There are times when organizations are not able to meet consumer demands because of limited supply. Maybe while you were doing inventory you miscalculated capacity that in turn affected your supply.
Production has its own share of limitations—from workforce levels to changing demands. What an organization must do is assess what it needs to minimize cost by scheduling production over a period of time. This is known as aggregate planning.
What Is Aggregate Planning?
Usually undertaken for 3 to 18 months, aggregate planning is how organizations plan their production process depending on what resources they have and the cost of production.
It means that planning is concerned with a certain amount of time that factors into long-term goals. Matching demand and supply by taking care of challenges and setbacks is what aggregate planning methods are set out to do.
Here’s what organizations need for aggregate planning:
Relevant data and information about available resources—employees, inventory and equipment
Trend analyses of demand-supply for the relevant period
Assessing alternative costs of production and maintaining inventory in case of setbacks
Internal policies and regulations with respect to alternatives
Aggregate planning methods help organizations communicate goals and ways to achieve them. The only way to reach these objectives is by using resources efficiently. Aggregate planning is typically done 12 months into the future. Some examples of aggregate planning are hiring temporary workers, laying off employees for a specific period or cross-training. This works as an effective benchmark to measure resource utilization and implementation.
Aggregate Planning Strategies
In any organization, there are three types of aggregate planning strategies.
Pure Chase Strategy
The purpose of the pure chase strategy is to match or chase demands by minimizing final inventory. It absorbs demand fluctuations effectively for successful aggregate planning. Organizations can either maintain workforce level or output rate to match demand.
Pure Level Strategy
Pure level strategies are concerned with maintaining workforce or output rates at all times. Production will be consistent within the same period of time for which aggregate planning was done. Inventory and backorders help manage demand fluctuations and market changes. Organizations may even employ different ways to put inventory to good use—especially if there’s a change in demand.
Hybrid or Mixed Strategy
A hybrid or mixed strategy combines both inventory and workforce/output rate. It can include maintaining additional inventory ahead of time to match demands or even use backorders to keep up. Organizations can hire temporary workers if needed or they may even furlough or lay off workers temporarily in case of low demand. Job rotations may form a part of mixed strategies to make sure that workers’ skills are being fully-applied.
Organizations react to changes in demand depending on their resources. Whether they focus on inventory or workforce is subjective. Operations can rely on backorders and higher inventory to tackle high demand. Alternatively, they may rely on shifting the workforce if needed.
Aggregate planning isn’t restricted to production or operations. It may be used in services or project management to control employee hours and scheduling tasks. It’s an effective strategy that helps organizations stay on top of their resources and take action without delays.
Problems In Aggregate Planning
Aggregate planning is a short to mid-term plan for a particular department in an organization. It’s not part of the greater planning strategy to achieve organizational goals. Rather, it’s concerned with matching demand and supply by manipulating workforce, output rate and inventory. Therefore, it has its set of challenges, including:
Smoothing refers to the cost of changing inventory, relying on backorders and hiring or laying off workers temporarily. Anything that stands outside the norm of day-to-day business has certain costs associated with it. Aggregate planning may be an additional cost to the organization.
Aggregate planning is associated with a particular period of 3-12 months. So, it’s important to specify the exact period beforehand or well in advance to keep track of what needs to be done. In terms of workforce and inventory, organizations have to determine the levels at which they need to be maintained. This may require extensive planning on their part.
When it comes to fluctuating demand, it’s not always black and white. Even if organizations ascertain demand at a certain level, it may not be accurate. So, bottleneck planning has to do with an inability to match demand due to capacity limitations.
Aggregate planning strategies are based on forecasting and assumptions. For this, you need to understand the logic behind problems. There are many ways you can analyze problems to break them down into smaller chunks. Harappa’s Creating Solutions will teach you how to navigate challenges associated with aggregate planning. Learn about the five characteristics of good analysis to pick the right numbers. Become an expert in forecasting and make accurate assumptions based on relevant information.
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