What exactly is aggregate planning?
Before this question can be satisfactorily answered, it is important to understand a few background clarifications.
One of the main goals of project management is to organize the process of asset generation in order to distribute the products (or services) to all corners of a well penetrated market at minimum cost.
To fulfil this mandate there are many processes, techniques and sub-processes which are all clustered beneath its umbrella. Not all of these components can be made to fit within the framework of a particular business model.
However aggregate planning is an exception. Every organization, especially those focused upon or within the manufacturing niche, starts its financial year with project portfolio management and the attendant requirement of aggregate planning. The two main characteristics of this operational process are:
- It is predictive in nature – it attempts to bridge the gap between the demand of items in the market according to consumer and market trends and the production of those items (or the supply) in order to fulfil the demand
- It is a data based process – one which takes into account the company policy, the cost of production, the market trends and other inherent production based constraints and returns outputs that are specific in nature dealing with the exact number of employees to be hired, the exact number of units of the product to be manufactured and the exact number of dollars’ worth of material to be procured to meet the market demand.
WHY AGGREGATE?
The term aggregate refers to an assembly of items. Aggregate planning is the process by which a preliminary, approximate but specific schedule of the entire production timeline of a company is developed. This schedule however is all encompassing or in other words it doesn’t breakdown the production timeline and other associated metrics like number of workers required and machine hours into distinct groups based upon the different goods the company manufactures. All the forecasting is done in aggregate or for the entire product line of the business.
WHAT ARE THE BENEFITS?
Aggregate planning is supposed to minimize the cost of production by bringing stability into the manufacturing process. Market trends are whimsical and transient. What may seem like a slump in demand may actually turn around and spike into a heavy and sudden rise in requirement. If these changes are taken as guidelines, a business may end up ordering a limited supply of raw materials one month, only to rue the decision and place order for more supplies the next. With aggregate planning there is a cumulative or aggregate chart to go by. If by chance a particular product loses market traction, the raw materials can be sent to inventory where they are stored or in case of emergencies diverted into the production of other goods depending upon the aggregate strategy in use.
SOME AGGREGATE STRATEGIES
Aggregate planning in general identifies the output levels of aggregate product groups over a period of 12 to 18 months. There are two aggregate planning strategies adopted by companies:
- Level plans – This strategy encourages the production of similar quantities of goods over equal durations of time so that peaks or valleys in market demand are handled either by sending the surplus goods to inventory or by filling out back-orders.
- Chase plans – Here minimizing inventory is of prime importance. Thus there is the flexibility of either varying the work force number or the actual output level in order to keep pace with the fluctuations in demand.
The former is traditional aggregate planning while the latter is not that rigid, allowing for some deviation from the conventional aggregate approach. Aggregate planning is not a passing fad. It is a proven technique that has been in use for decades and will continue to be advocated by project management pundits for the element of stability and foresight it introduces into manufacturing.
Learn about other project management concepts in the Project Management Glossary.
