Advantage of level strategy is steady workforce. Due to variations in product demand a company using the chase strategy can experience fluctuating workforce levels in response to changing demand. Consent is not required to receive information. A Daily production is variable from period to period. Another advantage is keeping inventory low, freeing up cash to buy other items such as raw materials or components, thus reducing inventory carrying costs that are associated with holding inventory in stock. Hence, most aggregate plans cover a period of three to 18 months. A level strategy allows a firm to maintain a constant level of output and still meet demand.
This strategy is similar to level production, using the efficiency of constant production that lowers costs and keeps inventory at a minimum. Finished-goods inventory can be built up in periods of slack demand and then used to fill demand during periods of high demand. Aggregate planning helps in: Achieving financial goals by reducing overall variable cost and improving the bottom line Maximum utilization of the available production facility Provide customer delight by matching demand and reducing wait time for customers Reduce investment in inventory stocking Able to meet scheduling goals there by creating a happy and satisfied work force Aggregate Planning Strategies There are three types of aggregate planning strategies available for organization to choose from. Level Production As the title suggests, level production is a strategy that produces the same number of units equally. In addition, Pete is a graduate instructor with emphasis in operations and strategic management — both in traditional and online settings. If the majority of your customer demand is in the summer how would you address the aggregate plan? This is really just a form of smoothing demand. Service capacity must be provided at the right place and the right time, while labor is generally the most constraining service resource.
For example, assume a manufacturing plant can only produce 10,000 calculators per month. Develop alternative plans and compute costs for each. In a scenario where demand is not matching the capacity, an organization can try to balance both by pricing, promotion, order management and new demand creation. E All of the above, i. C a process designed to increase the rate of output. Examples of Chase Strategy The combination of improved productivity and flat or declining global demand has businesses requiring supply chain re-engineering.
Quite frankly the aggregate planning solution is textbook simple but in the real world is far more complex. In January, which has 22 production days, demand is estimated to be 11,000 units. In this way no new workers have to be hired, no temporary or casual labor is needed, and no overtime is incurred. A chase strategy implies matching demand and capacity period by period. Chase Strategy As the name suggests, chase strategy looks to dynamically match demand with production. One of the trickiest aspects of running a production plant is determining exactly how much to produce, when to produce it, and what supplies need to be ordered and when. Demand in period 1 is 100 units, and in period 2, demand is 150 units.
In essence, the backorder is a device for moving demand from one period to another, preferably one in which demand is lower, thereby smoothing demand requirements over time. Advantage of level strategy is steady workforce. A graph of demand versus level production will show that: A the January requirement is below level production of 420 units. Seasonal business cycles and forecasts may have a dramatic impact on the aggregate plan. There is also increased morale because blue-collar workers are now salaried.
But, one additional piece from the forecast is required, timing. Buyers can access products readily and don't need to wait, keeping demand consistent. B Subcontracting, hiring, and layoffs manipulate supply. When units of aggregation are difficult to determine for example, when the variation in output is extreme equivalent units are usually determined. B A pure level strategy allows lower inventories when compared to pure chase and hybrid strategies. For aggregate plans that are prepared on a product family basis, where the plan is essentially the summation of the plans for individual product lines, mixed-integer programming may prove to be useful.
Any mixed strategy can be represented by combination of lines on the plot. It serves as a platform to manage capacity and demand planning. Disadvantage of level strategy is high inventory and increase back logs. Firms may choose to utilize one of the pure strategies in isolation, or they may opt for a strategy that combines the two. Aggregate Planning It is about translating demand forecasts into production and capacity levels over a fixed planning horizon Assumes the demand forecast is fairly accurate. C A pure chase strategy allows lower inventories when compared to a pure level scheduling. Failure to have the product to fulfill orders erodes buyer confidence, but having too much supply on hand is risky for a variety of reasons.
In this strategy, organization requires a robust forecast demand as to increase or decrease production in anticipation of lower or higher customer demand. By assembling-to-order, the business can meet the customer's demand and improve satisfaction while reducing the costs of supplies and spoilage. The demand for services is much more difficult to predict and capacity is also difficult to measure. This is normally the plan with the lowest cost. With a Level Strategy, a steady production rate and a steady employment rate is maintained. B Some service organizations conduct aggregate planning in exactly the same way as manufacturing firms, but with demand management taking a more active role.