Operations Management 11.1

Organizations make capacity decisions at three levels

long-term, intermediate, and short-term

Long-term decisions include

product/service selection, facility size/location, equipment, and layout

Intermediate decisions involve

employment levels, output rates, and inventory levels

Short-term decisions focus on

scheduling jobs

Each level sets…

constraints for the next (long-term → intermediate → short-term)

Business plans combine

long-term and intermediate planning.

Business plans consider

strategy, demand forecasts, and external conditions (economic, competitive, political). 

What is essential?

Coordination across departments (marketing, operations, finance, engineering, materials) is essential. 

Aggregate planning defines

the framework for scheduling and production control.

Aggregate planning provides

input for financial plans and may require employment adjustments.

Flexibility is crucial for

time-based competition.

Aggregate plans must

align with long-term goals and capital constraints.

Aggregate plans

guide detailed planning and lead to the master schedule.

What approach does Aggregate planning take?

a “big-picture” approach.

What does aggregate planning focus on?

product/service groups rather than individual items

Aggregation simplifies

forecasting and planning

Common aggregate measures

labor hours, machine hours, and output rates

Product groupings help define

usable aggregate units.

Aggregation allows

general resource decisions without item-level complexity.

Aggregation provides

strategic flexibility amid demand uncertainty.

Aggregation supports

Annual budgeting across departments

Aggregation influences

costs, equipment use, staffing, and customer satisfaction

Rolling forecasts (3-,6-,9-,12-month) allow

periodic updates

Stable businesses face…

Fewer variations; others need adaptive strategies

Stable businesses face

fewer variations; others need adaptive strategies.

Strategies to Handle Variations

1. Maintain excess capacity to absorb demand spikes 2. Use flexible labor (temporary workers

2. Use flexible labor (temporary workers, overtime) for seasonal changes

3. Apply design strategies like delayed differentiation and modular design

4. Delay commitment to supply levels to reduce uncertainty

5. Schedule known-demand items first to shorten planning horizon