An organization can finalize its business plans on the recommendation of demand forecast. Once business plans are ready, an organization can do backward working from the final sales unit to raw materials required. Thus annual and quarterly plans are broken down into labor, 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.
Aggregate planning is an operational activity critical to the organization as it looks to balance long-term strategic planning with short term production success. Following factors are critical before an aggregate planning process can actually start;
For aggregate planning to be a success, following inputs are required;
Aggregate planning will ensure that organization can plan for workforce level, inventory level and production rate in line with its strategic goal and objective.
Aggregate planning helps achieve balance between operation goal, financial goal and overall strategic objective of the organization. It serves as a platform to manage capacity and demand planning.
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.
In scenario where capacity is not matching demand, an organization can try to balance the both by various alternatives such as.
Aggregate planning plays an important part in achieving long-term objectives of the organization. Aggregate planning helps in:
There are three types of aggregate planning strategies available for organization to choose from. They are as follows.
As the name suggests, level strategy looks to maintain a steady production rate and workforce level. In this strategy, organization requires a robust forecast demand as to increase or decrease production in anticipation of lower or higher customer demand. Advantage of level strategy is steady workforce. Disadvantage of level strategy is high inventory and increase back logs.
As the name suggests, chase strategy looks to dynamically match demand with production. Advantage of chase strategy is lower inventory levels and back logs. Disadvantage is lower productivity, quality and depressed work force.
As the name suggests, hybrid strategy looks to balance between level strategy and chase strategy.