AGGREGATE DEMAND PLANNING

PART 1

Theoretical Analysis

1. What is Aggregate Demand Planning?

Aggregate Demand Planning is a strategic process within supply chain management that focuses on
forecasting and managing the overall demand for a company's products or services. This planning
involves the anticipation of customer demand over a specific timeframe and aligning production,
inventory, and distribution strategies accordingly. It encompasses the collaborative efforts of various
departments, including sales, marketing, finance, and operations, to create a comprehensive
demand plan. This plan serves as a guide for decision-making, enabling organizations to optimize
resources, minimize costs, and maintain a balance between supply and demand. Key elements of
aggregate demand planning include forecasting demand through data analysis and market trends,
collaborative sales and operations planning, effective inventory management, lead time
considerations, risk mitigation, and the use of technology to enhance accuracy and efficiency. By
employing aggregate demand planning, businesses can enhance their responsiveness to market
fluctuations, improve customer satisfaction, and streamline their overall supply chain operations.

2. What is the significance of Aggregate Demand Planning in the production process?

 By accurately forecasting demand, businesses can align their production capacity with actual
market requirements. This prevents overproduction or underproduction, ensuring that
resources are utilized efficiently, reducing waste, and maximizing productivity.
 Demand planning allows for the effective allocation of resources, including raw materials,
labour, and machinery. This prevents shortages or excesses in any particular resource,
helping to maintain a smooth and cost-effective production process.
 A well-executed demand planning process helps in determining optimal inventory levels.
This prevents situations where excess inventory ties up capital or insufficient inventory leads
to stockouts. Effective inventory management ensures that products are available when
needed, minimizing carrying costs and potential stock obsolescence.
 Understanding the demand forecast enables companies to manage lead times more
effectively. By coordinating production schedules with anticipated demand, businesses can
reduce the time it takes to procure raw materials and deliver finished products to
customers, thereby improving overall responsiveness.
 Demand planning provides insights into market trends and potential changes in customer
preferences. This information allows companies to adapt their production processes and
strategies quickly, promoting flexibility and responsiveness to dynamic market conditions.
 Efficient demand planning helps in cost reduction by avoiding unnecessary production and
inventory holding costs. It also minimizes the need for expedited shipping or rushed
production schedules, which can be more expensive. By aligning production with actual
demand, companies can operate more cost-effectively.
 Meeting customer demand accurately and on time is crucial for customer satisfaction. By
aligning production with forecasted demand, businesses can ensure that products are
available when customers need them, thereby enhancing customer satisfaction and loyalty.
  Aggregate Demand Planning provides a strategic framework for decision-making. It allows
management to make informed choices regarding production volumes, resource allocation,
and market positioning based on a clear understanding of anticipated demand trends.

3. Briefly describe Level, Chase and Mixed Strategy.

a) Level Strategy:

 In a Level Strategy, production levels remain constant over time, regardless of fluctuations in
demand. This approach aims to maintain a steady and consistent production rate, helping to
balance production and inventory levels. Excess production is stored during periods of low
demand, and stored inventory is used to meet demand during peak periods. This strategy is
suitable for products with stable and predictable demand.

a) Chase Strategy:

 The Chase Strategy, in contrast, involves adjusting production levels to match the current
demand. This means that production rates are varied based on changes in demand. When
demand increases, production is ramped up, and when demand decreases, production is
scaled down. This strategy is particularly useful in industries where demand is highly variable
and where maintaining low inventory levels is a priority.

b) Mixed Strategy:

 The Mixed Strategy combines elements of both Level and Chase Strategies. It aims to strike a
balance between the stability of Level Strategy and the responsiveness of Chase Strategy.
During periods of moderate demand, a steady production rate is maintained (similar to Level
Strategy). When faced with significant changes in demand, production is adjusted to match
the fluctuating demand levels (similar to Chase Strategy). This strategy is often employed to
achieve flexibility in production planning, allowing for both stability and responsiveness to
market dynamics.

PART 2

Prepare an Aggregate Demand Schedule Plan for Traveller Gateways - Orissa using Chase Strategy.
Interpret the result.

Production
Expected Production Demand per
Month (Adjusted to
Demand Days Day
Meet Demand)
Jan 900 22 41 900
Feb 700 18 39 700
Mar 800 21 38 800
Apr 1200 21 57 1200
May 1500 22 68 1500
 Jun 1100 20 55 1100

 The production levels are adjusted each month to align with the expected demand. For
instance, in May with an expected demand of 1500, the production is adjusted to 1500 to
meet the high demand.
 The number of production days is adjusted to accommodate varying demand. For instance,
in February, when the demand is lower (700), the production days are reduced to 18 while
maintaining a similar demand per day (39).
 The Chase Strategy allows for efficient management of production capacity. It ensures that
the production levels are neither excessive nor insufficient, optimizing resource utilization.
 By aligning production with expected demand, Traveller Gateways can better meet customer
needs. This is especially critical in the travel industry, where customer satisfaction is closely
tied to service availability.
 The plan reflects adjustments in production to accommodate seasonal variations in travel
demand. For instance, the increase in demand during May and June is addressed by
adjusting production levels upward.
 The Chase Strategy demonstrates adaptability in the supply chain, responding to fluctuations
in demand efficiently. This adaptability is essential for a dynamic industry like travel, where
demand can vary significantly.

PART 3

Prepare an Aggregate Demand Schedule Plan for Traveller Gateways - Orissa using Level Strategy.
Interpret the result.

 The production rate is constant for all months.

 Excess production is stored as inventory during periods of lower demand.
 The production rate is set to meet the highest expected demand in any given month.

Inventory
Expected Production Demand Production
Month (End of
Demand Days per Day (Constant)
Month)

Jan 900 22 41 1500 600

Feb 700 18 39 1500 900
Mar 800 21 38 1500 1300
Apr 1200 21 57 1500 1600
May 1500 22 68 1500 1700
Jun 1100 20 55 1500 1500

 Let us say, that the Level Strategy maintains a consistent production rate of 1500 units per
month, regardless of the fluctuations in expected demand. This provides stability in the
production process.
 Excess production is stored as inventory during months when demand is lower than the
production rate. The inventory levels gradually increase, reaching their peak in May, and
then start decreasing as demand catches up.
 The plan incurs inventory carrying costs as excess units are stored each month. The cost is
influenced by the carrying cost per unit and the total inventory at the end of each month.
 The Level Strategy allows for a more efficient production process, as the production rate
remains constant, eliminating the need for frequent adjustments and associated costs.
 This strategy ensures consistent availability of products, which can contribute to maintaining
a high level of customer service. Customers are less likely to face stockouts during periods of
peak demand.
 While the Level Strategy provides stability, it may lead to higher inventory carrying costs.
Companies need to carefully balance the cost of carrying inventory against the benefits of
stable production.

PART 4

Prepare an Aggregate Demand Schedule Plan for Traveller Gateways - Orissa using Mixed
Strategy. Interpret the result

Production Inventory
Expected Production Demand
Month (Mixed (End of
Demand Days per Day
Strategy) Month)
Jan 900 22 41 1000 100
Feb 700 18 39 1000 400
Mar 800 21 38 1000 600
Apr 1200 21 57 1500 300
May 1500 22 68 1500 300
Jun 1100 20 55 1500 100

 The Mixed Strategy maintains a base production level of 1000 units per month, representing
a Level Strategy during normal demand periods.
 When faced with significant changes in demand in May and June, the production level is
adjusted to meet the higher demand. In May and June, the production is increased to 1500
units.
 Excess production during peak periods is stored as inventory. Inventory levels increase in
months with production exceeding the base level and decrease during months with lower
production.
 The Mixed Strategy provides a balance between maintaining a base production level and
adjusting production to meet peak demand. This flexibility allows the company to adapt to
varying demand scenarios.
 While the strategy involves carrying some inventory, it is likely to be lower than a level
strategy. The cost is influenced by the carrying cost per unit and the total inventory at the
end of each month.
 The Mixed Strategy aims to balance the benefits of stability with the need to adapt to
changes in demand. The costs associated with inventory carrying and production
adjustments need to be carefully considered for cost-effectiveness.
PART 5

Analyze the findings of the 3 strategies and recommend which one should be followed by
Outlook Traveller

The Mixed Strategy is considered a well-balanced approach, merging the stability

characteristic of a Level Strategy with the responsiveness aspect of a Chase Strategy,
particularly during peak demand periods. This approach is particularly beneficial in the
context of the travel industry, which experiences seasonal variations and occasional surges
in demand. By incorporating a Mixed Strategy, Outlook Traveller can ensure a steady level of
service while remaining adaptable to fluctuations in customer demand. This strategy enables
the company to optimize its operations, efficiently allocate resources, and enhance overall
customer satisfaction in a dynamic market environment.