ITLS6002 Chap.4 Aggregate and Sales Planning
Aggregate and Sales Planning
Aggregate planning translates medium-term demand into coordinated production, workforce, inventory, overtime and subcontracting decisions. Sales and operations planning supplies the cross-functional process around the model: reconcile assumptions, expose trade-offs and approve one feasible plan.
A spreadsheet or optimisation model must preserve inventory flow between periods, respect capacity and charge only the costs created by each decision. This chapter contrasts level, chase and hybrid policies, shows how to audit a plan period by period, and uses operational and financial measures to compare alternatives without hiding service consequences behind a single total-cost figure.
The inventory or backlog balance links one period to the next and is the first equation to audit. Workforce levels determine regular capacity, while overtime, subcontracting, hiring and firing provide additional levers with different costs and operational limits. A level plan concentrates adjustment in inventory or backlog; a chase plan concentrates it in capacity; a hybrid distributes the response.
S&OP turns those calculations into an agreed plan by reconciling demand, supply and financial views before execution.
What this chapter covers
- 01
Sales and operations planning cycle
- 02
Level and chase strategies
- 03
Hybrid capacity policies
- 04
Inventory and backlog balance
- 05
Capacity and workforce constraints
- 06
Plan auditing and KPI comparison
Worked example · free
Auditing a three-period level plan
- 2Period 1 ending inventory is 200 + 1,050 - 900 = 350 units.
- 2Period 2 ending inventory is 350 + 1,050 - 1,100 = 300 units.
- 2Period 3 ending inventory is 300 + 1,050 - 1,300 = 50 units.
- 2Total ending-inventory cost is 4 x (350 + 300 + 50) = $2,800, before adding production or workforce costs.
Key terms
- Aggregate Planning
- Medium-term coordination of demand, capacity, workforce and inventory at a product-family level.
- Level Strategy
- A policy that keeps production or workforce relatively stable and absorbs demand variation elsewhere.
- Chase Strategy
- A policy that changes capacity or workforce to follow the demand pattern closely.
- Sales And Operations Planning
- A recurring cross-functional process that agrees one demand, supply and financial plan.
Aggregate and Sales Planning FAQ
Why can a low-cost aggregate plan still be unacceptable?
A model may exploit backlogs, workforce changes or subcontracting in ways that breach service, labour or supplier limits. Review the decision profile and operational constraints, not just the objective value, before recommending the plan.
How do level and chase plans differ conceptually?
A level plan stabilises capacity and uses inventory or backlog as a buffer. A chase plan adjusts capacity toward demand. Most real plans are hybrids because pure strategies concentrate cost and risk in one lever.
What is the fastest spreadsheet audit for aggregate planning?
Recalculate the material-balance equation row by row, check every capacity limit and confirm the final inventory or backlog requirement. Then independently recompute the cost components from the displayed decision quantities.
Why must beginning and ending inventory use a consistent sign convention?
Inventory and backlog represent opposite states, so an inconsistent sign can make an infeasible plan appear balanced. Define positive inventory and positive backlog explicitly, carry the chosen convention through every period, and reconcile the final position independently from total supply and demand.
What role does S&OP play beyond the optimisation model?
S&OP aligns demand assumptions, supply capability and financial consequences across functions. The model exposes feasible trade-offs, but managers still agree priorities, risks and actions. A mathematically valid plan is therefore an input to the governance process rather than a substitute for it.
How should two aggregate plans be compared fairly?
Use the same horizon, demand, opening position, cost basis and service constraints. Report the cost components and decision profiles, not only the totals. If one plan allows backlog or subcontracting that another prohibits, disclose that difference before ranking them.
Exam move
Draw the S&OP cycle separately from the mathematical plan so process and calculation do not blur. In numerical questions, create columns for beginning stock, each supply source, demand, backlog and ending stock. Reconcile every row before calculating costs.
Compare at least two policy profiles using cost, service, workforce stability and ending position, then explain which constraints make the chosen policy operationally credible. Rebuild one small level plan and one chase plan from blank sheets, preserving the same demand and cost data so the policy difference is visible.
Audit the horizon in two ways: period-by-period balance and total opening supply versus demand plus closing position. Highlight capacity limits and final-stock requirements before solving, because they often determine feasibility.
For written responses, separate the numerical winner from the managerial recommendation and explain how workforce disruption, supplier reliability or service commitments could justify a higher-cost hybrid.
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