While the primary objective of the Production Control department is to achieve organizational efficiency in production, by planning and scheduling operations; it also has the responsibility of intermediate and long-run planning.
This kind of planning is closely related to demand forecasting, adjustments in production capacity, manpower requirements, timing of investments, new production facilities, hiring sub-contractors, etc. It cannot be planned for individual product lines and has to follow an integrated approach for the organization as a whole. This is what is known as aggregate planning.
Aggregate planning works to make the optimum use of organizational resources to meet demand forecast. It has its focus on the collective levels of capacity and demand of an organization and plans quantity and timing of output for medium and long-term periods.
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While preparing an aggregate plan for any organization, the following objectives need to be met:
i. To provide levels of output, inventory and backlogs in keeping with the organization’s comprehensive business plans
ii. To balance resources with load for optimized capacity utilization
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iii. To maintain a consistent approach in manpower utilization in keeping with organizational policy on hiring, overtime, layoffs, etc.
Organizations use different approaches when they make aggregate plans, varying the number of manpower deployed, the inventory levels or sub-contracting. Each approach has its inherent advantages and disadvantages.
Steps to be followed in Aggregate Planning:
1. To begin, it is necessary to decide on the level of aggregation that is required. Is it required across all product lines (for organizations with multiple product lines) or only for one? Then we need to take into account the kind of capacity available, demand of the products, timing of investment, manpower requirement (including layoffs, specializations and flexibility for cross-sectional jobs), etc.
2. Then we need to determine the measures to be taken on production and capacity. These could be computing the required man-hours, direct labour costs, number of units (weight or volume) produced, value of production (or capacity), etc.
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So in effect, aggregate planning is the means of balancing capacity management with demand management. Changing manpower, varied working hours (overtime or time reduction), need for subcontracting (to off-load jobs), new equipment requirements, etc., are some factors that need to be taken into account for effective capacity management. Factors that affect demand management are new product launches, sales promotional activity, pricing, etc.
Aggregate plans that are made taking into account controllable variables, such as employment, idle time, overtime, part-time, plant capacity, inventories, sub-contracting, back-orders (where customers are willing to wait for delivery), etc., are those that have adopted pure strategies to account for fluctuations in demand and uncertainties of the production process.
Aggregate Planning Methods:
As mentioned earlier, methods for aggregate planning differ across organizations. Yet the one constant method is that the top management always provides the basic guidelines to work on. Effective aggregate plans usually follow the guidelines mentioned below:
1. Consult organizational policy on controllable variables
2. Apply proper forecast technique as basis for the plan
3. Determine the correct units of capacity
4. Maintain a stable workforce
5. Manage inventories efficiently
6. Build flexibility in plan to adapt to future changes
7. Evaluate and check plans at regular intervals.