Operations Management and Strategic Management · Production Planning and Control

Aggregate Planning and Master Production Schedule

Updated 10 October 2026 · Fact-checked

Aggregate planning fixes monthly output, workforce and inventory for product groups over 6-18 months. Its main strategies are chase, level and mixed. The master production schedule (MPS) then breaks the plan into specific end items by week. To solve questions, compute net requirements, apply each strategy, and compare total costs.

Understand Aggregate Planning and Master Production Schedule

Aggregate planning is medium-range planning. It decides how much to produce each period, how many workers to keep, how much overtime to use and how much inventory to hold. It works with product families, not individual models. Its aim is to meet forecast demand at the lowest total cost.

Demand changes from month to month, but capacity cannot change easily. So you have choices. You can change the workforce, change working hours, build stock, subcontract, or let orders wait as backorders. Each choice has a cost: hiring and training, layoff, overtime premium, holding cost, shortage cost.

There are three basic strategies. In the chase strategy, output in each period equals demand in that period. Stock stays near zero, but workforce or hours keep changing. In the level strategy, output is the same every period, usually the average demand. Stock builds in slow months and is used in peak months. In the mixed strategy, you combine both, for example a level workforce with overtime or subcontracting in peaks.

The master production schedule (MPS) comes after the aggregate plan. It states what end items will be made, how many, and in which week. It is built from forecasts, confirmed customer orders, opening stock and the aggregate plan. The MPS then drives Material Requirements Planning (MRP), which plans components and raw materials.

Think of it as a ladder. Forecast gives demand. Aggregate plan gives total capacity use. MPS gives item-wise weekly output. MRP gives material needs. The MPS must stay within the aggregate plan and available capacity.

Key rules to remember

Level production per period: Level output = Total demand over the horizon ÷ Number of periods; Adjust if opening stock or required closing stock is given: (Total demand + closing stock − opening stock) ÷ periods.
Ending inventory: Ending inventory = Opening inventory + Production − Demand; Calculate period by period. A negative figure means shortage or backorder.
Chase strategy production: Production in period = Demand in period (adjusted for stock targets); Cost is mainly the cost of changing capacity: hiring, layoff, overtime.
Total aggregate plan cost: Total cost = Regular labour + Overtime + Hiring + Layoff + Holding + Shortage + Subcontracting; Include only the cost heads that the strategy actually uses.
Projected on-hand (MPS grid): Projected on-hand = Previous on-hand + MPS quantity − Greater of forecast or customer orders; Use the greater of forecast and actual orders in the period when the question says so.
Available-to-promise (ATP): ATP = Opening on-hand + MPS in the first period − Customer orders until the next MPS receipt; For later MPS periods: ATP = MPS quantity − customer orders until the next MPS receipt.

How to solve Aggregate Planning and Master Production Schedule questions

Use this method for any numerical or theory question on aggregate planning or MPS.

1Write down the demand for each period and the opening stock, workforce and any closing stock target.
2Identify the strategy asked for: chase, level or mixed. Note the cost data given for each cost head.
3Fix the production quantity per period under that strategy. For level, divide net total demand by the number of periods.
4Prepare a table with columns: period, demand, production, opening stock, closing stock, shortage.
5Compute each cost head from the table, such as holding cost on closing stock or hiring cost on workforce increase.
6Add costs to get the total for each strategy. If asked to compare, choose the lowest total cost and state it.
7For MPS questions, build the grid: forecast, customer orders, projected on-hand, MPS and ATP. Place an MPS lot when on-hand would fall below zero.
8Write a one-line conclusion with the recommended plan and its reason.

Quickest way: Table-first method for cost comparison

When to use it: Use it when the question gives demand for 4-6 periods and unit costs and asks for the cheaper strategy.

Total the demand and compute average output for level strategy at once.
Make one running-stock row and sum only the closing stock column for holding cost.
For chase, find only the period-to-period changes in output and price them as hiring or layoff.
Compare the two totals and stop. Do not recompute regular production cost if it is equal in both plans.

Common mistakes in Aggregate Planning and Master Production Schedule

Charging holding cost on production instead of closing stock
Students confuse units made with units held.
Fix: Always compute closing stock per period and apply holding cost only on it (or on average stock if the question says so).
Ignoring opening stock in level production
Students divide total demand by periods straight away.
Fix: Net the opening stock and any closing target before dividing.
Showing hiring cost in a level strategy with constant workforce
Students apply the same cost template to every strategy.
Fix: Include a cost head only if the strategy causes that activity.
Mixing up aggregate plan and MPS
Both are production plans, so they look alike.
Fix: Remember: aggregate is by product family in monthly totals; MPS is by end item in weekly buckets.
Letting MPS projected stock go negative in the grid
Students forget to schedule a new lot when stock would fall below zero.
Fix: Check each period. If projected on-hand is below zero, add an MPS lot in that period and recompute.

Worked examples

Example 1

A firm in Pune forecasts demand for four months: Jan 400, Feb 600, Mar 800, Apr 600 units. Opening stock is nil and closing stock required is nil. Holding cost is ₹10 per unit per month on closing stock. Compare level strategy output with the stock built, and find the total holding cost.

Show the solution

Total demand = 400 + 600 + 800 + 600 = 2,400 units.
Level output = 2,400 ÷ 4 = 600 units per month.
Jan: closing stock = 0 + 600 − 400 = 200.
Feb: closing stock = 200 + 600 − 600 = 200.
Mar: closing stock = 200 + 600 − 800 = 0.
Apr: closing stock = 0 + 600 − 600 = 0.
Total closing stock = 200 + 200 + 0 + 0 = 400 unit-months.
Holding cost = 400 × ₹10 = ₹4,000.

Answer: Level output is 600 units a month and the holding cost is ₹4,000. Under chase, holding cost would be nil but output changes each month.

Example 2

A company has the following MPS data for one product. Opening on-hand is 50 units. MPS lot size is 100 units. Forecast for weeks 1 to 4 is 40, 40, 40, 40. Customer orders booked are 45, 30, 10, 0. Use the greater of forecast and customer orders. Prepare the MPS, the projected on-hand and the available-to-promise (ATP).

Show the solution

Demand used per week: Week 1 = greater of 40 and 45 = 45; Week 2 = greater of 40 and 30 = 40; Week 3 = greater of 40 and 10 = 40; Week 4 = greater of 40 and 0 = 40.
Week 1: 50 − 45 = 5. This is not negative, so no MPS is needed.
Week 2: 5 − 40 = −35. Stock falls below zero, so schedule an MPS of 100. Projected on-hand = 5 + 100 − 40 = 65.
Week 3: 65 − 40 = 25. No MPS needed.
Week 4: 25 − 40 = −15. Schedule an MPS of 100. Projected on-hand = 25 + 100 − 40 = 85.
MPS row: Week 1 = 0, Week 2 = 100, Week 3 = 0, Week 4 = 100.
ATP for Week 1 (up to the next MPS receipt in Week 2) = 50 − 45 = 5.
ATP for Week 2 (up to the next MPS receipt in Week 4, so Weeks 2 and 3 orders) = 100 − (30 + 10) = 60.
ATP for Week 4 (no later MPS receipt) = 100 − 0 = 100.

Answer: MPS is 100 units in Week 2 and 100 units in Week 4. Projected on-hand is 5, 65, 25 and 85 for Weeks 1 to 4. ATP is 5 in Week 1, 60 in Week 2 and 100 in Week 4.

Exam tips

In numerical questions, draw the table first. Step marks are given for the stock column and each cost head.
State the assumptions: no backorders, no stock at the start, or holding cost on closing stock. Examiners credit stated assumptions.
For theory, give a clear difference between chase and level on workforce, inventory and cost, and add a one-line example.
MCQs often ask which strategy keeps inventory low (chase) or workforce stable (level). Learn these pairs.
Always end with a conclusion: the cheaper plan and one qualitative reason, such as morale or flexibility.

Practice questions from Production Planning and Control

Aggregate Planning and Master Production Schedule: frequently asked questions

What is the difference between chase and level strategy?

In chase strategy, output follows demand each period, so stock is low but workforce or hours change. In level strategy, output is constant, so workforce is stable but stock builds up in slow periods and is used in peaks.

What is a mixed strategy in aggregate planning?

It combines chase and level approaches. For example, a firm keeps a stable workforce and uses overtime, subcontracting or some stock to handle peaks. It is often the most practical option.

How is the master production schedule different from the aggregate plan?

The aggregate plan covers product families in monthly totals. The MPS covers specific end items in weekly or daily buckets. The MPS must fit within the aggregate plan and capacity.

What is available-to-promise in an MPS?

It is the quantity of an item that is not yet committed to customer orders and can be promised to new orders. It is calculated from the MPS quantity and booked customer orders until the next MPS receipt.