aggregation planning masters level course

Production and Management

1. Aggregate planning By Bhishma Prasai 1

2. Aggregate planning is a strategic process used by businesses to determine the overall production, workforce, and inventory levels required to meet customer demand over a specified period. it aims to balance the company's resources with the fluctuating demands of the market. here's a pointwise breakdown of the concept of aggregate planning: Objective: the primary goal of aggregate planning is to achieve a cost-effective production plan that meets customer demand while minimizing costs associated with production, inventory, and workforce. Time horizon : aggregate planning typically covers a medium-term time horizon, typically ranging from three to 18 months. it serves as an intermediate step between long-term strategic planning and short-term scheduling. By Bhishma Prasai 2

3. 3. Demand Forecast: The process begins with estimating future demand for the company's products or services. Demand forecasts are crucial for determining the production levels needed to meet customer requirements. 4. Level of Aggregation: Aggregate planning focuses on the overall production requirements rather than individual products or services. It involves consolidating the demand and resources across product lines, regions, or other relevant dimensions. 5. Production Options: Companies consider various production options during aggregate planning, such as changing workforce levels, overtime or subcontracting, adjusting inventory levels, and varying production rates. These options allow companies to respond to changes in demand efficiently. By Bhishma Prasai 3

4. 6 . Resource Planning: Aggregate planning involves determining the required capacity of various resources, including labor, equipment, facilities, and raw materials. This includes assessing the company's ability to meet demand and identifying any capacity constraints. 7. Trade-offs: During the planning process, organizations must make trade-offs between various costs and constraints. For example, hiring additional workers to meet increased demand may lead to higher labor costs but can help avoid excessive overtime expenses. 8. Cost Considerations: Aggregate planning aims to minimize costs associated with production, inventory, and labor. By considering the costs of different production options and capacity levels, companies can develop a cost-efficient plan that meets customer demand. By Bhishma Prasai 4

5. Objectives of aggregate planning To minimize the investments in the various inventories To minimize the total cost To maximize the customer service To minimize the changes in the workforce levels To minimize the changes in the production rates To maximize the utilization of the plant and the various equipment. By Bhishma Prasai 5

6. Importance of aggregate planning Demand Management: Aggregate planning helps businesses manage customer demand effectively. By forecasting and aligning production levels with anticipated demand, companies can avoid stockouts or excessive inventory levels, ensuring customer satisfaction. Cost Reduction: Aggregate planning enables cost reduction by optimizing production, labor, and inventory levels. By balancing resources and minimizing fluctuations in production rates, companies can avoid unnecessary costs associated with overtime, subcontracting, and excessive inventory carrying costs. Production Stability: Aggregate planning provides production stability by smoothing out production rates over time. It helps businesses maintain consistent output levels, avoiding the inefficiencies and disruptions that may arise from frequent changes in production rates. Workforce Management: With aggregate planning, companies can efficiently manage their workforce. By matching labor requirements with production needs, organizations can avoid labor shortages or excess capacity, leading to improved labor utilization and cost optimization. Capacity Utilization: Aggregate planning helps optimize the utilization of production capacity. By aligning production levels with capacity constraints, businesses can avoid underutilization or overloading of resources, resulting in improved efficiency and reduced costs. By Bhishma Prasai 6

7. 5. Effective Resource Allocation: Aggregate planning allows businesses to allocate resources effectively across different products, regions, or departments. It helps identify resource requirements and constraints, enabling efficient allocation and utilization of resources to meet overall production goals. 6. Strategic Decision Making: Aggregate planning supports strategic decision making by providing insights into long-term production and capacity requirements. It helps businesses evaluate the feasibility and implications of different production scenarios, facilitating informed decision making and strategic alignment. 7. Supply Chain Coordination: Effective aggregate planning improves coordination within the supply chain. By providing visibility into production schedules and requirements, it enables suppliers and partners to align their operations and capacities with the company's plans, ensuring a smooth flow of materials and timely deliveries. 8. Customer Service Levels: Aggregate planning plays a vital role in maintaining high customer service levels. By aligning production capabilities with demand, businesses can meet customer requirements promptly, avoiding stockouts and delays, and enhancing customer satisfaction. By Bhishma Prasai 7

8. Aggregate planning strategies By Bhishma Prasai 8

9. There are several aggregate planning strategies that businesses can employ to optimize their production, labor, and inventory levels. The choice of strategy depends on factors such as the nature of the industry, market conditions, and the organization's objectives. Here are some common aggregate planning strategies: Level Strategy : In level strategy, the company maintains a constant production rate regardless of demand fluctuations. This strategy aims to stabilize production, workforce, and inventory levels over the planning horizon. Any changes in demand are managed through changes in inventory levels. Level strategy is suitable for industries with stable demand and high carrying costs for inventory. By Bhishma Prasai 9

10. Chase Strategy : The chase strategy involves adjusting production levels to match the current demand. The company increases or decreases production rates in response to fluctuations in demand, ensuring that supply closely matches customer requirements. Workforce and inventory levels are adjusted accordingly. Chase strategy is suitable for industries with highly variable demand and low inventory holding costs. Stable workforce – variable work hours: vary the output by varying the number of hours worked through flexible work schedules or overtime. By Bhishma Prasai 10

11. Mixed Strategy : The mixed strategy combines elements of both level and chase strategies. It involves maintaining a base level of production to meet average demand (level strategy) while using overtime, subcontracting, or part-time workers to manage peak demand periods (chase strategy). This strategy allows for flexibility in managing fluctuations in demand while avoiding excessive costs associated with inventory or overtime. By Bhishma Prasai 11

12. Aggregate planning options Demand options Influencing demand/ pricing Back ordering during high-demand periods Counter seasonal product and service mixing Capacity options Changing inventory levels Varying work force size Varying production rates through overtime Subcontracting Using part time workers By Bhishma Prasai 12

13. Aggregate planning in services Aggregate planning in services is a strategic process that helps service-based organizations manage their resources and capacity to meet customer demand efficiently while maintaining a balance between customer satisfaction and operational costs. Here are some key aspects and considerations involved in aggregate planning for services: Demand Forecasting: Capacity Planning: Resource Management: Scheduling: By Bhishma Prasai 13

14. Inventory Management: Outsourcing and Subcontracting: Financial Planning Flexibility and Agility Collaboration between Departments Overall, aggregate planning in services aims to optimize resource utilization, reduce costs, improve customer satisfaction, and maintain a competitive edge in the market. It requires a balance between long-term strategic decisions and short-term operational adjustments to respond effectively to changing market conditions and customer preferences. By Bhishma Prasai 14