Concept of Aggregate Planning
Aggregate Planning Strategies
There are three types of aggregate planning strategies available for organization to choose from. They are as follows.
- Level Strategy
As the name suggests, level strategy looks to maintain a steady production rate and workforce level. In this strategy, organization requires a robust forecast demand as to increase or decrease production in anticipation of lower or higher customer demand. Advantage of level strategy is steady workforce. Disadvantage of level strategy is high inventory and increase back logs.
- Chase Strategy
As the name suggests, chase strategy looks to dynamically match demand with production. Advantage of chase strategy is lower inventory levels and back logs. Disadvantage is lower productivity, quality and depressed work force.
- Hybrid Strategy
As the name suggests, hybrid strategy looks to balance between level strategy and chase strategy.
The size of the company will determine the length of your long-term decisions made through the aggregate planning concept. Long term aggregate planning usually involves a time frame of two to 10 years. Long-term decision making should start with the company examining goals and objectives for the time period.
The term of this decision relates to product and service selection and includes all aspects of production. Long-term aggregate planning includes product and market planning, financial planning and resource planning. The resource planning identifies facilities and personnel needed to accomplish the long-term production objectives.
Intermediate decisions affect the level of employment within the organization. Specifically, through intermediate aggregate planning the organization will examine the output capacity of the workforce. This planning also affects the capacity of short-term decision making.
Intermediate aggregate planning also covers many additional aspects of the company, including production planning and stipulating output requirements. Further, intermediate aggregate planning looks at the major product groups and quantifies the labor hours needed to manufacture the product groups. Intermediate aggregate planning will typically look at time horizons totaling 12 to 18 months.
Short Term Decisions
Once a company has made long-term and intermediate decisions, it should create its short-term aggregate plan. Short-term aggregate planning decisions include materials planning, capacity requirement planning, final assembly scheduling and production activity control. Short-term decisions help the organization to ensure the end product is manufactured without delay to meet the projected goals of the intermediate and long-term aggregate plans.