13 aggregate planning strategies pure strategies

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13 AGGREGATE PLANNING STRATEGIES PURE STRATEGIES Capacity Options — change capacity: changing inventory levels varying work force size by hiring or layoffs varying production capacity through overtime or idle time subcontracting using part-time workers Demand Options — change demand : influencing demand backordering during high demand periods Counter seasonal product mixing
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CAPACITY OPTIONS 1. Changing inventory levels Increase inventory in low demand periods to meet high demand in the future Increases costs associated with storage, insurance, handling, obsolescence, and capital investment Shortages may mean lost sales due to long lead times and poor customer service 2. Varying workforce size by hiring or layoffs Match production rate to demand Training and separation costs for hiring and laying off workers New workers may have lower productivity Laying off workers may lower morale and productivity 14
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CAPACITY OPTIONS 3. Varying production rates through overtime or idle time Allows constant workforce May be difficult to meet large increases in demand Overtime can be costly and may drive down productivity Absorbing idle time may be difficult 4. Subcontracting Temporary measure during periods of peak demand May be costly Assuring quality and timely delivery may be difficult Exposes your customers to a possible competitor 5. Using part-time workers Useful for filling unskilled or low skilled positions, especially in services 15
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DEMAND OPTIONS 1. Influencing demand Use advertising or promotion to increase demand in low periods Attempt to shift demand to slow periods May not be sufficient to balance demand and capacity 2. Back ordering during high-demand periods Requires customers to wait for an order without loss of goodwill or the order Most effective when there are few if any substitutes for the product or service Often results in lost sales 3. Counterseasonal product and service mixing Develop a product mix of counterseasonal items May lead to products or services outside the company’s areas of expertise 16
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17 AGGREGATE SCHEDULING OPTIONS - ADVANTAGES AND DISADVANTAGES Option Advantage Disadvantage Some Comments Changing inventory levels Changes in human resources are gradual, not abrupt production changes Inventory holding costs; Shortages may result in lost sales Applies mainly to production, not service, operations Varying workforce size by hiring or layoffs Avoids use of other alternatives Hiring, layoff, and training costs Used where size of labor pool is large
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18 Option Advantage Disadvantage Some Comments Varying production rates through overtime or idle time Matches seasonal fluctuations without hiring/training costs Overtime premiums, tired workers, may not meet demand Allows flexibility within the aggregate plan Subcontracting Permits flexibility and smoothing of the firm's output Loss of quality control; reduced profits; loss of future business Applies mainly in production settings ADVANTAGES/DISADVANTAGES - CONTINUED
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