4. Aggregate planning is an activity relating to medium term management decision

Question

4. Aggregate planning is an activity relating to medium term management decisions for firms in a supply chain. i. What is the objective of aggregate planning? (5 marks) ii. List two strategies that might be pursued in aggregate planning and identify the conditions under which a firm might employ each of them. (10 marks) Once a firm has established an aggregate plan, how would it change it: (a) demand forecasts revealed that demand was likely to be much more variable over the aggregate planning period, than had been previously thought? (b) the costs of reducing the workforce fall below those earlier expected. Explain your answers. (10 marks)

Explanation / Answer

Following can be said to be the objectives of aggregate planning-

1. Effective utilization of the resources like -machinery, labour, electricity etc.

2. Effective utilization of raw materials, with not much wastage

3. Effective calculation of the capacities and workforce required is done.

4. Better product value addition for the customers- as planning is done prehand

5. Better control and management of the entire project is carried out.

2. Following are the 2 strategies of aggregate planning-

a.Level Strategy - This is the type of strategy, in which the firm keeps it employees and production rates and capacity at constant levels. This strategy is followed when-

1. The firm feels that cost of varying the production would be higher than cost saved on changing the production rates continuously

2. Firm wants to keep higher inventory, so that when the demand rises very high, the saved inventory can fulfill the demand.

3. The firm looks to keep a back-order, to shift demand into a desired period.

4. The firm looks to hold its employees for a long term benefit

b. Chase strategy- This is a strategy in which a firm continuously changes the workforce, production rates, capacity etc. according to the demand of the period. A firm usually keeps chase strategy when-

1. The cost of holding inventory is very high

2. There is great variation in demand, and you cannot maintain constant capacities

3. When there are usually no long term benefits, and you can always afford new employees

4. When the cost of training the new employees is not very high

3. a. How to change aggregate plan when the demand forecasted shows that demand will be highly variable.

1. If you follow level strategy, try and adjust the demand into specific periods, use sales and demand planning,to plan promotions, so that demand is shifted to desired periods.

2. Prepare for keeping inventories safe, reduce holding costs, as the inventories would be required in high demand periods.

3. Try and prepare a plan- see if chase strategy can cost less, see how much would it cost to change employees and workforce, and if the cost is less than maintaining a constant workforce and capacity.

4. Try price changes maybe in the product, to bring a common line to the demand, reduce variability

5. See if hiring the workforce or hiring machines when we need to increase the capacity is a viable option.

3.b. If the costs of reducing the workforce fall below the expected-

1. Follow the chase strategy, because you have low workforce changing costs

2. Reduce the workforce, and increase the overtime limits of existing workforce, analyse the cost benefits of that.

3. Reduce the workforce, increase the machines instead of that, and see if the production rates are better

4. Reduce the workforce, to increase the productivity of the current employee workforce

If you have any doubts regarding the answer, or want any clarifications regarding the answer, or any elaborations on any point, please comment; i would be gald to resolve all your queries at the earliest. ThankYou

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