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7.2 Aggregate planning.

The goal of aggregate planning is to use the aggregate forecast to determine aggregate production during each future time period in the planning horizon. The forecast may say the demand will be 1000, 1500, and 2000 units in the next 3 months. We could make exactly that much each month or, for example, we could smooth the production by making 1500 each month, at the cost of having to store 500 units from the first to the third month.

Typically the forecast extends further into the future than the planning horizon and the aggregate plan may should change as new forecast become available, creating a rolling plan. For example, if the 4 month forecast is 1000, 1500, 2000, and 2500 we might still plan forward 3 months, but we might make a different plan than if we know the forecast is 1000, 1500, 2000, and 1500 for the next 4 months.

An aggregate plan may include smoothing production by building up inventory, planning for back ordering, or using discounts to shift demands in time. The plan may include changes in the size of the workforce, subcontracting work to other producers, or scheduling overtime. Different aggregate plans can meet the same forecasted demands, at different cost.

[Use example from previous section, with seasonal demand. Solve with LP.]