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ELSEVIER Int. J. Production Economics41 (1995) 127-133

A managerial perspective on aggregate planning

Geoff Buxey
Faculty of Management, Deakin University. Geelong, Victoria, 3217, Australia
Accepted for publication 1 August 1994

Abstract
Aggregate Planning first appeared in the literature nearly 40 years ago and has proven a popular topic for research
ever since. However, industry seems to have ignored repeated claims that there are algorithms available which would
yield significant cost savings. This paper explores the divergence between theory and practice, via an empirical study
covering 30 firms.
Most authors have blamed weaknesses in particular methods for the lack of applications. The evidence presented here
indicates that the Aggregate Planning model itself is at fault, and that the broad characteristics of real production plans
follow from other business, tactical, or operational considerations. Furthermore, a chase option is generally preferred at
the outset.

Keywords: Aggregate planning

1. Aggregate planning premiums, and, payments related to hiring and

The Aggregate Planning model was developed as
a vehicle for minimising the total marginal costs of
manufacturing a range of products with a strong
seasonal sales pattern I-1]. Over a calendar year
cycle a factory can maintain a constant monthly
output, equal to the average demand rate, and
stockpile finished goods during slack sales periods.
They are then used up as supplements whenever
sales outstrips production. Such a level plan incurs
substantial (smoothing) inventory holding charges.
Another possibility is to adjust the output each
month in line with its sales forecast. This chase plan
involves increasing scheduled labour hours in the
peak season, in order to run equipment more inten-
sively or for longer hours, or, subcontracting some
work out. The principal discretionary costs are
overtime (and undertime), shift, and subcontract
then firing any additional staff.
Aggregate Planning techniques find the best cost
compromise between these two extremes, and in-
clude several forms of mathematical programming,
[2, 3], regression analysis [4], simulation [5, 6], and
heuristic rules [7, 8]. The problem is made (math-
ematically) tractable by using aggregate measures
of products, labour and inventory and their asso-
ciated costs. In addition, monthly time buckets are
specified over the one year horizon, and it is simply
assumed that the disaggregation of any given plan
(faithfully) into a batched, weekly Master Produc-
tion Schedule (MPS) will be a straightforward task.
There are several reports of favourable results
when these methods were applied retrospectively to
actual company data [9, 10]. However, aggregate
figures are always supplied despite the fact that
a fair test should be based on the MPS. Production

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128 G. Buxey /lnt. J. Production Economics 41 (1995) 127-133

Table 1
The Industrial Sample

Products Variety Production mode Major schedule characteristics

Bulk/bagged cement
Petrol and oils
Motor vehicle batteries
Paints/varnishes (industrial)
Processed foods
Lawn bowls
Electric wall heaters
Ladies footwear
Surfer's wetsuits
Boardshorts
Paints/finishes (domestic)
tawnmowers, edgers,
outdoor vacuum cleaners
Ladies' wear
Ammunition
Beer
Gas barbecues
Solid fuel heaters
Reinforced hoses
Colour television receivers
Toys
None
Ten related products
Four sizes
Approximately 400 types
300 items, including
different container sizes
650 models combined with
2000 decorative patterns
30 models
Winter range: 287 styles;
Summer range: 110 styles;
compounded by 60 colours,
8 materials and different sizes
50 models in 12 sizes
Five types, 40 fabrics and
20 sizes
417 items, from 28 types,
5 can sizes, and colour range
Eight models
500 styles, compounded by
fabrics and sizes
260 products, belonging to a
smaller number of families
Two types
70 types, expanding to 200
when finishes and optional
modules added
Ten models
50 types
12 models
Typically, 25 30 items
made locally
For stock
Large contracts to order
For stock
For stock
To customer order
For stock
Domestic models for
stock, plus "specials"
to order. Export models
to meet order commitments
For stock
To customer order
Approximately 50% stock and
50% customer order
To customer order
For stock
For stock
To customer order
Approximately 40% to meet
order commitments.
Low-volume industrial range
to customer order. Remainder
for stock
For stock
For stock
For stock
Small orders supplied ex stock. Chase
Major customers supplied to
"order'" with 30-40 days
lead time
For stock
For stock, but subcontracted
Chase, but level for intermediate
(bottleneck) stage
Chase. Exports to maintain full
plant utilization
Level
Chase
Chase-modified by
seasonal raw materials
Exports
Chase. Subcontracts to keep
engineering workshops busy
Chase. Seasonally differentiated
product range
(modified) chase. Seasonally
differentiated product range
(modified) chase. Exports.
Counter seasonal products
Chase
Chase
Chase Seasonally differentiated
product range
Chase volatile market segment.
Use long lead time export orders
to maintain high plant utilization
Chase
Counter-seasonal products.
Exports
Level
Subcontracting
 G. Buxey/lnt. ,L Production Economics 41 (1995) 127-133
They do not include an expensive fan, which is
purchased and inserted on a chase basis.
7. Conclusions
The investigation reveals that Aggregate Plan-
ning is never undertaken in the way promoted by
the literature. There is no product aggregation/dis-
aggregation, although the initial forecasts and
schedules may be simplified by using family groups
to which minor finish or packaging details are
added later. Most significantly, marginal work-
force-inventory cost balancing is not attempted
at all.
Resources and production planning is, nonethe-
less, very important when sales are seasonal. The
problem is tackled at three levels, strategic, tactical,
and operational. These are loosely linked to
provide enough scope to handle the inevitable
modifications to the MPS as they arise, and many
potential expenses or difficulties are nullified by
cultivating good management practices. There is
indeed one case (convenience foods) where a com-
puterised model, based on heuristic rules, generates
the MPS, but management sets the overall tactical
framework and individual item stock levels are
determined by Economic Batch Quantity (EBQ)
logic rather than using the (aggregate smoothing
stock) concepts of Aggregate Planning.
Two examples from the literature [13, 14] show
that linear programming can also be applied suc-
cessfully to formulate an MPS. One company
makes convenience foods too and the other (beer)
has a similar production environment, but again
the models proposed by management have a differ-
133
ent format to Aggregate Planning. In fact, both
involve minimising the combined costs of produc-
tion, inventory and distribution in a multi-plant
situation with given (constant) workforces. They
still leave a lot of details to be worked out by other
means before a feasible shift-based plan becomes
available to cover the short term activities. The
literature believes that greater sophistication, via
integration to avoid sub-optimisation, is the key to
advances in production planning, although it can-
not as yet come up with a comprehensive model.
This research shows that in real life good guide-
lines, prudence, and flexibility are more important,
although there may be room for computerised deci-
sion support systems in developing the former.
References
[1] Holt, C.C., Modigliani, F. and Simon, H.A., 1955. Mgmt.
Sci., 2: 1.
[2-] Akinc, V. and Roodman, G.M., 1986. l i e Trans., 18: 84.
[3] Deckro, R.F. and Hebert, J.E., 1984. liE Trans., 16: 308.
[4] Bowman, E.H., 1963. Mgmt. Sci., 9: 310.
[-5] Jones, C.H., 1967. Mgmt. Sci., 13: 843.
[-6] Taubert, W.H., 1968. Mgmt. Sci., 14: 343.
[-7-] Elmaleh, J. and Eilon, S., 1974. Int. J. Prod. Res., 12:
673.
[-8] Mellichamp, J.M. and Love, R.M., 1978. Mgmt. Sci., 24:
1242.
[-9-] Lee, W.B. and Khumawala, B.M., 1974. Mgmt. Sci., 20:
903.
[10,] Vergin, R.C., 1966. Ind. Eng., 17: 260.
[-11] Gilgeous, V., 1988. Int. J. Prod. and Ops. Mgt., 8: 48.
[12,] Gilgeous, V., 1989. Int. J. Prod. Res., 27: 1179.
[13] Kaye, D.R. and Dunsmuir, A.M., 1977. in: S.C. Littlechild
(Ed.), Operational Research for Managers, Philip Allan,
Deddington, 102.
[14] Duran, F., 1987. European J. Opl. Res., 28: 207.
 G. Buxey/lnt. ,L Production Economics 41 (1995) 127-133
They do not include an expensive fan, which is
purchased and inserted on a chase basis.
7. Conclusions
The investigation reveals that Aggregate Plan-
ning is never undertaken in the way promoted by
the literature. There is no product aggregation/dis-
aggregation, although the initial forecasts and
schedules may be simplified by using family groups
to which minor finish or packaging details are
added later. Most significantly, marginal work-
force-inventory cost balancing is not attempted
at all.
Resources and production planning is, nonethe-
less, very important when sales are seasonal. The
problem is tackled at three levels, strategic, tactical,
and operational. These are loosely linked to
provide enough scope to handle the inevitable
modifications to the MPS as they arise, and many
potential expenses or difficulties are nullified by
cultivating good management practices. There is
indeed one case (convenience foods) where a com-
puterised model, based on heuristic rules, generates
the MPS, but management sets the overall tactical
framework and individual item stock levels are
determined by Economic Batch Quantity (EBQ)
logic rather than using the (aggregate smoothing
stock) concepts of Aggregate Planning.
Two examples from the literature [13, 14] show
that linear programming can also be applied suc-
cessfully to formulate an MPS. One company
makes convenience foods too and the other (beer)
has a similar production environment, but again
the models proposed by management have a differ-
133
ent format to Aggregate Planning. In fact, both
involve minimising the combined costs of produc-
tion, inventory and distribution in a multi-plant
situation with given (constant) workforces. They
still leave a lot of details to be worked out by other
means before a feasible shift-based plan becomes
available to cover the short term activities. The
literature believes that greater sophistication, via
integration to avoid sub-optimisation, is the key to
advances in production planning, although it can-
not as yet come up with a comprehensive model.
This research shows that in real life good guide-
lines, prudence, and flexibility are more important,
although there may be room for computerised deci-
sion support systems in developing the former.
References
[1] Holt, C.C., Modigliani, F. and Simon, H.A., 1955. Mgmt.
Sci., 2: 1.
[2-] Akinc, V. and Roodman, G.M., 1986. l i e Trans., 18: 84.
[3] Deckro, R.F. and Hebert, J.E., 1984. liE Trans., 16: 308.
[4] Bowman, E.H., 1963. Mgmt. Sci., 9: 310.
[-5] Jones, C.H., 1967. Mgmt. Sci., 13: 843.
[-6] Taubert, W.H., 1968. Mgmt. Sci., 14: 343.
[-7-] Elmaleh, J. and Eilon, S., 1974. Int. J. Prod. Res., 12:
673.
[-8] Mellichamp, J.M. and Love, R.M., 1978. Mgmt. Sci., 24:
1242.
[-9-] Lee, W.B. and Khumawala, B.M., 1974. Mgmt. Sci., 20:
903.
[10,] Vergin, R.C., 1966. Ind. Eng., 17: 260.
[-11] Gilgeous, V., 1988. Int. J. Prod. and Ops. Mgt., 8: 48.
[12,] Gilgeous, V., 1989. Int. J. Prod. Res., 27: 1179.
[13] Kaye, D.R. and Dunsmuir, A.M., 1977. in: S.C. Littlechild
(Ed.), Operational Research for Managers, Philip Allan,
Deddington, 102.
[14] Duran, F., 1987. European J. Opl. Res., 28: 207.