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Aggregate planning is a strategy that is used to utilize the resources of the company and assess the future demand of the consumer. It is used to create an appropriate production schedule for an organization. The requirements to deliver uninterrupted production needs to be listed at the first step. The period of the strategy usually stretches around 6 months to 1 year. It helps in maximizing the opportunities within the workforce to increase productivity rate and plays a vital role in operation management. It facilitates the synchronization of demand of the market and supply of the raw material to maintain a certain balance.
Financial planning of aggregate production
Basic production cost
It includes the cost of labor, material, and overhead. It is essential to divide this segment into fixed costs and variable costs.
Cost regarding the fluctuation of production rate
It consists of a certain amount of money that is spent on hiring new employees and training the new and existing employees. The cost of overtime and layoffs of the employees are also included in this segment.
The cost associated with inventory
The models for aggregate production planning are supportive tools for the decision-making process and to evaluate various proposals in union negotiation.
Techniques of the production method
Several techniques are used in these methods such as mathematical techniques and “Informal trial and error” techniques. Most of the time, informal techniques are used to form a plan. On the other hand, Mathematical techniques are not used frequently and various researches have been done on this method. It is generally used in comparing various plans in aggregate production.
The general process for forming aggregate production plan:
Determining the requirements and demands of the market for various periods.
Evaluation of capacities for overtime, subcontracting, and regular time.
Identifying the policies of the department and the company that is associated with maintaining adequate stock to meet market demand.
Determining the cost of inventories, regular time, backorder, layoffs, subcontracting, overtime, and other costs.
Formation of alternative strategy and determining the cost of each plan.
The appropriate strategy needs to be chosen that addresses the objectives of the company.
The procedure of aggregate production
The planning process can be made easier by summarizing the capacity, demand, and cost for each segment of the execution process. On the other hand, alternative plans are needed to be formed and graphs can be a useful method in this process. The approach of spreadsheet solver is one of the most efficient processes for industries as software for this process is readily available. The model of APP is easy to develop in a spreadsheet process and the results are easily comprehended.
There are significant rules informing the optimal aggregate production process, such as-
The collection of relevant data needs to be done in order to form an appropriate strategy.
The APP model needs to be created in a spreadsheet.
The strategies need to be evaluated to form a suitable plan
The evaluation process can be done by presenting the model of aggregate production to each department of the company. The feedback of various departments such as warehouse, production, marketing, planning, and sales are important in assessing the alternative plans. The comparison between the existing plans of the organizations and the new plan needs to be evaluated regarding the financial aspects of the company. In case the plan is not optimal, some valuable input or parameters needs to be added to modify the plan. The implementation of the strategy is the last step of the process and the market demand is assessed in this step.
Importance of developing appropriate planning
The formation of the strategy covers some important elements such as financial planning, supply of raw materials, marketing, distribution of products, operations, human resources, and engineering. It is an important tool in improving the production process of the company. The procedure needs to be aligned with the long-term goal and objective of the company to form a suitable strategy.
It has been proved to be essential in the completion of the long-term achievements of an organization.
It is useful in reducing the production cost that in turn gives the opportunity to achieve financial goals.
It is efficient in decreasing the cost of inventory.
This method helps in utilizing the maximum productivity to increase the rate of production.
It is a useful tool in meeting the demand of the market on time and the waiting time for the consumer can be effectively reduced by using this method.
It assists the organization in achieving goals and also gives satisfactory experience for the employees.
Conclusion
The APP process is a significant process in developing an effective strategy in operation management. It focuses on satisfying the demand of the market by increasing production. The planning of facilities can be aligned with the APP model for making appropriate decisions. It can help in reducing the cost of production, cost of labor, the effect of changing demand, and cost related to inventory. It assists in utilizing the plant and the equipment for a better production rate and also helps in determining the required number of employees for each task.
