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Aggregate planning

UNIT-- VII

Aggregate planning can be defined as intermediate-range


planning in which strategies are devised to economically
absorb demand fluctuations.
It can also be defined as the process of determining output
levels (in units) of product groups over the coming 6 to 18
months on a weekly or monthly basis, the plan identifies the
overall level of outputs in support of the business plan.

Strategies for Aggregate planning


the planning for future use of operations capacity, the
firm can adopt following strategies.
1. Active strategy
2. Passive strategy

Active strategy :
1. In the active strategy, in case of demand fluctuations, the firm tries to
influence or change the demand pattern itself.
2. The objective of active strategies is to smooth out the peak and
valleys of demand during the planned period. The idea is to obtain a
smoother load on the productive facilities.
The following methods are generally adopted to achieve this objective:
1.During low demand periods, price cuts are offered to increase the sale
of goods or services. Whereas during high demand periods,
management can choose simply not to meet all demands. This course is
generally not adopted because it ignores the opportunity for increase in
sales.

It can be adopted with the willingness of customer to


wait. In some cases backlog may be taken by customer
in a bad taste and result in losses of future sales.
3. Select a product mix, to smoothen the demand for
productive resources, which consists of counterseasonal products.
For example a firm may manufacture air conditioner
during warm months and heaters during winter.

Passive strategy :
In passive strategy, the planner tries to respond to demand
fluctuations but not to affect the rate of demand itself.
The following strategies can be adopted
1. Varying work-force size: In this strategy size, the work-force is
varied in accordance with fluctuation in demand. Hiring is used in
case of high demand, and laying off in low demand.
Although this strategy has limitations due to morale and labour
union problems. Hiring process involves selection and recruitment
costs, time for learning and low productivity. Layoff costs include
termination pay, morale aspects, and image of the firm.

2.Varying production rate:


In order to vary the output rate keeping the workforce constant, this
strategy adopts the use of overtime and undertime.
In over time strategy, work-force is asked to work for extra hours.
Undertime implies that the workers are receiving full pay, whereas a shortwork-week policy implies less than full time pay.

3. Increasing Inventory:
In this strategy, inventory can be used to absorb demand even when the
work force and work rate remains constant.
In this, inventory is produced during low demand periods so as to use it
during high demand periods. However this require extra storage space,
blockage of money, insurance and more handling.

4. Subcontracting:
This strategy can be used during high demand periods. Perunit production costs are generally higher when
subcontracted rather than produced in-house.
5. capacity utilization:
In this strategy, organization that cannot store their
production or service, plan for a capacity to meet peak
demand.