Strategy not tactics drives aggregate planning

Abhijeet Dash UM14001

Abhineet Sudhendra UM14003

Abinash Mallick UM14004

Debananda Patra UM14022

Rajendra Kumar Biswal UM14043

Section A Group

10

Introduction Literature Methodology Findings Conclusion Limitations

What is Strategy and what is Tactics ?Strategy concerns policies and plans of use of the firm

productive resources with the aim of supporting long term

competitive strategy A more recent approach involves

distinguishing competitive variables in order winner and order

qualifiers when defining operations strategy.

At the tactical level (intermediate term), operations management

addresses the issues relevant to efficiently scheduling material

and labor within the constraints of the firm's strategy and

making aggregate planning decisions. Operations managers

have a hand in deciding employee levels (how many workers do

we need and when do we need them?), inventory levels (when

should we have materials delivered and should we use a chase

strategy or a level strategy?), and capacity (how many shifts do

we need? Do we need to work overtime or subcontract some

work?)What is Aggregate Planning ?Aggregate planning is an operational activity that does an

aggregate plan for the production process, in advance of 2 to 18

months, to give an idea to management as to what quantity of

materials and other resources are to be procured and when, so

that the total cost of operations of the organization is kept to the

minimum over that period..

Introduction Literature Methodology Findings Conclusion Limitations

Are the mathematical models robust enough to accommodate all the factors taken by managers in real life ?• Linear Programming -- LP models can be used to minimize the sum of costs related to aggregate planning such as

regular labor time, overtime, subcontracting, inventory, and backorder costs.

• Goal Programming -- On the other hand, goal programming is used to optimize multiple goals; it is also possible to

attach a certain priority to each goal. Like LP, goal programming is also an optimization technique.

• Linear Decision Rule -- One of the linear equations is used to plan the production levels and the other linear equation is

used to plan the work force size.

• Management Coefficients -- this heuristic model attempts to improve planning performance using multiple regression.

Past managerial performance is used as a base to improve performance.

• Parametric Production Planning -- this technique helps planning the production levels and work force levels by using a

heuristic search routine.

• Simulation Models -- Many real life situations are simulated . The computerized simulation models are tested under

these simulated conditions to determine the aggregate planning parameters such as production levels and work force

sizes

Strategies Involved in aggregate

planning• Chase

• Level

• Mixed

• Demand Management

• Modified Chase

• Modified Level

• Level workforce

• Level Core workforce

Questions left to be answered• Is a highly constrained process of

product disaggregation a realistic

proposition?

• How does the aggregate planning

model fit into the overall scheme of

things?

• Can we reconcile its medium term

rigidities with the need for short-term

scheduling flexibility?

• Why is there no nexus to JIT

Introduction Literature Methodology Findings Conclusion Limitations

• The research was carried out through a case based approach. It means that the sample taken is richer in

information.

• The aim was to cover a wide range of industries and organisations. The study was made of 42

manufacturers that experience seasonally biased demand.

• Along with this an interview was conducted with a senior manager which was followed by a plant tour to

make observations and prompt further relevant questions.

• The discussions made avoided any preconceptions as no substantial body of evidence exists to indicate

that the aggregate planning model represents normal industrial practice.

• The topics covered the company’s business environment, strategy for dealing with seasonal variations, the

objectives and broad format of production planning, and resources scheduling. The development of the

MPS, shop floor constraints, management issues, and the nature of the volume and mix flexibility were also

featured in the fields of research.Observations during research• About 75% went for a chase or modified chase

option. And more than 80% tried to keep minimum

quantities of stock.

• Not a single enterprise has implemented a mixed

strategy, or even attempted to balance marginal

labour costs against imputed charges for smoothing

inventories.

• Unfortunately a certain product or production

category is not associated with a specific seasonal

strategy which causes certain inconvenience.

• All the plants possess limited volume flexibility

Introduction Literature Methodology Findings Conclusion Limitations

This paper serves a perfect illustration of the mind-set that continues to dog the aggregate planning

literature.

Strategy No. of cases % of the total Cumulative %

Chase 19 45.2 45.2

Modified Chase 12 28.6 73.8

Demand management 4 9.5 83.3

Level 4 9.5 92.8

Other 3 7.1 99.9

Mixed 0 0.0 99.9

Total 42 100 100

Introduction Literature Methodology Findings Conclusion Limitations

Chase Strategy

• Matching exact demand with no inventory.

• Advantage-Minimum financial issues.

• Limitations-

• Need for high demand accuracy.

• Need for fast response to demand underestimates

• Leads to backorders.

• High hiring and firing costs

Modified Chase Strategy

• Stocking of items with negligible financial risks.

• Orders received in advance are produced and stocked.

• Eg- Pharmaceutical

Demand Management Strategy

• combination of zero inventory and a level production.

• achieved by only those firms that produce seasonally complement products

• Best method but very difficult to implement

• Eg- Greeting Cards

Level Strategy

• Make to stock approach.

• Level Workforce

• High hiring, training and firing costs.

• Best selling products with stable demand ideal for this strategy

Stable workforce (Core) Strategy

• Costly and lengthy trainings

• Constraint on inventory storing capacity

• During Lean period workers produce jigs and fixtures needed for production

• Selective stocking

Modified Level Strategy

• Followed by firms with highly seasonal demands and high hiring and firing costs.

• Raising output rate for level production during peak demand.

• Using workforce for ancillary activities during lean demand.

Introduction Literature Methodology Findings Conclusion Limitations

Recent popularity of JIT production has fuelled the choice of Chase Strategy

Chase Strategy leads to unstable labour productivity, discourages skilled labour. So mixed strategy is rather cheaper but none had adopted it.

The firms address productivity and cost issues by opting for the right strategy.

Firms also use suitable tactics to adjust labour inputs and decide inventory levels and satisfy customer demands through MPS.

In reality firms go for tactical planning (MRP) through tailor made MPS to address demand fluctuations on a short term basis.

So there is a flawed and inadequate aggregate planning which should actually be strategy driven

Manufacturers need to adopt the appropriate strategy for long term viability of tackling the seasonal demand fluctuations.

Introduction Literature Methodology Findings Conclusion Limitations

Research is limited to tangible products manufacturers and not service sector

it fails to take into account the financial restrictions that may distort the production planning and output as production in varying amounts lead to varying costs related to output, like increased per unit transport cost, increased set-up time etc.

The research talks about absence of any link between aggregate planning and JIT production. However, it fails to explain why there is no such nexus between the two.

Biased sample of industries as none followed a mixed strategy

The research article suggests substantial quantities of finished goods stocks as an anathema which is not so for certain firms like FMCG where brand switching is high among customers.

In all these cases the firms selected had an in built seasonal demand component. The validity of the thinking is yet to be applied to a firm without seasonal demand.