Advantage of level strategy is steady workforce. Techniques The techniques for aggregate planning include informal trial-and-error that utilize simply graphs or tables as well as advanced mathematical techniques. The search decision rule allows the user to state cost data inputs in very general terms. Manufacturing businesses use either the Chase Strategy or the Level Strategy. Disaggregation: A breaks the aggregate plan into greater detail. Minimizing cost is a key consideration. D Inventory goes up or down to buffer the difference between demand and production.
If the two are not in balance equal , the firm must decide whether to increase or decrease capacity to meet demand or increase or decrease demand to meet capacity. B transforms the master production schedule into an aggregate plan. Chase Strategy The chase strategy refers to the notion that you are chasing the demand set by the market. Advantage of chase strategy is lower inventory levels and back logs. Also, note that backorders are utilized in order to avoid overtime or subcontracting. When aggregate planning is carried out effectively, the effects of short-sighted, daily scheduling are minimized.
The Chase Strategy involves matching demand and capacity period by period. Hiring a temporary workforce for a fix period or outsourcing activity to a sub-contrator. The company identified the need to move from a supply-driven approach to a demand-driven, consumer-focused strategy based on a pull versus push model Kash, 2011. This schedule is intended to satisfy the demand forecast at a minimum cost. The importance of the forecast in this example cannot be understated. A firm uses the pure chase strategy of aggregate planning. Aggregate Planning It is about translating demand forecasts into production and capacity levels over a fixed planning horizon Assumes the demand forecast is fairly accurate.
Aggregate planning does not distinguish among sizes, colors, features, and so forth. C A pure chase strategy allows lower inventories when compared to a pure level scheduling. In this way no new workers have to be hired, no temporary or casual labor is needed, and no overtime is incurred. Hybrid Strategy As the name suggests, hybrid strategy looks to balance between level strategy and chase strategy. Advertising, direct marketing, and other forms of promotion are used to shift demand.
It produced 1000 units in the last period. A second alternative would be to use a backlog or backorder. Services have variable processing requirements that make it hard to establish a good measure of capacity. Demand is expressed as total number of units needed. Services also require the transformation of inputs to outputs ergo production. Level loading using seasonally adjusted forecasts in a tangible environment will require building inventory in advance of demand. Factors Affecting Aggregate Planning Aggregate planning is an operational activity critical to the organization as it looks to balance long-term strategic planning with short term production success.
Yes, hybrid models are also fair game! Frequently firms choose to allow another manufacturer or service provider to provide the product or service to the subcontracting firm's customers. The computer then uses a computer search to output a plan that minimizes costs and meets delivery deadlines. Following factors are critical before an aggregate planning process can actually start; A complete information is required about available production facility and raw materials. Employees can be asked to put in more hours during busy periods and fewer hours in slow periods. Assume demand must be met in both periods 1 and 2 for the lowest possible cost and that production is 1 unit per hour. Alternative plans and computational costs for each are developed as a result. C Aggregate planning in some service industries may be easier than in manufacturing.
C Price points are calculated to match demand to capacity. Notice that the regular output level is constant, implying a level workforce, while overtime and subcontracting are used to meet demand on a period by period basis chase strategy. Disadvantage is lower productivity, quality and depressed work force. Therefore, the plan is a by-product of the longer term strategic plan. Properly done, aggregate planning should minimize the effects of shortsighted, 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. It was clear Hershey could no longer win pushing more variations of supply into the market; instead it needed to employ a customer focused supply approach.
Aggregate planning requires the demand for each period to be determined, followed by determining the capacity for each period, which should match demand. For manufacturing firms the luxury of building up inventories during periods of slack demand allows coverage of an anticipated time when demand will exceed capacity. Examples of Chase Strategy The combination of improved productivity and flat or declining global demand has businesses requiring supply chain re-engineering. A Daily production is variable from period to period. The timing on an aggregate plan runs normally from 3 to 18 months. This capacity should match demand, which means it may require the inclusion of overtime or subcontracting. For example, matinee prices for movie theaters, off-season rates for hotels, weekend rates for telephone service, and pricing for items that experience seasonal demand.
Service industries are able to smooth demand by taking reservations or by making appointments in an attempt to avoid walk-in customers. Overtime is paid only when employees have worked beyond their annual hours. This process of working out production requirements for a medium range is called aggregate planning. Production last quarter was 1000. D level production is approximately 420 units per month. Which of the following is consistent with a pure chase strategy? Typically, employees receive equal monthly or weekly payments so that hourly workers in effect have gained salaried status. Demand in period 1 is 100 units, and in period 2, demand is 150 units.
Also included are the costs associated with making changes in capacity. Another example of a company using the chase strategy is retailer Neiman Marcus that ramps up temporary employment to meet an increase in holiday sales. 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 graph of demand versus level production will show that: A the January requirement is below level production of 420 units. This strategy is similar to level production, using the efficiency of constant production that lowers costs and keeps inventory at a minimum.