Aggregate Production Planning in Supply Chain

As a manufacturing supply chain or business, one thing you want to avoid is running out of resources. It could spell a world of hurt for you and your supply chain in missed opportunities. Now that is where aggregate production planning comes into play. 

Aggregate production planning in supply chain management helps you create a balance or equilibrium between demand and production capacity.

 

What is Aggregate Production Planning?

Aggregate production planning is a method of analyzing, developing, and maintaining a schedule for production to ensure uninterrupted production for the mid-term (usually 6 to 18 months).

This plan relies on demand forecasts to properly estimate the use of resources, giving the business or manufacturing company an estimate of what is needed.

Some of the resources considered during the aggregate planning process are raw materials, infrastructure, and workforce.

Key decisions

• Personnel Policies
• Raw Material Policies
• Technology Selection
• Capital Investments
• Location

 

 

Elements of Aggregate Production Planning

There are a few factors every supply chain must consider when setting up an Aggregate production plan.

Demand: This is the customer’s interest in the product being produced. Remember you need at least 6 to 18 months of forecast for an effective aggregate plan. With this, the production team or supply chain knows what to expect from their customers, helping them plan accordingly.

Capital: This is the financial resource available to the supply chain, which plays a role in how much of the demand the organization can meet up with.

Workforce: This is the human resource available to the business. The organization may increase or reduce as it sees fit or as the demand dictates.

Policy: Every business has a policy for planning and meeting customer demands. These policies are usually built on successful strategies and play significant roles when drawing up an aggregate production plan.

Other elements include current inventory levels, production time, and technology.

 

Types of Aggregate Production Planning

There are three types of Aggregate production planning in supply chain and any other discipline where it is used.

 

Aggregate Level Strategy

The strategy aims to keep the resources and production on the same level irrespective of demand highs and lows. Its advantage is that there is constant production or a steady workforce. The disadvantage is that there could be too much inventory or a low-demand backlog. 

Organizations tend to keep inventories and use them when production cannot meet demand. However, the cost of holding inventory can be quite high.

 

Aggregate Chase Strategy

As the name implies, this strategy is always chasing the demand. Organizations plan their production schedule and resources according to demand forecasts. The disadvantage here is that the workforce and resources are not steady, which can be problematic for urgent production. However, it is advantageous because it helps the company save costs, especially holding inventory.

 

Aggregate Hybrid Strategy

This type of strategy is a mix of the two mentioned earlier. It takes the best of both worlds, so to speak, therefore creating a more balanced strategy.

 

Importance of Aggregate Production Planning in Supply Chain

 

Resource Management

An aggregate production plan helps businesses and supply chains manage their resources to achieve the best outcome possible. It accounts for all resources and clearly shows how to use them to avoid waste.

 

Cost Savings

The aggregate production plan helps supply chains reduce costs, such as the cost of paying a stagnant labour force, the cost of holding inventories, and the cost of missed opportunities. Each aggregate strategy mentioned earlier holds some advantages and disadvantages in this regard, leaving the supply chain to decide what it is ok with.

 

Customer Satisfaction

When aggregate production planning is done well, it helps supply chains meet customer demands. This, in turn, improves customer satisfaction.

Others

• Profits Maximization
• Reduce Production Rates
• Fewer changes in Workforce Levels
• Maximize use of Plant and Equipment

 

How to Set up an Aggregate Production Plan

There are two methods of creating an aggregate production plan- formally or informally. The formal method usually involves a complex mathematical approach. However, the informal method is the most often used.

The general process is as follows:

1. Determine the requirements and demands of the market for various periods. 

2. Evaluate the capacities for overtime, subcontracting, and regular time. 

3. Identify the department and company policies associated with maintaining adequate stock to meet market demand. 

4. Determine the cost of inventories, regular time, backorder, layoffs, subcontracting, overtime, and other costs. 

5. Formation of alternative strategy and determining the cost of each plan. 

The appropriate strategy that addresses the company’s objectives needs to be chosen.

 

FAQ on Aggregate Production Planning in Supply Chain

Q1: What are the primary objectives of aggregate production planning?

The primary objectives are meeting customer demand, reducing production and inventory costs, maintaining a stable workforce, and maximising resource use.

Q2: How do aggregate production planning and sales and operations planning (S&OP) interact?

APP is a subset of S&OP that focuses on production-related decisions to fulfil demand, whereas S&OP covers a larger range of sales, production, and financial alignment.

Q3: What function does technology play in aggregate production planning?

Advanced planning software and forecasting technologies, for example, aid in data analysis, demand forecasting, scenario modelling, and decision-making.

Q4: How does aggregate production planning account for seasonality and changes in demand?

Changing production, inventory, and worker levels accommodates seasonal demand trends.

Q5: Can aggregate production planning work for both manufacturing and service industries?

Yes. It works for the manufacturing and service industries to match resources with demand.

 

Conclusion

Aggregate production planning is a strategy that helps supply chains and businesses properly plan the entire process from top to bottom. With the guide highlighted in this article, you should be able to start creating your own Aggregate production planning for your supply chain and business.