An organization can finalize its business plans on the recommendation of a demand forecast. Once business plans are ready, an organization can do backward work from the final sales unit to the raw materials required. Thus annual and quarterly plans are broken down into labour, raw material, working capital, etc. requirements over a medium-range period (6 months to 18 months). This process of working out production requirements for a medium range is called aggregate planning.
Factors Affecting Aggregate Planning
Aggregate planning is an operational activity critical to the organization as it looks to balance long-term strategic planning with short-term production success.
The following factors are critical before an aggregate planning process can actually start;
Complete information is required about available production facilities and raw materials.
A solid demand forecast covering the medium-range period
Financial planning surrounding the production cost which includes raw material, labour, inventory planning, etc.
Organizational policy around labour management, quality management, etc.
For aggregate planning to be a success, the following inputs are required;
An aggregate demand forecast for the relevant period
Evaluation of all the available means to manage capacity planning like subcontracting, outsourcing, etc.
Existing operational status of the workforce (number, skill set, etc.), inventory level and production efficiency.
Importance of Aggregate Planning
Achieving financial goals by reducing overall variable costs 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 thereby creating a happy and satisfied workforce
Aggregate Planning Strategies
There are three types of aggregate planning strategies available for organizations to choose from. They are as follows.
Level Strategy
As the name suggests, the level strategy looks to maintain a steady production rate and workforce level. In this strategy, the organization requires a robust forecast demand to increase or decrease production in anticipation of lower or higher customer demand. The advantage of a level strategy is a steady workforce. The disadvantage of the level strategy is high inventory and increased backlogs.
Chase Strategy
As the name suggests, the chase strategy looks to dynamically match demand with production. The advantage of the chase strategy is lower inventory levels and backlogs. Disadvantages are lower productivity, quality and a depressed workforce.
Hybrid Strategy
As the name suggests, a hybrid strategy looks to balance between level strategy and chase strategy.
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