What is Aggregate Production Planning?

Aggregate Production Planning (APP) is a medium-term marketing-production activity designed to determine the best way to meet forecasted demand while minimizing total costs. It typically covers a period ranging from 3 to 18 months. The goal is to balance workforce levels, production rates, and inventory levels to achieve the most efficient output.

Level Strategy vs. Chase Strategy

In Level Strategy, a firm maintains a constant production rate and workforce level regardless of demand fluctuations. Any excess production during low-demand periods is held as inventory to meet peak demand later. While this provides stability for the workforce, it often incurs higher inventory holding costs.

Conversely, Chase Strategy aims to match production exactly to demand in each period. This is achieved by hiring or firing workers or adjusting shifts. While inventory costs are minimized, the company faces significant costs related to recruitment, training, and potential morale issues within the workforce.

How to Use This Calculator

To use the Aggregate Production Planning Calculator, input your 6-month demand forecast in the units column. Next, enter your operational parameters, including your initial inventory, the production capacity of a single worker per period, and various costs associated with hiring, firing, holding stock, and regular production. Click "Calculate Comparison" to see a side-by-side cost analysis. This tool helps supply chain managers identify which strategy offers the lowest total cost of operation based on their specific constraints.

Frequently Asked Questions

When should I use a Chase Strategy?

Chase strategies are best for industries where inventory holding costs are extremely high, goods are perishable, or workforce adjustment is relatively inexpensive and easy.

When is Level Strategy preferred?

Level strategy is ideal when hiring and training costs are high, specialized labor is required, or when inventory storage is cheap and available.