Aggregate Planning (Ch 13)

Summary

This session covers the concept of aggregate planning, focusing on the various planning elements within an organization. It highlights how different departments, such as operations, marketing, and finance, contribute to the overall planning process, with specific attention to production, inventory, staffing, and revenue management. The goal of aggregate planning is to balance demand fulfillment with cost minimization. Various strategies, such as inventory management, workforce flexibility, and subcontracting, are explored to adjust production capacity to meet demand fluctuations. Graphical methods and optimization techniques, including linear programming and simulations, are also discussed for effective decision-making.

Takeaways

• 😀 Aggregate planning aligns operational capacity with demand while minimizing costs.
• 😀 Longer-range plans involve large investments and higher-level managers, such as facility expansions.
• 😀 The planning process is divided into long-range, intermediate-range, and short-range plans, each with unique elements.
• 😀 Sales and operations planning (S&OP) links external demand with internal capability, impacting the entire supply chain.
• 😀 Key inputs to the planning process include forecasts, constraints, sales promotions, and capacity improvements.
• 😀 Three major strategies for aggregate planning include inventory control, flexible workforce, and demand management.
• 😀 Labor management options include hiring, overtime, subcontracting, or using part-time workers to cover short-term demand.
• 😀 Inventory adjustments are commonly used to ensure product availability, though excess inventory can lead to increased material costs.
• 😀 Demand management can be influenced through advertising, shifting demand, or using backordering for later delivery.
• 😀 The chase strategy matches capacity with average demand and uses other methods to address short-term demand fluctuations.
• 😀 Graphical methods can assist in aggregate planning by visually presenting demand and capacity data, aiding in decision-making.

Q & A

What is the goal of aggregate planning?

The goal of aggregate planning is to fulfill demand while minimizing cost. It ensures that production, inventory, staffing, and other operations are coordinated to meet demand effectively while reducing unnecessary expenses.

What are the different planning ranges in the planning process?

The planning process is divided into three ranges: long-range, intermediate-range, and short-range plans. Long-range plans affect large investments and involve higher-level management, while intermediate-range plans cover a more specific horizon, and short-range plans deal with day-to-day operational details.

How does the sales and operations planning (S&OP) process work?

The sales and operations planning process links external demand with internal capabilities. It involves creating a plan and coordinating it across different supply chain members. The plan helps in making operational decisions by addressing unit quantities, costs, and other business factors.

What is the importance of forecasting in aggregate planning?

Forecasting is crucial for aggregate planning as it provides a basis for determining demand, which, combined with constraints, helps in shaping the plan. Accurate forecasts guide production, staffing, and inventory decisions to align with expected market conditions.

What are the common strategies used in aggregate planning?

Common strategies include changing inventory levels, adjusting workforce size (e.g., hiring, layoffs, overtime), using part-time workers, subcontracting, and influencing customer demand through advertising or backordering.

How does the level strategy differ from the chase strategy in aggregate planning?

The level strategy involves maintaining a uniform production rate regardless of demand fluctuations, while the chase strategy aligns production with average demand and uses short-term adjustments (like overtime or part-time workers) to meet demand variations.

What role do labor costs play in aggregate planning for service-based businesses?

In service-based businesses, labor costs are a primary concern since minimal inventory is involved. Strategies typically focus on scheduling and ensuring worker flexibility in hours and skills to match varying demand.

How can graphical methods assist in aggregate planning?

Graphical methods can help visualize the demand and capacity data, making it easier to understand the variations and plan accordingly. Though these methods may not yield the optimal solution, they provide a straightforward way to assess feasibility and compare different planning options.

What are the challenges associated with adjusting workforce size in aggregate planning?

Adjusting workforce size involves challenges such as high hiring and training costs for new employees, potential decreases in productivity, and the negative effects on employee morale when layoffs are necessary. Short-term staffing adjustments can include overtime or using part-time workers.

What are the advantages and disadvantages of using subcontracting in aggregate planning?

Subcontracting can help meet excess demand without adding permanent staff, but it can be more costly than using internal resources. It may also result in lower product quality and potential supply chain risks, but it's a useful option when demand exceeds internal capacity.