Aggregate Planning

We like to talk frequently about demand forecasting - especially because that is the subject that most clients say "can't be done." In our view, demand forecasting can not only be "done" successfully, but the financial impact on a manufacturing firms supply chain can be huge...

Thinking through a great demand planning process inevitably goes to consideration of aggregate planning. Aggregate planning is a process by which a company determines levels of capacity, production, subcontracting, inventory, stock outs, and even pricing decisions over a specified time horizon. Aggregate planning, as the name designates - solves problems involving aggregate decisions, rather than at the SKU level decision.

Aggregate planning will typically determine the total level of production in a plant for a given month, but it will do so without determining the quantity of each individual SKU. This level of detail makes aggregate planning a useful tool for thinking about decisions with an intermediate time frame of roughly between 3 and 18 months. This time frame is much too short to determine SKU level production, but is generally (as always) too late to build new production manufacturing facilities.

Aggregate planning is best served by answering the question - "How can we best utilize our current facilities."

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