Aggregate Planning Strategies



In general, a corporation attempts to use a mixture of the three costs to best meet demand. Therefore, the elemental trade-offs available to a planner is as follows:
·
          Capacity (regular time, overtime, subcontracted)
·         Inventory
·         Backlog/lost sales because of delay

An aggregate plan that increases one of these costs typically results in a reduction of the other two. In this sense, the prices represent a trade-off: To lower inventory costs, a planner must increase the capacity cost or delay delivery to the customer. Thus, the planner trades inventory costs for capacity or backlog cost.

The three strategies are as follows:
1.      Level strategy (using inventory as the lever)
2.      Chase strategy using (capacity as the lever)
3.      Flexibility strategy (using utilization as the lever)

Level strategy

This is also referred to as a production-smoothing plan or a stable plan. It focuses on maintaining consistent production and human resources during a company. The expected demand rate is achieved by varying the associated factors like finance and human resources. Though this strategy helps in maintaining human resources, it also leads to stocking inventory. There also are chances of not meeting the expected targets, which could end in backlogs costing tons more to the firm. The level strategy is best suited to situations where inventory carrying costs aren't high. Learn more from UK dissertation help

Chase strategy

Just in time (JIT) may be a manufacturing methodology designed to decrease wastage by receiving goods only as they're needed. JIT process was developed in Japan to form the simplest use of limited resources. It focuses on matching the anticipated demand with rigorous production. Though this strategy aims to meet the demand, it usually results in stressed employees, which increases attrition. This strategy is best suited to situations where the cost of changing the production rate is relatively not high.

Flexibilitystrategy

This strategy could also be used if there's excess machine capacity (i.e., if machines aren't used 24 hours each day, seven days a week) and therefore the workforce shows scheduling flexibility. In this case, the workforce (capacity) is kept stable, but the amount of hours worked is varied overtime in an attempt to synchronize production with demand. A planner can use varying amounts of overtime or a versatile schedule to realize this synchronization. Although this strategy does require that the workforce be flexible, it avoids a number of the issues related to the chase strategy, most notably, changing the dimensions of the workforce. This strategy leads to low levels of inventory but with lower average machine utilization. It should be used when inventory carrying costs are relatively high and machine capacity is comparatively inexpensive.

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