Supply Chain Management: Strategy,
Planning, and Operation
Eighth Edition
Chapter 7
Planning Supply in a
Supply Chain:
Aggregate Planning
Copyright © 2026, 2019, 2016 Pearson Education, Inc. All Rights Reserved
,Aggregate Supply Planning and Its
Role in a Supply Chain
• Capacity has a cost and lead times are often long
• Aggregate supply planning:
– Given the demand forecast for each period in the
planning horizon, determine the production level,
inventory level, capacity level (internal and
outsourced), and any backlogs (unmet demand) for
each period that maximize the firm’s profit over the
planning horizon.
– How can a firm best use the facilities it has?
Copyright © 2026, 2019, 2016 Pearson Education, Inc. All Rights Reserved
,The Aggregate Supply Planning
Problem
• Given the demand forecast for each period in the planning
horizon, determine the production level, inventory level,
and the capacity level for each period that maximizes the
firm’s (supply chain’s) profit over the planning horizon
• Specify the planning horizon (typically 3–18 months)
• Specify the duration of each period
• Specify key information required to develop an aggregate
plan
Copyright © 2026, 2019, 2016 Pearson Education, Inc. All Rights Reserved
, Information Needed for an Aggregate
Supply Plan
• Aggregate demand forecast Ft for each Period t over T periods
• Production costs
– Labor costs, regular time ($/hr) and overtime ($/hr)
– Subcontracting costs ($/hr or $/unit)
– Cost of changing capacity—hiring or layoff ($/worker), adding or
reducing machine capacity ($/machine)
• Labor/machine hours required per unit
• Inventory holding cost ($/unit/period)
• Stockout or backlog cost ($/unit/period)
• Constraints—overtime, layoffs, capital available, stockouts, backlogs,
from suppliers
Copyright © 2026, 2019, 2016 Pearson Education, Inc. All Rights Reserved
Planning, and Operation
Eighth Edition
Chapter 7
Planning Supply in a
Supply Chain:
Aggregate Planning
Copyright © 2026, 2019, 2016 Pearson Education, Inc. All Rights Reserved
,Aggregate Supply Planning and Its
Role in a Supply Chain
• Capacity has a cost and lead times are often long
• Aggregate supply planning:
– Given the demand forecast for each period in the
planning horizon, determine the production level,
inventory level, capacity level (internal and
outsourced), and any backlogs (unmet demand) for
each period that maximize the firm’s profit over the
planning horizon.
– How can a firm best use the facilities it has?
Copyright © 2026, 2019, 2016 Pearson Education, Inc. All Rights Reserved
,The Aggregate Supply Planning
Problem
• Given the demand forecast for each period in the planning
horizon, determine the production level, inventory level,
and the capacity level for each period that maximizes the
firm’s (supply chain’s) profit over the planning horizon
• Specify the planning horizon (typically 3–18 months)
• Specify the duration of each period
• Specify key information required to develop an aggregate
plan
Copyright © 2026, 2019, 2016 Pearson Education, Inc. All Rights Reserved
, Information Needed for an Aggregate
Supply Plan
• Aggregate demand forecast Ft for each Period t over T periods
• Production costs
– Labor costs, regular time ($/hr) and overtime ($/hr)
– Subcontracting costs ($/hr or $/unit)
– Cost of changing capacity—hiring or layoff ($/worker), adding or
reducing machine capacity ($/machine)
• Labor/machine hours required per unit
• Inventory holding cost ($/unit/period)
• Stockout or backlog cost ($/unit/period)
• Constraints—overtime, layoffs, capital available, stockouts, backlogs,
from suppliers
Copyright © 2026, 2019, 2016 Pearson Education, Inc. All Rights Reserved
