Aggregate Planning
Aggregate planning is a medium-term production and capacity planning process that determines the optimal combination of production rates, workforce levels, and inventory holdings needed to meet anticipated demand over a 3 to 18 month horizon. It operates at the level of product families or categories rather than individual SKUs, and its output feeds directly into the master production schedule.
Why Aggregate Planning Matters
The main challenge aggregate planning addresses is the mismatch between volatile demand and relatively rigid supply. Demand can change month to month, while production capacity, labor availability, and supplier contracts are slower to adjust. Aggregate planning defines in advance how to manage that gap at the lowest possible cost while protecting service levels.
Core Strategies
Most businesses blend three fundamental strategies:
- Chase strategy: Adjust production output to match demand each period using hiring, layoffs, or overtime.
- Level strategy: Maintain a steady production rate and use inventory as a buffer to absorb demand fluctuations.
- Hybrid strategy: Use moderate changes to production rate, supported by inventory building and limited overtime.
