The Aggregate Planning Problem

The objective of the aggregate plan is to satisfy danand in a way that maximizes profit for the firm. We can state the aggregate planning problan formally as follows  

Given the demand forecast for each period in the planning horizon, determine the production level, inventory level, capacity level (intemal and outsourced), and any backlogs (unmet demand) for each period that maximize the firm s profit over the planning horizon. 

Using this information, a company makes the following determinations through aggregate planning  

Production quantity from regular time, overtime, and subcontracted time used to determine number of workers and supplier purchase levels 

Inventory held used to determine the warehouse space and working capital required Backlog/stockout quantity used to determine customer service levels Workforce hired/laid off used to determine any labor issues likely to be encountered 

---

In the remaining sections of this chapter, we will discuss the aggregate planning problem and quantitative methods for its solution. 

Aggregate planning problem The aggregate planning problem can be stated as follows ... 

The aggregate planning problem is basically a medium range tactical supply chain problem. There are primarily three aggregate planning strategies a company can follow. 

Shortages are allowed but all backlogs must be filled by the Tth period. The aggregate planning problem is to determine the optimal production plan that minimizes the total cost of production, inventory, and shortage. 

In order to formulate the aggregate planning problem as a transportation problem, we do the following ... 

Consider the aggregate planning problem given in Example 2.14, where no shortages are allowed and weekly demands must be satisfied at all times. Solve the transportation problem using the greedy algorithm. 

Consider the aggregate planning problem discussed in Example 2.13 (Section 2.15). Discuss how the LP formulation will change if the following constraints are added. 

How does the availability of subcontracting affect the aggregate planning problem ... 

The LP model, illustrated in Section 2.15, can be extended to solve a more general aggregate planning problem. For the development of the general model, we use the following notations ... 

Transportation problems represent a special class of LP problems that are easier to solve. In this section, we shall discuss the basics of a transportation model, how aggregate planning problems can be formulated as transportation problems, and a "greedy" algorithm to solve special cases of aggregate planning problems by inspection. 

Before we discuss the general model, we use an example to illustrate how certain aggregate planning problems can be formulated as transportation problems. 

Under what assumptions an aggregate planning problem can be formulated as a transportation model What additional assumptions are needed to solve the transportation model by the greedy algorithm ... 

In the next section, we formally define the aggregate plarming problem. We specily the information required for aggregate planning and discuss the decision outcomes that aggregate planning can provide. 

Similar to SC planning problems, the elements of simulation models (i.e. flows, processors, and environmental variables) can be structured according to the level of detail involved. Based on the basic structure of a chemical SC as depicted in Figure 4.10, three aggregation levels are distinguished ... 

One of the basic problems that exists in business today is the issue of imeven demand As a result of this, processes need to be put in place that will minimize the costs involved in leveling the demand and effectively using the available capacity. This is the goal of aggregate planning. In the area of operations management, you will find models and simulations that can be run to help optimize this process. 

Capacity planning verifies the feasibility of the plans at both aggregate and detailed levels. At first stage, master production schedule feasibility can be verified in an aggregated way. After material planning is performed, capacity planning verification may induce adjustments in the detailed plans. Also, the master production schedule can be modified if capacity planning reveals feasibility problems. 

The SC strategic level determines the sourcing, manufacturing, and distribution network to serve the marketplace. Due to its nature, the network design problem is typically solved every two to five years (Graves and Willems 2003). The strategic plan is developed at an aggregated level of time, products, and resources. 

---