30-08-2014, 10:45 AM
Aggregate Planning in SCM
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Abstract:
Aggregate planning is the process of developing, analyzing, and maintaining a preliminary, approximate schedule of the overall operations of an organization. The aggregate plan generally contains targeted sales forecasts, production levels, inventory levels, and customer backlogs. The strategies of aggregate planning are the active strategy, the passive strategy or reactive strategy and the mixed strategy. There are two pure planning strategies available to the aggregate planner: a level strategy and a chase strategy. Firms may choose to utilize one of the pure strategies in isolation, or they may opt for a strategy that combines the two. Steps taken to produce an aggregate plan begin with the determination of demand and the determination of current capacity. Techniques for aggregate planning range from informal trial-and-error approaches, which usually utilize simple tables or graphs, to more formalized and advanced mathematical techniques. Mathematical techniques can also be used in more complex aggregate planning applications. Historically, services are much more labour intensive than manufacturing. This can provide quite a degree of flexibility that can make aggregate planning easier for services than manufacturing. new, useful idea for aggregate planning called Annualized Hours (AH). Under AH, employees are contracted to work for a certain number of hours. AH is also known as flexiyear, as it can be seen as an extension of flexitime. This concept is used almost exclusively in Europe. Simplify the system, taking pieces that are not meeting the single customer need out of the chain and recheck the information to really know a single customer need. This helps to improve the accuracy.
INTRODUCTION
Aggregate planning is the process of developing, analyzing, and maintaining a preliminary, approximate schedule of the overall operations of an organization. The aggregate plan generally contains targeted sales forecasts, production levels, inventory levels, and customer backlogs. This schedule is intended to satisfy the demand forecast at a minimum cost. Properly done, aggregate planning should minimize the effects of short sighted, day-to-day scheduling, in which small amounts of material may be ordered one week, with an accompanying layoff of workers, followed by ordering larger amounts and rehiring workers the next week. This longer-term perspective on resource use can help minimize short-term requirements changes with a resulting cost savings.
It is an operational activity that give an idea to the management to what quantity of materials and other resources are to be procured and when, so that the total cost of operations of the organization is kept to the minimum over that period. The quantity of outsourcing, subcontracting of items, overtime of labour, numbers to be hired and fired in each period and the amount of inventory to be held in stock and to be backlogged for each period are decided. All of these activities are done within the framework of the company ethics, policies, and long term commitment to the society, community and the country of operation.
In simple terms, aggregate planning is an attempt to balance capacity and demand in such a way that costs are minimized. The term "aggregate" is used because planning at this level includes all resources "in the aggregate;" for example, as a product line or family. Aggregate resources could be total number of workers, hours of machine time, or tons of raw materials. Aggregate units of output could include gallons, feet, pounds of output, as well as aggregate units appearing in service industries such as hours of service delivered, number of patients seen, etc. Aggregate planning does not distinguish among sizes, colours, features, and so forth. For example, with automobile manufacturing, aggregate planning would consider the total number of cars planned for not the individual models, colours, or options. When units of aggregation are difficult to determine (for example, when the variation in output is extreme) equivalent units are usually determined. These equivalent units could be based on value, cost, worker hours, or some similar measure.
Aggregate planning is considered to be intermediate-term (as opposed to long- or short-term) in nature. Hence, most aggregate plans cover a period of 3 to 18 months. These plans serve as a foundation for future short-range type planning, such as production scheduling, sequencing, and loading. The master production schedule (MPS) used in material requirements planning (MRP) has been described as the aggregate plan "disaggregated."
Level strategy
A level strategy allows a firm to maintain a constant level of output and still meet demand. This is desirable from an employee relations standpoint.
This strategy seeks to produce an aggregate plan that maintains a steady production rate and/or a steady employment level. In order to satisfy changes in customer demand, the firm must raise or lower inventory levels in anticipation of increased or decreased levels of forecast demand. The firm maintains a level workforce and a steady rate of output when demand is somewhat low. This allows the firm to establish higher inventory levels than are currently needed. As demand increases, the firm is able to continue a steady production rate/steady employment level, while allowing the inventory surplus to absorb the increased demand.
A second alternative would be to use a backlog or backorder. A backorder is simply a promise to deliver the product at a later date when it is more readily available, usually when capacity begins to catch up with diminishing demand. In essence, the backorder is a device for moving demand from one period to another, preferably one in which demand is lower, thereby smoothing demand requirements over time.
AGGREGATE PLANNING IN SERVICES
For manufacturing firms the luxury of building up inventories during periods of slack demand allows coverage of an anticipated time when demand will exceed capacity. Services cannot be stockpiled or inventoried so they do not have this option. Also, since services are considered "perishable," any capacity that goes unused is essentially wasted. An empty hotel room or an empty seat on a flight cannot be held and sold later, as can a manufactured item held in inventory.
Service capacity can also be very difficult to measure. When capacity is dictated somewhat by machine capability, reasonably accurate measures of capacity are not extremely difficult to develop. However, services generally have variable processing requirements that make it difficult to establish a suitable measure of capacity.
Historically, services are much more labour intensive than manufacturing, where labour averages 10 percent (or less) of total cost. This labour intensity can actually be an advantage because of the variety of service requirements an individual can handle. This can provide quite a degree of flexibility that can make aggregate planning easier for services than manufacturing.
CONCLUSION
When one look at the performance chain, as to simplify the system, taking pieces that are not meeting the single customer need out of the chain and recheck the information to really know a single customer need. That is always a good place to start and develop strategies and plans .focusing to balance the gap between the demand and supply in the market. Efficiency of supply chain depends on the certainty of information and in a simple system the information transferred is accurate than in a complex system. This also helps to implement new strategies easily such as launching a new product and also helps to reduce the money loss due to misconception misunderstandings etc in the system.