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Aggregate planning

Aggregate planning - BIT Book Notes Test 2 Strategies for...

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BIT Book Notes Test 2 Strategies for adjusting Capacity - If demand for a company’s products or services is stable over time, then the resources necessary to meet demand are acquired and maintained over time horizon of plan, and minor variations in demand are handled with overtime and undertime. - Aggregate planning becomes more challenging when demand fluctuates over planning horizon - Seasonal demand patterns can be met by: o Producing at constant rate and letting inventory take fluctuations in demand (LEVEL PRODUCTION) o Hiring and firing workers to match demand o Maintaining resources for high demand levels o Increasing/decreasing working hours (overtime and undertime) o Subcontracting work to other firms o Using part time workers o Providing service or product at later time (backordering) WHEN ANY OF THESE ALTERNATIVE IS CHOSEN, THE COMPANY IS SAID TO HAVE PURE STRATEGY – adjusting only one capacity factor to meet demand Level Production - Level production – producing at a constant rate and using inventory as needed to meet demand (the inventory will absorb fluctuations in demand). o It will absorb variations in demand when there is periods of low demand and there is overproduction. - The cost of this is cost of holding inventory, including cost of obsolete or perishable items that may have be discarded Chase Demand - Chase demand – changing workforce levels so that production matches demand o Hiring and firing workers absorbs demand variations o During periods of low demand, production is cut back and workers are laid off
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o During periods of high demand, production is increased and workers are hired - The cost of this strategy is cost of hiring and firing workers - This approach would not work for industries where worker skills are scarce or competition for labor is intense, but it can be cost effective during periods of high unemployment or for industries for low skilled workers - Chase Supply is a variation of chase demand, but it centers around supply of raw materials Peak Demand - Maintaining resources for peak demand – staffing for high levels of customer service, can be costly in terms of the investment in extra workers and machines because they will remain idle during periods of low demand. - This strategy used when customer service is important (Nordstrom) or when customers are willing to pay extra for availability of critical staff or equipment. Overtime and Undertime - Overtime and undertime are common strategies when demand fluctuations are not extreme. - There is a competent staff, hiring and firing costs avoided, and demand is met temporarily without investing in permanent resources. - Disadvantages: premium is paid for OT, tired/less efficient workforce, OT may not be sufficient to meet peak demand periods - Undertime achieved by working fewer hours during the day or fewer per week. o
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Aggregate planning - BIT Book Notes Test 2 Strategies for...

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