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What is Aggregate Planning?

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  • Written By: Mary McMahon
  • Edited By: Kristen Osborne
  • Last Modified Date: 24 September 2016
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Aggregate planning is an approach to business planning where a long term perspective is taken and a company is viewed as a whole, rather than a selection of discrete parts. In a simple example, an auto manufacturer performing aggregate planning would think 12 to 18 months into the future and would consider all departments in the company, rather than focusing on specific models or divisions. This approach can cut costs and make a company operate more efficiently.

People developing an aggregate planning strategy start by developing forecasts for future supply and demand. These are coordinated to manage company output. The company can control demand by changing prices, using rain checks, and engaging in other tactics to increase or decrease demand in given period. To make sure supply will meet demand needs, supplies are ordered in a timely fashion and the company tasks ordering personnel with getting the best prices by shopping around for supplies. Negotiating well in advance can provide opportunities like access to discounts and other special benefits.

Operations costs are another factor people will weigh in an aggregate planning strategy. These include paying employees, handling overhead, and other costs associated with keeping a facility running. Keeping these costs low with strategic planning can generate more profits. Simple activities like shifting work shifts, for instance, may reduce energy demands during peak hours, allowing a factory to operate at lower cost.

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Aggregate planning is not just about manufacturing operations. People developing a plan consider all levels and departments of a company, from executives to the accounting department, with the goal of streamlining business activities. The same planning principles people apply to controlling supply and demand for a company's products can also apply within a company; forecasting demands for office supply and equipment, for example, allows people to plan ahead for ordering and replacing everything from copier toner to office chairs.

People can take an active or passive aggregate planning approach. In an active approach, people engage more directly with controlling supply and demand to suit the needs of the company. Passive approaches involve predicting and preparing for demand and keeping the company's output stable. A passive plan tends to be more reactive, with companies doing things like laying off employees and temporarily halting production to address falling demand, while active plans are proactive and may include shifting orders to different periods and using aggressive marketing campaigns to pick up interest during periods of normally slow demand.

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everetra
Post 3

@allenJo - We just had a company review meeting today. Unfortunately, we are facing a slump, based on current trends.

We kicked around some ideas on how to address this problem, and the most important suggestion was to actively upsell to existing customers. So for the beginning of next year we are developing an aggressive marketing campaign to do just that.

Rather than wait for the market to pick up, we are going to maximize our current position. I think that’s the smart thing to do, at least for now. Like you, I think layoffs should be the last thing on the table.

allenJo
Post 2

@miriam98 - Perhaps it’s easier to reduce head count than anything else. I don’t see how layoffs constitute a real plan, in any sense of the term.

Real aggregate production planning should focus on anticipated demand, and anticipated number of widgets, not people, to meet the demand. I think that’s the better approach.

The key, from what I can tell, would be the accuracy of your projections. I don’t think ballpark estimates would be adequate. You should have an advanced reporting system or some supply chain management software that ties into your current system, which will help you make accurate projections based on past production.

miriam98
Post 1

Unfortunately, passive aggregate management planning tends to be more common, at least from my experience. Companies find it so much easier to lay off employees, which are fixed costs, rather than to try to make their existing operations more efficient on all departmental levels and save money that way.

I don’t think layoffs are always a good idea, however. Every business goes through a crunch period. If you go through layoffs, then when you’re out of the crunch, you have to hire new people again – people that you will have to train to replace the employees that you’ve let go.

I would recommend that companies think long and hard about layoffs. These should be the measures of last resort, in my opinion.

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