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Aggregate Production Planning Example

Level Production Strategy

We are going to find the requirements for the entire period of the plan and also produce the average amount that is needed per month in order to meet the plan.

First we are going to determine the total average requirements per month:

Avg. requirements = total number of requirements – opening inv. + closing inv.


Avg. requirements, therefore = (9000 – 700 + 100)/6 = 1400 units/period


  1. Entering the production data
  2. We will then determine the hire/fire rate to get to production level that is desired
  3. All  inventory levels will then be updated
  4. We will also check whether  the inventory is going to run out – If it does recalculate average production needed and go to step 1
  5. Calculate totals for each category
  6. Calculate costs

Aggregate Production Planning Example

Period 1 2 3 4 5 6 Total
Req. 1000 1200 1000+500 1900 1000+800 1600 9000
(700) inv.

 Level Strategy

  1. Regular production costs:
  2. Inventory carrying costs:
  3. Hiring Costs:

Total Incurred Costs: _________

The aggregate planning that we are going to carry out will among other things attempt to match the level of bike supply to demand. It is going to determine the required quantities and the timing of inputs as well as outputs. There will also be making decisions on production, inventory, staffing and backorder levels.

The Following are the Forecasts for Demand to Meet:

Month 1 2 3 4 5 6
Demand (number of bikes) 1000 1200 1500 1900 1800 16001600

Relevant Costs:

Regular production cost $35/unit
Lost sales $100/unit
Inventory carrying costs $10/unit/month
Subcontracting costs $60/unit
Hiring costs $1500/worker
Firing costs $3000/worker
Beginning workforce level 20 workers
Capacity per worker 50 units/month
Initial inventory level 700 units
Closing inventory level 100 units

Chase Strategy

  • We are going to manage to produce what will be duly required in every period.
  • We will also hire and fire so as to adjust the monthly production to the requirements per month.
  • The entire of the first and last period production levels are adjusted to account for opening inventory and closing inventory requirements.
Period 1 2 3 4 5 months 6 months Total
Requirement. 1000 1200 bikes 1500 1900 bikes 1800 1600 9000


After all this has been done, the following fields are going to be filled:

  1. Regular production costs:
  2. Inventory carrying costs:
  3. Hiring Costs:
  4. Firing Costs:

Total Costs: _____________

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