WOLAITA SODO UNIVERSITY
SCHOOL OF GRADUATE STUDIES
COLLEGE OF BUSINESS AND ECONOMICS
DEPARTMENT OF MANGEMENT
ADVANTAGES OF AGGREGATE PLANNING
S. NO PREPARED BY [Link]
1. Birtukan Matewos
SUBMITTED TO: -
OCTOBER, 2023
WOLAITA SODO, ETHIOPIA
Advantages of Aggregate Planning
Aggregate planning offers tons of advantages to the organizations that adopt it. The advantages
of utilizing aggregate planning include the following:
Minimize Staffing Fluctuations: -The aggregate planning approach is popular because
of its ability to foresee production demand which helps businesses in the staff planning
process. If a company needs temporary employees due to unexpected changes, it can
consult a temporary employment agency. The reduction or elimination of excess
employees will help the firm save money to invest elsewhere. Moreover, it’ll help the
firm save time needed to train and supervise the extra workers. Instead, they can use that
time to improve their production and service delivery. Ultimately, this will save the
business both time and money as it will not need to pay additional fees to the staffing
agency and it won’t have to pay workers to train the new additions
Reduce Overhead: -Aggregate planning helps businesses to estimate demand. The
primary purpose of evaluating demand is to enable a company to know the right amount
of inventory they need for a specific period. Overstocking remains to be one of the
leading economic severe issues. Holding costs for excess inventory such as inventory
financing, storage space, and inventory servicing attract extra expenses that businesses
can evade through adopting the aggregate plan strategies. Additionally, merchandise tied
up capital and having an excess of it will expose you to opportunity costs. Aggregate
planning promotes the lean production approach. Organizations implementing the
aggregate planning model can better foresee the amount of material they will require and
when. Besides the costs mentioned above, overstocking also exposes businesses to risks
associated with spoilage. Therefore, adapting aggregate planning is economical.
Increase Production Rates: - Aggregate planning fosters maximum utilization of
production resources which results in a significant increase in production rates.
Maximum resource utilization creates a smooth-running process that allows the
businesses to precisely determine the time it will take to deliver orders and plan their
production process duly. The objective is to meet the deadlines, but still, the organization
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should be keen to complete production almost on the projected time for delivery—to
avoid the costs associated with holding inventory.
Accommodate Changes: - In business, there are tons of uncertainties—price
fluctuations, production order variance, etc. Since production order often changes,
companies cannot stick to one strategy at all times. Aggregate planning incorporates
contingency measures that allow the business to accommodate changes in customer
orders and production. If need be, businesses can revolve between active, passive, or
mixed strategies. Additionally, they can shift between chase strategy (production levels
match the predicted demand) and the level strategy—production level is constant despite
the changes. Most production companies cannot stick to a single plan at all times as
production orders can change often. Aggregate planning allows for contingency plans to
be put in place in order for production facilities to be able to accommodate for significant
changes in customer orders and production. Updating forecasts and production plans
periodically allows planners to take into account any changes in expected demand or
supply and revise plans.
While you can never be certain of the future, aggregate planning is a comprehensive approach
that helps you to realistically outline the future of your business over the coming months. Instead
of making rash decisions when demand suddenly increases, you can make decisions that are
informed by a carefully considered strategy. There are several benefits to implementing
aggregate planning within your business:
It is an effective strategy for both goods and services.
It matches production demand with production capacity, thereby minimizing operating
costs.
It maximizes a business’ productivity and efficiency.
It specifies what materials and resources will be necessary and when to procure them.
As this list makes clear, developing an effective aggregate plan can have a positive effect on
your overall business outcomes, from production to profit levels.
