Accounting for productivity losses in aggregate planning

The aggregate planning literature fails to account correctly for productivity losses incurred by employee layoffs and hires. Moreover, the literature is mostly silent on the productivity losses associated with other capacity changes such as multiple shifts and overtime. In those cases where productivity losses are considered, traditional approaches impute associated costs but fail to account for lost capacity. It was found that when linear programming formulations have capacity constraints that explicitly account for productivity losses, the resulting production plans are superior to those obtained when productivity losses are modelled solely as costs in the objective function. Some avenues for future research are also proposed.