Case Study:
Aggregate Planning
Process
Workers
in
current
strategy
li
13 14
300,000
250,000
200,000
150,000
100,000
50,000
Jan
Feb
Mar
Demand
Forecast
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Current Strategy
-
-
aD
-
mad
Current
Strategy
lonth
Jan
Feb
Mar
Apr
May
Jun
dul
Aug
Sep
Oct
Now
Dec
srecast
Quantity
55,000 57,000
63,000
75,000
121,000
187,000 234,000 263,000
222,000
148,000 120,000 107,000
‘eduction
Quantity
50,000 50,000 50,000
90,000
120,000
150,000 200,000 250,000
250,000
130,000 130,000 100,000
vertime
Quantity
5,000 7,500
12,500
. .
23,000 34,000
—«:13,000
. .
-
.
tal
Quantity
P5000"
57500"
62500"
90,000"
120,000"
173,000 234,000
263,000" 250,000" 130,000" 130,000"
100,000
ventory
10,000
10500
10,000
25,000 24,000
10,000 10,000
10,000 38,000
20,000 30,000 23,000
lorkforce
needed
50
50 50
90
120
150
200 250 250
130 130
100
|
ire
emplyees 40
30
30
50 50
. .
re
Employees
120
30
|
vertime
hours
B00
1,200
2,000
. .
3,680 5,440
2,080
. .
.
.
vertime
hours
limits
2,000 2,000
2,000 3,600
4,800
6,000 8,000
10,000 10,000
5,200 5,200
4,000
ibor
cost
90,000 90,000 90,000
162,000 216,000
270,000 360,000
450,000
450,000
234,000 234,000 180,000
irring
cost
1,200 1,260
1,200 3,000 2,880
1,200 1,200
1,200
4,560
2,400 3,600
2,760
vertime
cost
12,000 18,000 30,000
. .
55,200
81,600
31,200
iring
cost
. . .
7,000 5,250
5,250
8,750
8,750
ring
Cost
108,000
27,000
stal
Cost
103,200 109,260 121,200
172,000 224,130
331,650
451,550 491,150
454560
344,400 237,600 209,760
Current strategy being used
Current Strategy
●With the current strategy, The Company is using overtime and firing/hiring strategy.
●When the increase in demand can be covered using overtime, the company doesn’t hire more
employees. However, when there is a huge increase in demand, the company hire new employees.
●This policy has firing costs of $135,000.
●In addition, customer service and goodwill was being threatened by the policy of firing and hiring.
Pure Level Strategy
Pure Level
● We have decided to maintain 10,000 LBS of buffer inventory to improve customer service.
●Cost of storing 1,000 pounds for one month is $120, hence .12 per pound.
●Capacity per worker a month= 1,000
●Production per hour per worker= [1,000/ (40*4) = 6.25
●Capacity per worker including max overtime [1,200]
●Overtime pay is $15
●The total cost that the Pure Level Strategy offers is $3,332,236.
Hybrid Aggregate Planning
●Takes advantage of both of the previous strategies
●The current workforce is used without having to drastically change it with multiple hirings and firings.
●Overtime handles demand fluctuations
●In this strategy, there are large amounts of overtime
●If demand exceeds the maximum labor output, the solution is backorders
●Hybrid Aggregate planning is the most popular aggregate production planning process.
Hybrid Aggregate Planning
●In our hybrid Aggregate Plan, we maintain the level of production for 7 months which saved us money
on firing and hiring employees.
●In the last 3 months we lowered our production to meet the demand only, so we can avoid carrying
cost.
●In August and September, we increased the production to meet the sudden increase in demand.
●Firing cost , hiring cost , carrying cost , labor cost and overtime cost were calculated as Pure Level and
Pure Chase Aggregate plans.
Strategy recommendation
Total cost for each strategy
Current strategy: $3,250,460
Pure Level Strategy: $3,332,236
Hybrid Strategy: $3,225,995
In conclusion, the pure level strategy costs more than the current, the strategy that has the least costs
is the hybrid strategy. Joan should consider changing to a hybrid strategy.
Advantages of using the hybrid
strategy within this company
●GD supplement’s employment varied considerably during the year. There was demands from unions
and labor laws to increase compensation to employees laid off. Using the hybrid strategy allows the
current workforce to be used without drastic changes. This leads to:
○ lower total cost of hiring and firing employees
○Better employee-employer relationships
●Hybrid strategy allows demand to be meet even when there are drastic demand increases and
decreases
●It allows overtime to be used when needed
●Backorders are utilized in order to meet demand as well
