AGGREGATE

PL ANNING
Aggregate planning or Aggregate scheduling

It is concerned with determining the quantity and timing

of production for the intermediate future, often 3 to 8
months ahead. Operations managers try to determine
the best way to meet forecasted demand by
subcontracting rates, and other controllable variables.
The objective is to minimize cost over the planning
period.
CAPACITY OPTIONS

1. Changing inventory levels. This applies mainly to production, not service,

operations.

Advantage: Change in human resources are gradual or no abrupt production changes.

Disadvantage : Inventory holding costs may increase. Shortages may result in lost
sales.

2.Varying workforce size by hiring layoffs. This is used where size of labor pool is
large.

Advantage: Avoids the costs of other alternatives.

Disadvantage: Hiring, layoff, and training costs may be significant.
3.Varying production rates through overtime or idle time. This allows flexibility
within the aggregate plan.

Advantages: Matches seasonal fluctuations without hiring/training costs.

Disadvantages: Overtime premium, tired workers, may not meet demand.

4. Subcontracting. This applies mainly in production settings.

Advantages: Permits flexibility and smoothing of the firm’s output.

Disadvantage: Loss of quality control; reduced profits; loss of future business.

5. Using part time workers. This is good for unskilled jobs in areas with large
temporary labor pools. This practice is common in restaurants, retail stores, and
supermarkets.

Advantage: Less costly, and more flexible than full-time workers.

Disadvantage: High turnover/training costs; quality suffers; scheduling becomes difficult
DEMAND OPTIONS

6. Influencing demand. This creates marketing ideas. Overbooking used in some

business. When demand is low, a company can try to increase demand through
advertising, promotions, personal selling, and price cuts.

Advantage: Tries to use excess capacity. Discounts draw new costumers.

Disadvantage: Uncertainty in demand. Hard to match demand to supply exactly.
7. Back ordering during high-demand periods. Back orders are orders for
goods and services that a firm accepts but is unable to fill at the moment. If
customers are willing to wait without loss of their goodwill or order, back ordering
is a possible strategy.

Advantage: May avoid overtime. Keeps capacity constant.

Disadvantage: Customer must be willing to wait, but goodwill is lost.

8. Counter seasonal product and service mixing. Risky finding products or

services with opposite demand patterns.

Advantage: Fully utilize resources; allows stable workforce

Disadvantage: May require skills or equipment outside firm’s areas f expertise.