low inventory cost, high hire/fire flexibility, low workforce wages
Level	Constant production; let inventory + backorder absorb demand fluctuations	Stable workforce, low inventory cost, low backorder cost
Mixed	Combination of both, plus overtime / contract	Real-world; what the LP discovers automatically

Pure chase or pure level rarely optimal in practice — LP finds the right mixed strategy.

12-month plan for a manufacturer. Demand peaks in November. Cost parameters set; LP gives:

vs pure chase (high hiring/firing): M vs pure level (high inventory): M

Aggregate planning sets the envelope — workforce, total monthly output. The detail of which specific products gets handled by:

MPS (Master Production Schedule) — disaggregates aggregate plan into product-week
MRP (Material Requirements Planning) — explodes MPS into parts / materials

See MPS and MRP.

Linear costs assumed — real overtime / hiring may have step functions
Aggregate units — assumes products are interchangeable, ignores changeover times
Single facility — multi-plant versions exist but more complex
Deterministic demand — stochastic versions = stochastic programming (see here)