4.2 Aggregate Demand and Supply Plans

Once the S&OP process defines the planning families and demand picture, planners construct aggregate demand and supply plans. "Aggregate" means the plan is expressed in family units (or another common unit such as tons, standard hours, or cases)—not in every finished SKU. This section is where CPIM tests whether you can translate volume into resources and evaluate production strategies with numbers.

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Family-Level Planning

A planning family groups products that consume similar resources and can share a meaningful volume forecast. Examples: all 2-liter beverage SKUs on one filler line; all mid-size sedan variants in an assembly plant; all Class A repair kits in a distribution network.

Aggregate demand is typically the consensus forecast by family and period (often monthly). Aggregate supply is the planned production (or procurement) rate by family and period, plus the inventory or backlog trajectory that links periods:

Ending inventory(t) = Beginning inventory(t) + Production(t) - Demand(t)

(For backorder environments, negative inventory is interpreted as backlog.)

Because families hide mix, the aggregate plan assumes an average resource profile—for example, 2.5 labor hours and 1.0 machine hour per family unit. If actual mix drifts heavily toward resource-heavy items, the volume plan can still overload a bottleneck; that risk is why families must be designed carefully and why rough-cut checks follow.

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Resource Profiles

A resource profile states how much of a critical resource one aggregate unit consumes. Profiles support load calculations:

Resource load(t) = Planned family volume(t) × Resource per unit

If Alpha volume is planned at 9,000 units in a month, machine load = 9,000 × 1.2 = 10,800 hours (90% of 12,000). Beta at 7,000 units would need 7,000 × 1.8 = 12,600 hours—600 hours over straight-time capacity—so the aggregate supply plan must add overtime, subcontract, inventory from prior builds, or reduce volume.

Resource profiles also connect S&OP to finance: labor hours × wage rates estimate payroll; machine hours × variable overhead estimate conversion cost; inventory units × cost per unit estimate cash tied up.

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Chase, Level, and Hybrid Strategies

Chase Strategy

Chase sets production (or workforce) each period to match demand as closely as practical. Inventory stays low, but hiring, layoff, overtime, and training costs rise. Chase fits environments where inventory is expensive or perishable and labor is flexible.

Level Strategy

Level holds production near a constant rate (often average demand over the horizon). Inventory builds in low-demand periods and drains in high-demand periods (or backlog absorbs peaks in make-to-order settings). Level stabilizes the workforce and equipment utilization but increases inventory holding cost or backorder risk.

Hybrid Strategy

Hybrid (mixed) plans use a near-level base rate plus selective chase, overtime, or subcontracting in peak periods. Most real S&OP supply plans are hybrid because pure chase is disruptive and pure level is too costly or too risky for service.

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Worked Numeric Example (6 Months)

Use this pattern on exam calculation items.

Given

• Beginning inventory = 200 units
• Desired ending inventory (Month 6) = 200 units
• Therefore total production required = demand + EI − BI = 6000 + 200 − 200 = 6000 units
• Regular capacity = 1,000 units/month at $50 variable cost/unit
• Overtime/subcontract premium = $20/unit above regular
• Inventory holding = $8 per unit per month on ending inventory
• Hiring/layoff cost when changing the monthly production rate = $15 per unit of rate change (absolute change vs. prior month's production; Month 1 prior rate = 1,000)

Level plan

Average production = 6000 / 6 = 1000 units every month (matches regular capacity).

Pure level at 1,000 fails in Months 3–4 because inventory is exhausted (Month 3 ending inventory hits zero, and Month 4 would go 200 units short). A feasible hybrid therefore raises production in the peak months while staying near capacity elsewhere. One plan that produces exactly 6000 units and ends at 200 inventory:

Production sum = 6000. Regular capacity 1000 ⇒ overtime units = (1200-1000) + (1300-1000) = 500 units.

Relevant cost (hybrid above)

• Overtime premium: 500 × 20 = 10,000
• Inventory holding on ending inventories 300+300+100+200+200+200 = 1,300 unit-months → 1300 × 8 = 10,400
• Rate-change cost vs. prior month production (prior Month 0 = 1000):
  |900-1000| + |1000-900| + |1200-1000| + |1300-1200| + |900-1300| + |700-900|
  = 100+100+200+100+400+200 = 1,100 → 1100 × 15 = 16,500
• Total relevant ≈ $36,900

Pure chase (ignore capacity first, then cost the swings)

Set production = demand each month (BI stays 200 if you produce demand and hold BI constant—or produce demand − (target change in inventory); with constant 200 inventory, production = demand each month):

Prod: 800, 1000, 1400, 1200, 900, 700.

Overtime above 1000: (1400-1000)+(1200-1000)=600 units → premium 600 × 20 = 12,000.

Inventory unit-months if EI stays 200 every month: 200 × 6 = 1,200 → holding 1200 × 8 = 9,600.

Rate changes vs. 1000 prior:
|800-1000|+|1000-800|+|1400-1000|+|1200-1400|+|900-1200|+|700-900|
=200+200+400+200+300+200=1,500 → 1500 × 15 = 22,500.

Chase total relevant ≈ $44,100 — higher than the hybrid because workforce/rate swings dominate.

Exam takeaway from the numbers

Hybrid cut overtime versus pure chase (500 vs. 600 OT units) and reduced rate-change cost ($16,500 vs. $22,500), more than offsetting a small holding-cost difference. On CPIM items, always list all relevant costs named in the stem; ignore sunk or identical costs across alternatives.

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Building the Aggregate Supply Recommendation

A complete aggregate supply plan for S&OP should state:

1. Family volumes by period
2. Inventory/backlog trajectory
3. Resource loads vs. capacity (from profiles)
4. Strategy type (chase / level / hybrid) and levers used
5. Cost and service implications for executive decision

That package feeds reconciliation: if the preferred aggregate plan still leaves unacceptable gaps, the next section's gap-closing levers and rough-cut checks come into play before master scheduling disaggregates volume into mix.