Aggregate Planning - Essay

Topics: Supply and demand, Costs, Decision theory Pages: 6 (1825 words) Published: March 15, 2012
Topic:- Aggregate Planning

Submitted by:- ANJANA KRISHNAN FM-673

Aggregate planning is the process of developing, analyzing, and maintaining a preliminary, approximate schedule of the overall operations of an organization. The aggregate plan generally contains targeted sales forecasts, production levels, inventory levels, and customer backlogs. This schedule is intended to satisfy the demand forecast at a minimum cost. Properly done, aggregate planning should minimize the effects of short-sighted, day-to-day scheduling, in which small amounts of material may be ordered one week, with an accompanying layoff of workers, followed by ordering larger amounts and rehiring workers the next week. This longer-term perspective on resource use can help minimize short-term requirements changes with a resulting cost savings. CHARACTERISTICS OF AGGREGATE PLANNING:

* Considers a "planning horizon" from about 3 to 18 months, with periodic updating * Looks at aggregate product demand, stated in common terms * Looks at aggregate resource quantities, stated in common terms * Possible to influence both supply and demand by adjusting production rates, workforce levels, inventory levels, etc., but facilities cannot be expanded. PRODUCTION PLAN (manufacturing aggregate plan):

A managerial statement of the period-by-period (time-phased) production rates, work-force levels, and inventory investment, given customer requirements and capacity limitations. STAFFING PLAN (service aggregate plan):

It is a managerial statement of the period-by-period staff sizes and labour-related capacities, given customer requirements and capacity limitations. OBJECTIVES OF AGGREGATE PLANNING
Objective of aggregate planning frequently is to minimize total cost over the planning horizon. Other objectives should be considered:
* maximize customer service
* minimize inventory investment
* minimize changes in workforce levels
* minimize changes in production rates
* maximize utilization of plant and equipment

There are two pure planning strategies available to the aggregate planner: a level strategy and a chase strategy. Firms may choose to utilize one of the pure strategies in isolation, or they may opt for a strategy that combines the two. LEVEL STRATEGY

A level strategy seeks to produce an aggregate plan that maintains a steady production rate and/or a steady employment level. In order to satisfy changes in customer demand, the firm must raise or lower inventory levels in anticipation of increased or decreased levels of forecast demand. The firm maintains a level workforce and a steady rate of output when demand is somewhat low. This allows the firm to establish higher inventory levels than are currently needed. As demand increases, the firm is able to continue a steady production rate/steady employment level, while allowing the inventory surplus to absorb the increased demand. A second alternative would be to use a backlog or backorder. A backorder is simply a promise to deliver the product at a later date when it is more readily available, usually when capacity begins to catch up with diminishing demand. In essence, the backorder is a device for moving demand from one period to another, preferably one in which demand is lower, thereby smoothing demand requirements over time. A level strategy allows a firm to maintain a constant level of output and still meet demand. This is desirable from an employee relations standpoint. Negative results of the level strategy would include the cost of excess inventory, subcontracting or overtime costs, and backorder costs, which typically are the cost of...
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