Certain Pre-Requisite Inputs are Unavoidable in Aggregate Planning
They are as follows:
- Information on the available resources and facilities.
- Demand forecast for the time period for which planning is required.
- The cost of various options and resources. This requires the inventory costs, the cost of ordering, and the cost of production via various production alternatives such as subcontracting, backorders, and overtime.
- Organizational policies governing the use of the aforementioned alternatives
Management and Planning Strategies
Aggregate planning assists in achieving a balance between the organization’s operational goals, financial goals, and overall strategic goals. It acts as a platform for capacity and demand planning. When demand does not match capacity, an organization can try to balance this through pricing, promotion, order management, and new demand creation
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Amongst these overall planning strategies are:
- Level Strategy-This category of aggregate planning is concerned with making goods in similar quantities over an equal time period. This is done to deal with a surge in market demand by filling back orders or sending excess products to inventory.
The level strategy is a traditional aggregate planning method that continues to maintain a consistent rate of production as well as workforce level by maintaining consistent human resources and production in the organization.
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It is best suited where inventory carrying costs are low and is mostly used by manufacturing companies. The benefits of using a level strategy include a well-trained workforce with fewer changes, experienced workers, and a low rate of absenteeism and employee turnover.
One significant disadvantage of the level strategy is the accumulation of inventory costs during the lean period when demand is low.
2. Chase strategy-The chase strategy of aggregate planning focuses on inventory reduction. It adjusts to changes in demand by changing either the real level of output or the workforce size.
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It is regarded as less rigid than a level strategy because it allows for certain deviation from the conventional approach. By receiving goods only when they are needed, this methodology helps to reduce waste. Employees are frequently stressed as a result.
This strategy is widely used in a variety of industries, including hospitals, hospitality businesses, and educational institutions such as schools. The benefit of the chase strategy is its high flexibility to meet fluctuations in demand, while the disadvantages include high costs associated with hiring and training the workforce.
3. Hybrid strategy-The Hybrid strategy, as the name suggests, combines both level and chase strategies to achieve a better outcome. It strikes a proper balance between stock levels, recruitment, termination, and production rate. Organizations use a hybrid strategy of aggregate planning to stockpile inventory ahead of rising demand. Backorders are used to compensate for high peak periods.
It is effectively able to cover short-term peaks by hiring temporary workers or subcontracting production. Hiring, laying off, and reassigning employees is a regular part of the hybrid strategy.
Problems related to Aggregate Planning
- Smoothing-Smoothing costs are those incurred as a result of shifting production and workforce levels from one-time frame to the next.
- Bottleneck Problems-It is the system’s incapacity to pay attention to sudden shifts in demand as a result of capacity constraints.
- Planning Horizon-The number of forecasted periods for demand, and thus the number of forecasted periods for workforce and inventory levels, must be predefined.
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