Aggregate planning is one of the things that must be mastered to be able to carry out the management process optimally. In a business planning process, a company will be able to complete what is designed if it can meet targeted expectations. The annual plan of a company will consist of various things, starting from labor, raw materials, working capital, etc.
This can also be broken down into medium term terms (6 months to 18 months). This process of working out production requirements for the middle range is also known as aggregate planning. So that every company can succeed in making a profit from a product, there is one thing you must pay attention to. If you make too few products, you will miss financial opportunities.
Why Aggregate Planning is Important
Aggregate planning is a method for analyzing, developing, and maintaining manufacturing plans that strive to produce consistent and uninterrupted production. Aggregate planning is most often focused on targeted sales forecasts, inventory management, and production levels in the medium term between the next 6 to 18 months.
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Aggregate planning plays an important part in achieving an organization's long-term goals. Aggregate planning will be helpful in:
- Achieve financial goals by reducing overall variable costs and increasing profits
- Maximum utilization of available production facilities
- Match requests and reduce wait times for customers
- Reduce investment in inventory storage
- Able to meet scheduling goals by creating a happy and satisfied workforce
How to Create an Aggregate Plan
To create an aggregate plan, you must first determine the number of units produced during a certain time period. Both in terms of capacity, number of units needed, and how much customer demand. The following are several factors that are very influential in this matter
- Pricing Strategy: When demand is low, lower prices to match capacity. You can also do the opposite; when demand is high, increase prices.
- Advertising/Promotions: Marketing and promotional activities can influence demand for your products or services.
- Backorder: Delay delivery until demand meets capacity.
- Creation of New Requests: Create other requests to complement existing requests.
- Labor : Companies can lay off or hire employees to meet demand or respond to shortages. Overtime, subcontracting or using temporary labor are also options that can be used.
What Factors Influence Aggregate Planning
Because its function is to balance long-term strategic planning with short-term production success, aggregate planning is something that is very necessary. The following factors are essential before the aggregate planning process can actually begin;
- Availability of complete information regarding production facilities and available raw materials.
- Solid demand forecasts covering the medium term period
- Financial planning around production costs which include raw materials, labor, inventory planning, etc.
- Organizational policies around workforce management, quality management, etc.
For aggregate planning to be successful, the following inputs are required;
- Aggregate demand forecast for the relevant period
- Evaluate all available means to manage capacity planning such as sub-contracting, outsourcing, etc.
- Operational status of existing workforce (number, skills, etc.), inventory levels and production efficiency
What are the Types of Aggregate Planning Strategies
If you have considered the various factors above, now is the time for you to start building a strategy regarding aggregate planning using the 3 available methods. Each strategy below has a variety of approaches that can be adapted to the company. The 3 main strategies used are:
1. Level Strategy
The aim of the aggregate planning strategy is to maintain production levels and labor levels in balance. To achieve the desired results, you will need strong demand forecasting to know whether production levels should be increased or decreased as customer demand grows and shrinks. This aggregate production planning strategy will keep the workforce stable, but can increase the company's product inventory.
2. Chase Strategy
For this strategy, the company will try to catch up with market demand. Production is in accordance with demand and excess inventory is not held. This is part of a lean production strategy, which can save money by waiting until an order is placed. If you have difficulty meeting demand coming from the market, productivity and quality can be reduced. But it can have a negative impact on the morale of a company's workforce.
3. Hybrid Strategy
This strategy is a hybrid combination of the two previous strategies. This maintains a balance between production levels, labor, and inventory levels, while still responding to demand as it changes. This alternative offers a bit of flexibility that can meet demand while working to keep production costs from getting too high.
What Can Be Gained From Aggregate Planning
By meeting the strategic objectives of aggregate planning, manufacturers can balance short-term and long-term production demands and optimize productivity and profits. Apart from this, various other additional benefits that the company will be able to get are:
- Stabilize manufacturing efforts
- Facilitates lean manufacturing
- Optimize space and resource utilization
- Reduce operational costs
- Improve on-time delivery
- Improve supply chain relationships
- Increase customer satisfaction
Conclusion
As a part of management science, an aggregate plan is knowledge that will help you achieve the best results to achieve the company's desired final goals. Apart from mastering just one material, it would be better if you understand various related things to be able to make more mature plans. One of the things that you can also deepen in order to produce an effective plan for the company is operational management.
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Operational management is the management (planning, organizing, directing, coordinating and controlling) of all activities directly related to goods and services. Of course this will relate to various things in the company management function, including aggregate plans.