5.1 Aggregate Planning and Master Production Scheduling

Aggregate Planning and Master Production Scheduling

Production planning is about balancing what you can make with what customers actually want. Aggregate planning handles this at a mid-term level (think months ahead), while the Master Production Schedule (MPS) zooms in on exactly which products to make and when. Together, they form a hierarchy: aggregate planning sets the overall strategy, and MPS translates that strategy into specific, actionable production targets.

Aggregate Planning in Production

Purpose and Scope of Aggregate Planning

Aggregate planning is a mid-term capacity planning tool that covers a 3- to 18-month horizon. Its job is to balance production supply with forecasted demand while minimizing total costs. Rather than planning for individual products, it works at the level of product families or groups, which keeps the problem manageable.

This type of planning sits between long-term strategic decisions (like building a new factory) and short-term operational decisions (like tomorrow's production schedule). It pulls in variables like:

• Production rates (how fast you produce)
• Workforce size (how many people you employ)
• Inventory levels (how much stock you carry)
• Subcontracting or overtime options

Because it touches production, inventory, and labor all at once, aggregate planning affects multiple departments: finance needs to budget for it, HR needs to plan hiring or layoffs, and marketing needs to align promotions with available capacity.

Aggregate Planning Process and Impact

The core goal is matching production capacity to expected demand over time. This matters most when demand isn't constant. A company facing seasonal swings (think holiday retail or summer construction) needs a plan for handling peaks and valleys without wasting money.

Aggregate planning helps you:

• Optimize resource utilization across labor, materials, and equipment
• Coordinate activities across departments with a shared framework
• Identify potential bottlenecks or capacity constraints before they become crises
• Make informed decisions about inventory buildup, workforce changes, and production pacing

Developing Aggregate Production Plans

Aggregate Production Strategies

There are three main approaches, and most real companies use some blend of them.

Level production strategy keeps the workforce and production rate constant. Demand fluctuations are absorbed by building up or drawing down inventory.

• Example: A toy manufacturer produces at a steady rate all year. Inventory builds up through summer and fall, then gets shipped out during the holiday rush. The tradeoff is higher inventory holding costs, but you avoid the expense and disruption of constantly hiring and firing workers.

Chase demand strategy adjusts production output to match demand period by period. This keeps inventory low but requires a flexible workforce.

• Example: A custom furniture maker hires temporary workers during busy months and reduces staff during slow periods. Inventory costs stay low, but hiring/training costs and potential quality issues go up.

Mixed strategy combines elements of both. Most companies land here because pure level or pure chase strategies each have significant downsides.

• Example: An electronics company keeps a core workforce year-round (level element) but uses overtime and temporary workers during product launch periods (chase element).

Optimization Techniques and Evaluation

Several quantitative methods help you find the best aggregate plan:

1. Linear programming models production constraints (capacity, labor, storage) and costs mathematically to find the lowest-cost feasible plan
2. Transportation method frames the planning problem as a distribution problem, matching supply sources (regular time, overtime, subcontracting) to demand periods
3. Graphical methods plot cumulative demand against cumulative production for different strategies, making it easy to visually compare options and their cost implications

To evaluate a plan, you look at these key metrics:

• Total cost: production costs + inventory holding costs + labor-related costs (hiring, firing, overtime)
• Inventory levels: how much stock you're carrying and whether it's excessive
• Workforce stability: how much churn your plan creates in employment
• Customer service level: your ability to meet demand on time without stockouts

Sensitivity analysis tests how robust your plan is. For instance, what happens if raw material costs jump 10%? If your plan falls apart under small changes, it's probably not the right plan.

Master Production Schedules

MPS Fundamentals and Development

The Master Production Schedule (MPS) specifies the quantity and timing of each end item to be produced, typically over a 3- to 6-month horizon broken into weekly time buckets. Where the aggregate plan says "produce 10,000 sedans this quarter," the MPS says "produce 400 Model X Sedans in week 12."

Building an MPS involves balancing three inputs:

• Current inventory on hand
• Production capacity constraints
• Customer orders and demand forecasts

Two concepts are central to how an MPS operates:

Time fences control how much the schedule can change as you get closer to production. The demand time fence marks a near-term period where changes are heavily restricted (because materials are already ordered, machines are set up). The planning time fence separates the frozen short-term schedule from the more flexible longer-term schedule. This structure prevents last-minute chaos on the shop floor.

Available-to-Promise (ATP) tells you how many units you can commit to new customer orders. If the MPS shows 100 units produced in week 3 and 60 are already committed, the ATP is 40 units. Sales teams use this number constantly when promising delivery dates.

MPS Implementation and Integration

Before locking in an MPS, you need to check whether it's actually doable. Rough-cut capacity planning (RCCP) compares the required capacity at critical resources (bottleneck work centers) against what's available. If the MPS demands more than your bottleneck can handle, you need to revise it before moving forward.

The MPS feeds directly into other planning systems:

• Material Requirements Planning (MRP) takes the MPS and explodes it into component and raw material requirements, with timing for when each part needs to be ordered or produced
• Capacity Requirements Planning (CRP) performs detailed capacity analysis across all work centers, not just bottlenecks

The MPS also provides the basis for shop floor scheduling and work order release. When a sudden spike in orders hits for a popular product, the MPS is where you adjust production quantities and assess the downstream impact on materials and capacity.

Aggregate Planning vs. Master Scheduling

Scope and Level of Detail

Example: An aggregate plan for an auto manufacturer might address "sedans" as a single group measured in total labor hours. The MPS for that same company specifies "850 units of Model X Sedan" and "620 units of Model Y Sedan" in week 14.

Focus and Decision Support

Aggregate planning is primarily concerned with resource allocation and capacity utilization. It supports strategic-level decisions: Should we increase overall production capacity? Do we need to hire more workers for next quarter? What inventory policy makes sense for the next year?

MPS focuses on detailed production scheduling and order fulfillment. It guides tactical decisions: How many of each product do we make this week? Can we promise delivery to this customer by their requested date?

The relationship between them is hierarchical. The aggregate plan's outputs become the MPS's constraints. You can't schedule more production in the MPS than the aggregate plan's capacity allows. This top-down structure keeps planning consistent from the strategic level all the way down to the shop floor.