Business operations
- Aggregate planning is crucial as it helps a business make decisions based on forecasts. Forecasts are made possible through the implementation of various algorithms and operational models. From forecasts, plans are drawn for the future. These plans if based on relatively accurate forecasts may depict a picture of the feature. Various features are considered as variables for forecasting purposes. Aggregate planning also acts as an operational tool. The variables in aggregate planning include a demand forecast for the relevant period, techniques of managing capacity such as outsourcing and the size of the workforce, and other internal factors in the company. Weighing the variables produces a model suitable for forecasting.
- Aggregate strategies can be classified into three. The first strategy is the level of strategy. Through this strategy, it is possible to stabilize the production rates and workforce levels. For this strategy to be successful a company has used a forecast that is robust for the anticipation of demand levels. This strategy can be adopted when the company wants to stabilize its workforce. The second strategy us the chase strategy. This strategy aims to strike a balance between demand and production. This strategy can be adopted by a company when it is looking to lower inventory levels. The third strategy is the hybrid strategy which works to strike a balance between the chase and level strategies. This strategy can be adopted when a company has high inventory and low productivity.
- Inventory costs are classified into three namely: ordering, carrying, and stockout costs. Adoption of the level strategy in aggregate planning implies that all the inventory costs go up. Ordering excess goods is likely to lead to an increase in the inventory costs where some of the goods are surplus and cannot be consumed in the market as demand has been met. The carrying costs include the costs of holding goods until they can be sold. Adopting the level strategy implies that the cost of storing excess goods increases the inventory cost. The stock-out costs would also be incurred in the level strategy as a result of underproduction due to poor forecasting which leads to demand not being met. The inventory costs thus increase in the level strategy.