Question

What is the purpose of aggregate planning? Describe some demand and capacity options for implementing plans.

Answer 1

What is the purpose of aggregate Planning?

Aggregate Planning refers to the development, analyzing and the maintenance of a schedule for the overall operational system of the particular organization. It can be done for the various department of the organization and generally consists of the multiple forms of the forecasts related to sales or projections related to the organization's operations management department such as the production and inventory levels. In short, the process of aggregate planning is in order to balance the aggerate resources available in the form of man, material , machine and to balance the capacity & demand constraints of the organization, while minimizing the costs.

The purpose of aggregate Planning is thus :

• To prepare an operational schedule ahead of time in order to maintain the capacity and demand constraints.
• Also, the process of aggregate Planning is used to provide a smooth supply chain management system to minimize costs, make efficient use of the resources, and provide utmost customer satisfaction.

Describe some demand and capacity options for implementing plans. (10 marks)

Demand options are defined as the various ways in which the organization can respond to the demand fluctuations. The various demand options are :

1. Price: The organization can vary the price i.e decrease it in order to increase the demand for the product when the demand is less and can increase the price in order to lower the demand when the demand is high.

2. Promotion: The organization can use promotional tools such as advertising, marketing and other mediums of promotions in order to increase the demand when the demand is low.

3. Backorders: The idea of backorders is to postpone the demand to a future period in order to meet the demand fluctuations. For ex; Restaurants often make reservations when the demand is high. This way, they can reserve a table for the customer in the future and meet the demand, i.e both capacity is utilized, and demand is met for the future.

4. New demand:In this approach, as the company creates new demand, this happens when the demand fluctuations are high, and the company is not able to meet them. Hence it creates a new product or service and provides it to the customer. Restaurants use this when they divert the waiting customers to the bar while their table is being prepared.

Capacity Options :

The capacity options in aggregate planning refer to altering the capacity of the organization to meet the market demand of the product or service.

1. Hire and lay off workers : The organization can use a system of hiring and laying off in order to meet and balance the capacity and the demand.

2. Overtime/slack time: By making the workers work for some extra hours when the demand is high, the firm can create extra capacity in the form of these additional work hours.

3 Part-Time workers/Contractual: In this option, the company can hire workers on a contract basis for a particular project in order to increase their capacity briefly without permanently hiring workers.

4. Inventories: The company can keep an inventory of products in order to meet the demand when it is high; these inventories can be stored in a period of low demand.

5. Subcontracting: Sometimes, the company can subcontract its manufacturing to other firms and companies to meet the increased demand; this is also a form of increasing the capacity.