Production Smoothing

Production smoothing (aggregate planning) is an important special case of supply capacity problems for firms whose demand is subject to heavy seasonal variation. The firm can typically produce enough on average, but not during peak periods. It must choose some mixture of:

  • Producing in off periods, and carrying “seasonal” inventories into the peak periods
  • Working overtime in the peak periods
  • Hiring and laying off workers for peak and down periods
  • Subcontracting

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