Question

supply chain management

1. A) Why is aggregate planning important as a supply chain activity? B) What information is needed to produce an aggregate plan?

Answer 1

An organization can finalize its business plans on the recommendation of demand forecast. Once business plans are ready, an organization can do backward working from the final sales unit to raw materials required. Thus annual and quarterly plans are broken down into labor, raw material, working capital, etc. requirements over a medium-range period (6 months to 18 months). This process of working out production requirements for a medium range is called aggregate planning.

Factors Affecting Aggregate Planning

Aggregate planning is an operational activity critical to the organization as it looks to balance long-term strategic planning with short term production success. Following factors are critical before an aggregate planning process can actually start;

• A complete information is required about available production facility and raw materials.
• A solid demand forecast covering the medium-range period
• Financial planning surrounding the production cost which includes raw material, labor, inventory planning, etc.
• Organization policy around labor management, quality management, etc.

Importance of Aggregate Planning

Aggregate planning plays an important part in achieving long-term objectives of the organization. Aggregate planning helps in:

• Achieving financial goals by reducing overall variable cost and improving the bottom line
• Maximum utilization of the available production facility
• Provide customer delight by matching demand and reducing wait time for customers
• Reduce investment in inventory stocking
• Able to meet scheduling goals there by creating a happy and satisfied work force

For aggregate planning to be a success, following inputs are required;

• An aggregate demand forecast for the relevant period
• Evaluation of all the available means to manage capacity planning like sub-contracting, outsourcing, etc.
• Existing operational status of workforce (number, skill set, etc.), inventory level and production efficiency

Aggregate planning will ensure that organization can plan for workforce level, inventory level and production rate in line with its strategic goal and objective.