Production Management
IEOR 4000: Production Management
Lecture 5
1
Professor Guillermo Gallego
9 October 2001
Aggregate Production Planning
Aggregate production planning is concerned with the determination of production, inventory, and work force levels to meet fluctuating demand requirements over a planning horizon that ranges from six months to one year. Typically the planning horizon incorporate the next seasonal peak in demand. The planning horizon is often divided into periods. For example, a one year planning horizon may be composed of six one-month periods plus two three-month periods. Normally, the physical resources of the firm are assumed to be fixed during the planning horizon of interest and the planning effort is oriented toward the best utilization of those resources, given the external demand requirements. Since it is usually impossible to consider every fine detail associated with the production process while maintaining such a long planning horizon, it is mandatory to aggregate the information being processed. The aggregate production approach is predicated on the existence of an aggregate unit of production, such as the “average” item, or in terms of weight, volume, production time, or dollar value. Plans are then based on aggregate demand for one or more aggregate items. Once the aggregate production plan is generated, constraints are imposed on the detailed production scheduling process which decides the specific quantities to be produced of each individual item.
The plan must take into account the various ways a firm can cope with demand fluctuations as well as the cost associated with them. Typically a firm can cope with demand fluctuations by:
(a) Changing the size of the work force by hiring and firing, thus allowing changes in the production rate. Excessive use of hiring and firing may limited by union regulations and may create severe labor problems.
(b) Varying the production rate by introducing overtime and/or idle time or outside
Lecture 5
1
Professor Guillermo Gallego
9 October 2001
Aggregate Production Planning
Aggregate production planning is concerned with the determination of production, inventory, and work force levels to meet fluctuating demand requirements over a planning horizon that ranges from six months to one year. Typically the planning horizon incorporate the next seasonal peak in demand. The planning horizon is often divided into periods. For example, a one year planning horizon may be composed of six one-month periods plus two three-month periods. Normally, the physical resources of the firm are assumed to be fixed during the planning horizon of interest and the planning effort is oriented toward the best utilization of those resources, given the external demand requirements. Since it is usually impossible to consider every fine detail associated with the production process while maintaining such a long planning horizon, it is mandatory to aggregate the information being processed. The aggregate production approach is predicated on the existence of an aggregate unit of production, such as the “average” item, or in terms of weight, volume, production time, or dollar value. Plans are then based on aggregate demand for one or more aggregate items. Once the aggregate production plan is generated, constraints are imposed on the detailed production scheduling process which decides the specific quantities to be produced of each individual item.
The plan must take into account the various ways a firm can cope with demand fluctuations as well as the cost associated with them. Typically a firm can cope with demand fluctuations by:
(a) Changing the size of the work force by hiring and firing, thus allowing changes in the production rate. Excessive use of hiring and firing may limited by union regulations and may create severe labor problems.
(b) Varying the production rate by introducing overtime and/or idle time or outside