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Aggregate Planning

Methods of Aggregate Planning

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Three Methods of Aggregate Planning

bullet Level Strategy - Constant Work Force, and as demand changes Vary Only Inventory & Stockouts
bullet Chase Strategy - as demand changes, hire and layoff to produce the units required.  Some inventory also has to be accounted for, because of rounding errors

   We shouldn't stop yet. There are a number ofother Pure Strategies ( changing only one variable at a time) we could determine.  For example, use subcontracting to satisfy additional demand.  And we haven't talked yet about overtime.

   We do not need to do all the work required to determine Level and Chase Strategies or subcontracting and overtime strategies.  The Mixed Strategy in the long run is a lot less work.

bullet Mixed Strategy - use any or all of the production variables to determine the lowest cost plan

Production Variables

   As demand changes these are the things management can change to meet the changing demand.  These variables include:

bullet Number of workers - More or less workers by hiring and layoff changes the number of units you can produce
bullet Inventory - If you have additional capacity now, produce extra units and store them in inventory to satisfy increasing demand in the future
bullet Stockout - This is negative inventory.   If demand is more than you can produce, use a stockout and satisfy demand in the future when your capacity exceeds demand. 
bullet Stockouts cannot occur in the last period of any aggregate plan.  In order to fairly compare one aggregate plan to an other, each must produce the same number of units.  A stockout does not produce a unit, it just delays consumption.
bullet Subcontracting - Pay some other business to produce extra units you need.
bullet Overtime - Ask you employees to produce more units by working more than the normal eight hours/day or 40 hours/week.

   There are others that could be added to this list and that are discussed in our text.  These are the ones we need to complete our aggregate plans

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