Aggregate planning strategies to meet demand and supply

Aggregate Planning in Supply Chain Management |

aggregate planning strategies to meet demand and supply

Aggregate production planning becomes a challenge when demand to meet average demand) and uses inventory to absorb variations in demand. . planning task revolves around the supply of raw materials, not the demand pattern. there are variations in demand over planning horizon. There are workers, may not meet demand. Allows flexibility within the aggregate plan supply exactly. AGGREGATE (SALES/OPERATIONS) PLANNING. Aggregate planning is to determine the planned production quantity by period to meet forecast demand over.

Hence, most aggregate plans cover a period of three to 18 months. Aggregate plans serve as a foundation for future short-range type planning, such as production scheduling, sequencing, and loading.

The master production schedule MPS used in material requirements planning MRP has been described as the aggregate plan "disaggregated. Capacity is expressed as total number of units per time period that can be produced this requires that an average number of units be computed since the total may include a product mix utilizing distinctly different production times.

Demand is expressed as total number of units needed. If the two are not in balance equalthe firm must decide whether to increase or decrease capacity to meet demand or increase or decrease demand to meet capacity. In order to accomplish this, a number of options are available. Options for situations in which demand needs to be increased in order to match capacity include: Varying pricing to increase demand in periods when demand is less than peak.

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. Advertising, direct marketing, and other forms of promotion are used to shift demand. By postponing delivery on current orders demand is shifted to period when capacity is not fully utilized.

This is really just a form of smoothing demand. Service industries are able to smooth demand by taking reservations or by making appointments in an attempt to avoid walk-in customers.

Some refer to this as "partitioning" demand.

aggregate planning strategies to meet demand and supply

A new, but complementary demand is created for a product or service. When restaurant customers have to wait, they are frequently diverted into a complementary but not complimentary service, the bar.

Other examples include the addition of video arcades within movie theaters, and the expansion of services at convenience stores. Options which can be used to increase or decrease capacity to match current demand include: By hiring additional workers as needed or by laying off workers not currently required to meet demand, firms can maintain a balance between capacity and demand.


By asking or requiring workers to work extra hours a day or an extra day per week, firms can create a temporary increase in capacity without the added expense of hiring additional workers. Part-time or casual labor. By utilizing temporary workers or casual labor workers who are considered permanent but only work when needed, on an on-call basis, and typically without the benefits given to full-time workers.

Finished-goods inventory can be built up in periods of slack demand and then used to fill demand during periods of high demand. In this way no new workers have to be hired, no temporary or casual labor is needed, and no overtime is incurred.

Frequently firms choose to allow another manufacturer or service provider to provide the product or service to the subcontracting firm's customers. By subcontracting work to an alternative source, additional capacity is temporarily obtained. Use previous years as a guide, as well as industry trends, economic forecasts and feedback from your marketing manager to determine the probable demand for your products in the coming months.

Your forecast tells you how much you need to produce to meet demand so that you know the quantity of supplies you will need to maintain productivity. Production Capacity Your ability to produce depends on machinery, work staff and efficiency. You can evaluate your production department to determine how many products you can reasonably produce during the period you are planning for.

Aggregate Planning - strategy, organization, levels, system, examples, model, type, company, system

This could be less than demand. Use your production ability to set goals for producing products that are realistic.

Allow for personnel shortages and machinery maintenance. This is a common solution for component parts when demand exceeds expectations for the final product.

aggregate planning strategies to meet demand and supply

The subcontracting decision requires maintaining strong ties with possible subcontractors and first-hand knowledge of their work. Disadvantages of subcontracting include reduced profits, loss of control over production, long lead times, and the potential that the subcontractor may become a future competitor. Using part-time workers is feasible for unskilled jobs or in areas with large temporary labor pools such as students, homemakers, or retirees. Part-time workers are less costly than full-time workers--no health-care or retirement benefits--and are more flexible--their hours usually vary considerably.

Part-time workers have been the mainstay of retail, fast-food, and other services for some time and are becoming more accepted in manufacturing and government jobs. Japanese manufacturers traditionally use a large percentage of part-time or temporary workers. Part-time and temporary workers now account for about one third of our nation's work force. The temp agency Manpower, Inc. Problems with part-time workers include high turnover, accelerated training requirements, less commitment, and scheduling difficulties.

Forty percent of its business is accounted for by the 2. A flurry of orders is received immediately after the catalogs are mailed; then volume drops off and levels out until early November. The sales volume then begins a steep ascent that peaks early in December. September demand represents 52 percent of peak shipments, and October represents 91 percent of peak shipments. Demand in November and December is in excess ofshipments per week.

The peak demand volume of 28, orders per day is more than double normal sales. Despite these numbers, Neiman Marcus ships 90 percent of holiday orders within 1 day and 99 percent within 2 days, with How does it achieve such performance levels?

The company plans in advance.

aggregate planning strategies to meet demand and supply

Although it's hard to predict which items will be hot sellers each year, close relations with suppliers and an early analysis of September's demand pattern within 10 days of the catalog mailing can make back ordering large volumes feasible. Fast-moving items are moved to a prominent place in the warehouse, and work flow is prioritized so that customer back orders receive immediate attention.

A new conveyor system sports color-coded conveyors that identify flow patterns from different sources to shipping from apparel to shipping, for example, versus toys or small gifts. It also uses bar codes extensively to route cartons to special areas for gift wrapping, Federal Express shipment, or special attention. Customers are given options for when their order is shipped.

They can order now for shipment at a later date or receive Federal Express second-day service on any item in the catalog at no extra cost. Another key to success is dedicated people with a great attitude. Neiman Marcus hires extra people in their distribution center during the holiday season. Twenty percent of these workers return each year. To allow sufficient time for training, the company begins hiring temporaries when the catalogs are mailed out in September and gradually builds up their numbers over the next two months.

  • A Solid Demand Forecast
  • Production Capacity

Permanent staff personnel train the new hires, and the system of work is purposely designed to be simple and easy to learn. Incentive pay, based on productivity and quality and reinforced with prizes and awards, adds fun and excitement to the work environment.

With Neiman Marcus, as with many other retailers, making people happy during the holiday season ensures that the year will be a profitable one. Backordering is a viable alternative only if the customer is willing to wait for the product or service.

For some restaurants you may be willing to wait an hour for a table; for others you may not. One aggregate planning strategy is not always preferable to another. The most effective strategy depends on the demand distribution, competitive position, and cost structure of a firm or product line.

Several quantitative techniques are available to help with the aggregate planning decision.

Chapter 11, Head 3

We will discuss pure and mixed strategies using trial and error, the transportation method, and other quantitative techniques. APP by Trial and Error Using trial and error to solve aggregate production planning problems involves formulating several strategies for meeting demand, constructing production plans from those strategies, determining the cost and feasibility of each plan, and selecting the lowest cost plan from among the feasible alternatives.

The effectiveness of trial and error is directly related to management's understanding of the cost variables involved and the reasonableness of the scenarios tested. Its line of chocolate candies exhibits a highly seasonal demand pattern, with peaks during the winter months for the holiday season and Valentine's Day and valleys during the summer months when chocolate tends to melt and customers are watching their weight.

Given the following costs and quarterly sales forecasts, determine whether a level production or chase demand production strategy would more economically meet the demand for chocolate candies: For the level production strategy, we first need to calculate average quarterly demand. This becomes our planned production for each quarter. Since each worker can produce 1, pounds a quarter, workers will be needed each quarter to meet the production requirements ofpounds.