8.2 Aggregate Planning Strategies

Universidad del Turabo MANA 705 DL - Workshop Eight

8.2 Aggregate Planning Strategies

When generating an aggregate plan, the operations manager must answer several questions:

Should inventories be used to absorb changes in demand during the planning period?
Should changes be accommodated by varying the size of the workforce?
Should part-timers be used, or should overtime and idle time absorb fluctuations?
Should subcontractors be used on fluctuating orders so a stable workforce can be maintained?
Should prices or other factors be changed to influence demand?

All these questions involve the manipulation of inventory, production rates, labor levels, capacity, and other controllable variables.

Option	Advantage	Disadvantage	Comments
Capacity Option:
Changing inventory levels	Changes in HR are gradual or none.	Inventory holding costs may increase. Shortages may result in lost sales.	Applies mainly to production not service, operations.
Varying workforce size by hiring or layoffs	Avoids the costs of other alternatives.	Hiring, layoff, and training costs may be significant.	Used where changing inventory size of labor pool is large.
Varying production rates through overtime or idle time	Matches seasonal fluctuations without hiring/training costs.	Overtime premiums; tired workers; may not meet demand.	Allows flexibility within the aggregate plan.
Subcontracting	Permits flexibility and smoothing to the firm's output	Loss of quality control; reduced profits; loss of future business.	Applies mainly in production settings.
Using part time workers	Is less costly and more flexible than full-time workers.	High turnover/training costs; quality suffers; scheduling difficult.	Good for unskilled jobs in areas with large temporary labor pools.
Demand Option:
Influencing demand	Tries to use excess capacity. Discounts draw new customers	Uncertainty in demand. Hard to match demand to supply exactly.	Creates marketing ideas. Overbooking used in some businesses.
Back ordering during high-demand periods	May avoid overtime. Keeps capacity constant.	Customer must be willing to wait for an order or goodwill is lots.	Many companies back order.
Counter seasonal product and service mixing	Fully utilizes resources; allows stable workforce.	May require skills or equipment outside firm's areas of expertise.	Risky finding products or services with opposite demand patterns.

Mixing options to develop a plan:

Chase strategy is a planning strategy that sets production equal to forecasted demand. The chase strategy attempts to achieve output rates for each period that match the demand forecast for that period. For example, the operations manager can vary workforce levels by hiring or laying off, or can vary production by means of overtime, idle time, part time employees, or subcontracting.
Level scheduling maintains a constant output rate, production rate, or workforce level over the planning horizon. In other words, a level strategy is an aggregate plan in which production is uniform from period to period. Firms like Toyota and Nissan keep production at uniform levels and may (1) let the finished goods inventory go up or down to buffer the difference between demand and production, or (2) find alternative work for employees. This philosophy is that a stable workforce leads to a better quality product, less turnover and absenteeism, and more employee commitment to corporate goals.