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What are the major differences between aggregate planning in manufacturing and aggregate planning in

It organizes areas of business that include targeted sales forecasts, production levels, inventory levels and customer backlogs.

Difference Between Aggregate Planning in Manufacturing & Aggregate Planning in Services

When aggregate planning is carried out effectively, the effects of short-sighted, daily scheduling are minimized. Capacity and demand are balanced in a way that minimizes costs where aggregate resources may include the total number of workers, hours of equipment and machine time, or tons of raw materials.

Techniques The techniques for aggregate planning include informal trial-and-error that utilize simply graphs or tables as well as advanced mathematical techniques.

  • Operation managers must assess and choose the best option or a combination of options in order to satisfy demand in the intermediate future;
  • Other examples include the addition of video arcades within movie theaters, and the expansion of services at convenience stores;
  • Following this path has a direct impact on quality as well as an indirect cost to the business.

Aggregate planning requires the demand for each period to be determined, followed by determining the capacity for each period, which should match demand. Company, departmental or union policies that are pertinent are then identified.

  1. Usually undifferentiated marketed products are simple and seen as neccessities such as toothpaste or toilet paper. By postponing delivery on current orders demand is shifted to period when capacity is not fully utilized.
  2. Finished-goods inventory can be built up in periods of slack demand and then used to fill demand during periods of high demand.
  3. In simple terms, aggregate planning is an attempt to balance capacity and demand in such a way that costs are minimized.

Unit costs for the total number of units produced and the costs associated with making changes in capacity are also taken into account. Alternative plans and computational costs for each are developed as a result.

  1. Aggregate stop loss has to do with Stop loss insurance when involved with all the employees at a set threshold, Spec.
  2. The firm must carefully weigh out the risks and rewards of such a venture.
  3. This longer-term perspective on resource use can help minimize short-term requirements changes with a resulting cost savings. The master production schedule MPS used in material requirements planning MRP has been described as the aggregate plan "disaggregated.

The plan that best satisfies the business objectives is chose. This is normally the plan with the lowest cost. Manufacturing Aggregate planning in manufacturing involves allocating the correct amount of resources for every manufacturing process so that the time and costs are minimized during idle mode.

Aggregate Planning in Manufacturing and in Services

Manufacturing businesses use either the Chase Strategy or the Level Strategy. The Chase Strategy involves matching demand and capacity period by period. This strategy could trigger a considerable amount of hiring or firing workers, increased inventory carrying costs, labor union problems and utilization of plant and equipment.

The advantage of the Chase strategy is that inventory is held at the lowest level possible, meaning large savings for the company.


With a Level Strategy, a steady production rate and a steady employment rate is maintained. The business can then raise or lower inventory levels in anticipation of forecasted demand levels. Services Since services do not involve stockpiles or inventory, service-focused businesses do not have the luxury of building up their inventories during periods of low demand.

  • If the majority of your customer demand is in the summer how would you address the aggregate plan?
  • 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 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.

For example, an empty hotel room or an empty flight seat cannot be held and sold at a later time. Services have variable processing requirements that make it hard to establish a good measure of capacity. Differentiation Aggregate planning in manufacturing works well because of the ability to produce, hold and sell inventory at any given time.

  • When units of aggregation are difficult to determine for example, when the variation in output is extreme equivalent units are usually determined;
  • Varying pricing to increase demand in periods when demand is less than peak.

Alternatively, aggregate planning in services differs substantially because services cannot be inventoried. The demand for services is much more difficult to predict and capacity is also difficult to measure.

Service capacity must be provided at the right place and the right time, while labor is generally the most constraining service resource.

Aggregate Planning and Forecasting