Sensitivity of cost coefficient errors in aggregate production planning

The cost implications of cost parameter estimation errors for an aggregate production planning problem are investigated. Three popular aggregate planning models (the Linear Decision Rule, the Linear Programming model, and the Production Switching Heuristic) are evaluated for the effects of a range of errors over a finite planning horizon. Analysis of different cost functions indicates that the accuracy of the coefficients related to regular production capacity per employee, target ending inventory level, and regular employment cost per employee are critical regardless of the model chosen.