In this thesis, we focus on integration issue of manufacturing and sales functions from the perspective of aggregate production planning. The manufacturing function and sales function are performed by separate affiliated companies of the same business group, which operate as an integrated supplier-buyer system. In particular, this study provides theoretical and practical insight into the use of forecast volatility measure to better match supply with demand so as to reduce the costs of inventory and stock-outs in the manufacturer-buyer relationship under described master production-scheduling environment. Nature of forecast modifications provided by the buyer lays the foundation for the study. We modify the existing aggregate production planning model to accommodate a measure of historical forecast evolution. The overall objective of the thesis is to provide management with aforecast evolution-modeling framework to examine performance characteristics of the manufacturer-buyer interaction.

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To provide high service level, an organisation must maintain flexibility in production planning. This allows them to react to changes in demand and supply information. Changes in production plan decreases planning stability. Low stability has knock on effect on supply of material. This causes disruptions in production and delivery as well as increased cost due to higher inventory cost, stockout costs, expediting cost and sub optimal setups cost. This study aims to determine the methods to improve planning stability. The factors that influence stability like planning horizon, safety stock, inventory policies are examined in detail in a real world setting. Literature review of existing work on planning stability was carried out. Single case study was used to study this phenomenon in depth at a pharmaceutical manufacturing company. Qualitative data regarding planning method, flow of information, interaction between departments, time horizons were studied. Quantitative data includes the production plans across different planning cycles. Existing stability levels were computed to determine the future levels of stability required. The literature was compared with existing working methods to find improvements. Plans away from the frozen period will have low stability due to forecast volatility. But as we move closer to frozen period, higher stability should be achieved. Low planning horizon in the immediate periods are due to material supply uncertainty which can be prevented by having responsible suppliers and increasing safety stocks. Using a stabilisation parameter can prevent rescheduling when small changes in demand occurs. This ensures unnecessary reaction to small changes are prevented.  Increasing the planning horizon will provide suppliers with accurate information regarding quantity and timing which will in turn help them plan better. Lastly, safety capacity in production can help towards handling unexpected production loses and thereby prevent re-planning.