Consider IBM, a company making many different products in many plants with
thousands of employees. To prepare a plan involving every product and employee
to satisfy market demand would be virtually impossible, and the attempt would be
extremely costly. Even if successful, necessary change would require much effort
to keep the plan current. Therefore plans are made in an aggregate fashion.
Aggregation means to bring a group of individual things together to make a
1. Facilities planning. Top management makes decisions regarding the products
that will be produced and the facilities required to produce them. These are
strategic decisions made with an eye to the long-term future- in the order of
2. Aggregate planning. These are medium term decisions, two to eighteen
months in duration. The aggregate planning process produces decisions about how
many to produce to meet demand. The decisions are made by top and middle
3. Schedule. Scheduling decisions are made by shop managers and are the
decisions that are required to implement the aggregate plan.
2. Labour. Often a company has groups of employees with similar skills that
it can identify and use as a part of the aggregate. A company with specialized
labour with various skills might be aggregated on the basis of these skills. We
could think of IBM as doing this. Many software projects might be contemplated,
but by aggregating the programmers, a single decision can be made on how many
programmers to employ, and the individual projects can be considered in detail
3. Time. We might also tally time required for part of the effort, and add up
the time required thus aggregating on the basis of time. A law firm might do
this, allowing so many employee hours for criminal law, so many for corporate
law, and so on.
While it is not obvious here, the basis on which to aggregate is usually
quite obvious when the company is examined. The basis generally presents itself.
Medium range. Medium range decisions are made for two months
to a year. Based on the game plan above, medium range production goals are
determined. This is where aggregate planning is used. Medium range goals are
expressed as aggregate goals: so many cars and trucks, this year for GM, for
example, so much code produced by IBM, so many new product developed, so many
computers built. The medium range plan is desegregated into the MPS, the master
production schedule. It is a schedule of the products that must be produced for
each of the planned time periods.
Short range. The short range is no more than two months,
with plans for perhaps a week or two. This is the plan or schedule that details
what machine will be run for what period of time, what personnel will be
assigned to what tasks etc.. This results in a schedule from which is formed the
MRP, materials requirement plan. This plan lists all the materials, parts and so
on, that will be required to produce the required volume.
The MRP is based on requirements of the MPS, and on inputs from the bills of
materials for each product, which state what components of raw materials will be
required for the production volume, and the state of inventory of both finished
parts and components and raw materials. The MRP is now the basis for a detailed
schedule of work centre loading, and of purchasing requirements.
The problem is for each time period to find a production level, inventory
level, and number of workers, that will meet the required forecast. This must be
done at minimum cost.
There are a number of things we try to minimize. These are costs, inventory,
work force changes, overtime, use of subcontractors, changes in production rate,
number of machine set-ups, and idle time. At the same time we try to maximize
customer service and profits.