Operations Management 11.2

Operations focuses on

capacity options (e.g., workforce, output).

Marketing handles

most demand-influencing options (except backlogging).

What are the four aggregate planning strategies?

Level workforce, level output rate, chase demand, and mixed strategy

Level Workforce

Maintain a constant number of employees

Level Output Rate

Maintain a steady production rate.

Chase Demand

Adjust output to match demand each period.

Mixed Strategy

Combine elements of the above strategies.

Level Capacity Strategy

Keeps workforce or output constant and uses inventories, overtime, part-time workers, subcontracting, or back orders to handle demand fluctuations.

Advantages to level capacity strategy

Stable workforce and equipment use, lower recruitment, training, and morale costs, and fewer disruptions and paperwork.

Disadvantages to level capacity strategy

High inventory costs and storage needs, subcontracting may reduce control and quality, backlogs can hurt customer service, and not suitable for service industries

Chase Demand Strategy

Adjusts capacity (workforce/output) to match demand

Advantages to Chase Demand Strategy

Low inventory investment, and high labor utilization

Disadvantages to Chase Demand Strategy

Operational instability, morale issues if forecasts are inaccurate, and high cost of adjusting workforce/output.

Mixed Strategy

Combines level and chase strategies.

Advantages to mixed strategy

Greater flexibility, allows experimentation

Disadvantages to mixed strategy

Lack of clear focus and potential employee confusion.

Choosing a Strategy - Key Considerations

1. Company Policy- May restrict layoffs or subcontracting

2. Union Agreements - May limit part-time work or layoffs

3. Flexibility - Chase strategy may not suit steady-output operations

4. Strategic Fit - Customer service goals may conflict with backlogs

5. Employee-focused cultures may avoid hiring/firing

6. Inventory Constraints - Consider space, costs, and opportunity cost of tied-up capital.

Chase Approach Description

Adjust capacity to match demand.

Chase Approach is Best When

Inventory costs are high, and capacity adjustment costs are low.

Pros to Chase Approach

Low inventory investment and high labor utilization

Cons to Chase Approach

High cost of adjusting output/workforce.

Level Approach Description

Keep capacity constant.

Level Approach is Best When

Inventory and backlog costs are low.

Pros to Level Approach

Stable output and workforce.

Cons to Level Approach

High inventory costs, overtime and idle time, and variable resource utilization.