Chapter 11 – Aggregate Planning and Master Scheduling
CHAPTER 11
AGGREGATE PLANNING AND MASTER SCHEDULING
Teaching Notes
In earlier chapters, we looked at certain problems that involve long-range planning such as facility
location, layout, and major equipment purchase decisions. Aggregate planning involves medium–range
planning. The planning horizon for medium-range plans varies from a couple of months to 18 months. A
major component of aggregate planning is to plan aggregate production and inventory levels to achieve a
desired level of customer service. In preparing the aggregate plan, a major consideration is to check the
desired production plan against the estimated capacity. On the other hand, in determining the estimated
capacity, we must take into account the expected demand and the resulting medium-range production
plan. We use the term aggregate plan in lieu of medium-range production plan because it generally
involves the production plan for a group or a family of products (aggregation of products) and over
months or quarters rather than days or weeks (aggregation of time).
Even though the aggregate plan is a function of many different factors, the key factor is the forecasted
demand over the length of the medium-range planning horizon. After an aggregate plan that is consistent
with the forecasted demand and capacity is developed, it is disaggregated into shorter time periods. The
process of disaggregation is the beginning of short-range planning using master scheduling and operations
scheduling. Both master scheduling and operations scheduling are designed to implement the medium-
range plan on the shop floor.
In determining the aggregate plan, integration and communication between various functions of the firm
are vital. Expected changes in the workforce levels need to be communicated to the human resources
department, while any major equipment purchases, layout changes, and capacity additions must involve
the approval of the finance department. On the other hand, changes in anticipated inventory levels and,
especially, expected stockouts must be discussed with the marketing department.
Answers to Discussion and Review Questions
1. The three levels of planning that involve operations managers and the kinds of decisions made at
each level are:
2. The three phases of intermediate planning are the business plan, the aggregate plan, and the
master schedule.
3. Aggregate planning involves developing a general plan for employment, output, and inventory
4. There is a need for aggregate planning because it takes time to implement plans and it is not
5. In both manufacturing and service settings, managers can vary the size of the workforce and
subcontract work. Manufacturers have the additional option of varying the size of inventories.
Chapter 11 – Aggregate Planning and Master Scheduling
11-3
Education.
Taking Stock
1. When we freeze a portion of the master schedule, we make the schedule more stable and reduce
2. Purchasing agents / buyers, the production planning and control manager, planners, schedulers, and
marketing personnel need to interface with the master schedule. Purchasing agents / buyers, planners,
and schedulers need direct information from the MPS to order the parts, manage the inventories of
3. The new communication tools have made it easier to communicate changes in the master
schedule. Therefore, when a change is necessary in the master schedule (e.g., addition or a
deletion of an order, change in the due date or the quantity of an order), that change can be
communicated to the master scheduler faster through new communication tools (e-mail, fax, etc.).
The master scheduler can take this information, and through the utilization of a computerized
production planning and control system, incorporate the changes to the schedule (assuming the
Critical Thinking Exercises
1. Compared to manufacturing environments, service environments often experience more
pronounced variations in demand over shorter time intervals. Moreover, employing inventory as a
2. Student answers will vary. Some possible answers are shown below:
A production manager who carelessly plans hiring and firing of workers would be violating the
Utilitarian Principle and the Rights Principle.
If marketing over-stated actual customer orders, this action would violate the Virtue Principle.
Chapter 11 – Aggregate Planning and Master Scheduling
11-4
Education.
Solutions
1. Given:
Regular cost per unit = $40. Overtime cost per unit = $50. Subcontract cost per unit = $10.
Carrying cost per unit per month = $10 and is assessed on average inventory.
a. We have the following aggregate plan. Calculate the cost of the plan:
Period
Jan
Feb
Mar
Apr
May
Jun
Forecast
300
320
320
340
320
320
Output
Regular
300
300
300
300
300
300
Overtime
20
20
20
20
20
20
Subcontract
0
0
0
0
0
0
Period
Jan
Feb
Mar
Apr
May
Jun
Total
Forecast
300
320
320
340
320
320
1,920
Output
Regular
300
300
300
300
300
300
1,800
Part Time
0
Overtime
20
20
20
20
20
20
120
Subcontract
0
0
0
0
0
0
0
Output – Forecast
20
0
0
–20
0
0
0
Inventory
Beginning
0
20
20
20
0
0
Ending
20
20
20
0
0
0
Average
10
20
20
10
0
0
60
Backlog
0
0
0
0
0
0
0
Costs:
Regular
@
40
$12,000
$12,000
$12,000
$12,000
$12,000
$12,000
$72,000
Part Time
@
$0
$0
$0
$0
$0
$0
$0
Overtime
@
50
$1,000
$1,000
$1,000
$1,000
$1,000
$1,000
$6,000
Subcontract
@
60
$0
$0
$0
$0
$0
$0
$0
Hire/Layoff
$0
Inventory
@
10
$100
$200
$200
$100
$0
$0
$600
Back orders
@
$0
$0
$0
$0
$0
$0
$0
Total
$13,100
$13,200
$13,200
$13,100
$13,000
$13,000
$78,600
11-5
Education.
b. We have the following aggregate plan. Calculate the cost of the plan:
Period
Jul
Aug
Sep
Oct
Nov
Dec
Forecast
320
340
360
380
400
400
Output
Regular
300
300
300
300
300
300
Overtime
20
20
20
20
30
30
Subcontract
20
30
40
40
60
70
Period
Jul
Aug
Sep
Oct
Nov
Dec
Total
Forecast
320
340
360
380
400
400
2,200
Output
Regular
300
300
300
300
300
300
1,800
Part Time
0
Overtime
20
20
20
20
30
30
140
Subcontract
20
30
40
40
60
70
260
Output – Forecast
20
10
0
–20
–10
0
0
Inventory
Beginning
0
20
30
30
10
0
Ending
20
30
30
10
0
0
Average
10
25
30
20
5
0
90
Backlog
0
0
0
0
0
0
0
Costs:
Regular
@
40
$12,000
$12,000
$12,000
$12,000
$12,000
$12,000
$72,000
Part Time
@
$0
$0
$0
$0
$0
$0
$0
Overtime
@
50
$1,000
$1,000
$1,000
$1,000
$1,500
$1,500
$7,000
Subcontract
@
60
$1,200
$1,800
$2,400
$2,400
$3,600
$4,200
$15,600
Hire/Layoff
$0
Inventory
@
10
$100
$250
$300
$200
$50
$0
$900
Back orders
@
$0
$0
$0
$0
$0
$0
$0
Total
$14,300
$15,050
$15,700
$15,600
$17,150
$17,700
$95,500
Chapter 11 – Aggregate Planning and Master Scheduling
c. Refer back to part b. The manager is considering adding some temporary workers for the
second half of the year. This would increase regular output to a steady 350 units per month,
not use any overtime, and use subcontracting as needed to make up any shortages.
Initial Plan: No Subcontracting
Note: Observe the months with backlog. Those are the months in which we must consider
subcontracting. We can determine the total amount that we will need to subcontract as follows:
Total Forecast – Beginning Inventory – Total Regular Output
Period
Jul
Aug
Sep
Oct
Nov
Dec
Total
Forecast
320
340
360
380
400
400
2,200
Output
Regular
350
350
350
350
350
350
2,100
Part Time
0
Overtime
0
Subcontract
0
Output – Forecast
30
10
–10
–30
–50
–50
–100
Inventory
Beginning
0
30
40
30
0
0
Ending
30
40
30
0
0
0
Average
15
35
35
15
0
0
100
Backlog
0
0
0
0
50
100
150
There are backlogs in November and December. How many units will it take to eliminate these
backlogs?
Chapter 11 – Aggregate Planning and Master Scheduling
11-7
Education.
Final Plan: Using Subcontracting to Eliminate Backlogs
Period
Jul
Aug
Sep
Oct
Nov
Dec
Total
Forecast
320
340
360
380
400
400
2,200
Output
Regular
350
350
350
350
350
350
2,100
Part Time
0
Overtime
0
Subcontract
50
50
100
Output – Forecast
30
10
–10
–30
0
0
0
Inventory
Beginning
0
30
40
30
0
0
Ending
30
40
30
0
0
0
Average
15
35
35
15
0
0
100
Backlog
0
0
0
0
0
0
0
Costs:
Regular
@
40
$14,000
$14,000
$14,000
$14,000
$14,000
$14,000
$84,000
Part Time
@
$0
$0
$0
$0
$0
$0
$0
Overtime
@
50
$0
$0
$0
$0
$0
$0
$0
Subcontract
@
60
$0
$0
$0
$0
$3,000
$3,000
$6,000
Hire/Layoff
$0
Inventory
@
10
$150
$350
$350
$150
$0
$0
$1,000
Back orders
@
$0
$0
$0
$0
$0
$0
$0
Total
$14,150
$14,350
$14,350
$14,150
$17,000
$17,000
$91,000
Chapter 11 – Aggregate Planning and Master Scheduling
11-8
Education.
2. Given:
A manager would like to know the total cost of a chase strategy that matches the forecast below
using a steady regular production rate of 200 units per month, a maximum of 20 units per month
of overtime, and subcontracting as needed to make up any shortages. Regular cost per unit =
$35. Overtime cost per unit = $70. Subcontracting cost per unit = $80. We are using a
Note: Observe the months with backlog. Those are the months in which we must consider
overtime and subcontracting. Our first option will be overtime ($70 per unit) because it cost less
than subcontracting does ($80 per unit). We can determine the total amount that we will need to
cover using overtime or subcontracting as follows:
Total Forecast – Beginning Inventory – Total Regular Output
Period
1
2
3
4
5
6
Total
Forecast
230
200
240
240
250
240
1,400
Output
Regular
200
200
200
200
200
200
1,200
Part Time
0
Overtime
0
Subcontract
0
Output – Forecast
–30
0
–40
–40
–50
–40
–200
Inventory
Beginning
0
0
0
0
0
0
Ending
0
0
0
0
0
0
Average
0
0
0
0
0
0
0
Backlog
30
30
70
110
160
200
600
There are backlogs in every month. How many units will it take to eliminate these backlogs?
Total Forecast – Beginning Inventory – Total Regular Output = 1,400 – 0 – 1,200 = 200 units of
backlogs to cover with overtime and subcontracting. We will add overtime and subcontracting in
those months with backlogs to eliminate the backlogs.
11-9
Final Plan: Using Overtime (Maximum of 20 Units in a Period) & Subcontracting
Period
1
2
3
4
5
6
Total
Forecast
230
200
240
240
250
240
1,400
Output
Regular
200
200
200
200
200
200
1,200
Part Time
0
Overtime
20
20
20
20
20
100
Subcontract
10
20
20
30
20
100
Output – Forecast
0
0
0
0
0
0
0
Inventory
Beginning
0
0
0
0
0
0
Ending
0
0
0
0
0
0
Average
0
0
0
0
0
0
0
Backlog
0
0
0
0
0
0
0
Costs:
Regular
@
35
$7,000
$7,000
$7,000
$7,000
$7,000
$7,000
$42,000
Part Time
@
$0
$0
$0
$0
$0
$0
$0
Overtime
@
70
$1,400
$0
$1,400
$1,400
$1,400
$1,400
$7,000
Subcontract
@
80
$800
$0
$1,600
$1,600
$2,400
$1,600
$8,000
Hire/Layoff
$0
Inventory
@
$0
$0
$0
$0
$0
$0
$0
Back orders
@
$0
$0
$0
$0
$0
$0
$0
Total
$9,200
$7,000
$10,000
$10,000
$10,800
$10,000
$57,000
11–10
3. Given:
Use regular output of 400 units per month. Use a maximum of 40 units per month of overtime
and subcontracting (no limit) as needed to make up any shortages. Regular cost per unit = $25.
Overtime cost per unit = $40. Subcontracting cost per unit = $60. Carrying cost per unit
per period = $15 and is assessed on average inventory.
Month
1
2
3
4
5
6
Forecast
380
400
420
440
460
480
Initial Plan: No Overtime & No Subcontracting
Note: Observe the months with backlog. Those are the months in which we must consider
overtime and subcontracting. Our first option will be overtime ($40 per unit) because it costs less
than subcontracting does ($60 per unit). We can determine the total amount that we will need to
cover using overtime and subcontracting as follows:
Total Forecast – Beginning Inventory – Total Regular Output
Period
1
2
3
4
5
6
Total
Forecast
380
400
420
440
460
480
2,580
Output
Regular
400
400
400
400
400
400
2,400
Part Time
0
Overtime
0
Subcontract
0
Output – Forecast
20
0
–20
–40
–60
–80
–180
Inventory
Beginning
0
20
20
0
0
0
Ending
20
20
0
0
0
0
Average
10
20
10
0
0
0
40
Backlog
0
0
0
40
100
180
320
There are backlogs in Months 4 – 6. How many units will it take to eliminate these backlogs?
Total Forecast – Beginning Inventory – Total Regular Output = 2,580 – 0 – 2,400 = 180 units of
backlogs to cover with overtime and subcontracting. We will add overtime and subcontracting in
those months with backlogs to eliminate the backlogs.