Aggregate planning is an operational method that does an aggregate plan for the production procedure, in advance of 2 to 18 months, to provide an idea to management as to what amount of materials and another resources are to be procured and when, so that the sum cost of operations of the organization is kept to the smallest over that period.
The quantity of subcontracting of items, outsourcing, overtime of labour, numbers to be hired and fired in every period and the part of inventory to be held in stock and to be backlogged for every period are decided. All of these actions are completed within the framework of the company ethics, policies, and long term pledge to the society, community and the country of working.
Aggregate planning has various prerequired inputs which are predictable. They comprises:
- Information about the resources and the facilities existing.
- Demand forecast for the particular period for which the planning has to be made.
- Cost of several alternatives and resources. This comprises of ordering cost, cost of holding inventory, cost of production by several production alternatives such as subcontracting, backordering and overtime.
- Organizational policies as per the usage of above alternatives.
Aggregate Planning is related with matching supply and demand of output over the medium time range, up to near about 12 months into the future. Term aggregate implies that the planning is made for a single on the whole measure of output or, at the most, a few aggregated product classes. The purpose of aggregate planning is to set on the whole output levels in the near to medium future in the face of fluctuating or unsure demands. Aggregate planning might seek to affect demand and supply also.