Operation management assignment

Answer

Operation management assignment

1. Description of aggregate planning and reasons why organizations do it

Aggregate planning deals with establishing the quantity of production and its timing for an intermediate future normally ranging from 3 months to 18 months per period. Aggregate planning provides management with an indication of the quantity of raw materials and other resources required for production to take place in the intermediate future to meet demand forecasts and hence guides procurement activities (Chen & Sarker, 2015).  It is therefore a medium term capacity planning covering 3 to 18 months’ time horizon. Its main objective is to determine the optimal inventory, production and human capital levels. It identifies any constraints in production resources required to meet uncertain future demand of a product or a service. The level of output determined is in support of the overall business plan of the organization(Ho, López & Ang, 2015).

The aggregate planning process kicks off by first determining demand and capacities for each of the medium term period.   Capacity is  average number of units  of a product produced in a given time period usually 6 months or 12 months. Demand is the number of units that are required to meet the revenue targets with a time period. The firm then decides whether to increase  or reduce production if the two are not equal(Ho, López & Ang, 2015).  The next step is that the organization must assess inventory level, production efficiency and operational status of employees to determine whether it can meet capacity requirements. If it cannot then adjustments must be made depending on the outcome of the assessment. Company policies and company objectives are also taken into account as they impact on the aggregate planning process(Chen & Sarker, 2015).

            There are various reasons as to why organizations undertake aggregate planning. One of the reasons is that it reduces the overall variable costs and improves the bottom line. This enables the organization to achieve its financial goals.  The next reason is that it enables an organization to utilize  fully available production capacity in a factory. It enhances customer satisfaction as matching demand with production reduces stock outs and waiting time which enhances efficiency (Ho, López & Ang, 2015).  Investment in inventory stocking is also reduced which improves working capital position of the company. It improves employee morale as it enables an organization to meet scheduling goals. Aggregate planning enables management to know the level of each product line required to meet demand in the intermediate future. It assists organizations to prepare policies and make decisions relating to productions resources that are available, hiring staff, retrenchment, subcontracting and levels of inventory required among others(Chen & Sarker, 2015)

2. Identification and description in detail of two demand based and two supply based strategies for aggregate planning with examples

One of the demand based strategy for aggregate planning is chase strategy.  Chase strategy relies on forecasted demand for a given period and tries to sync production or output units with the demanded units in the intermediate term forecast. Operations managers attempt to do this by varying the levels of the workforce through subcontracting, hiring or firing among others.  They also try to achieve that by varying the part time employees and changing production workers to ensure output units’ match units in the demand forecast (Ho, López & Ang, 2015). For example, if marketing department forecasts to sell 100 units of product A, the operations manager could then subcontract 50 units and produce the remaining 50 units if the factory can only do 50 units at maximum capacity. The manager can also increase the number of workers, part time hours or hire more production staff to ensure the targeted units are achieved within the forecasted period(Ho, López & Ang, 2015).

Capacity strategy or time flexibility strategy is another demand based strategy which assumes that labour hours can be varied to increase productivity to meet demand forecast.  This strategy holds that working hours including overtime can be varied depending on demand requirements to meet units demanded by the marketing department during a medium term period.  Low inventory and capacity utilization characterize this strategy. This may be categorized as a reactive strategy which involves matching demand to supply capacity which could be achieved by varying certain assumptions in the demand forecast or by reviewing orders to only keep those which bring the most attractive returns among others (Ho, López & Ang, 2015).

            The next strategy is the level strategy. This is a supply based aggregate planning strategy which seeks to maintain production uniform. Operations managers using this strategy maintain labour usage and production capacity constant throughout a given period.  This strategy is used by renowned Japanese auto makers namely Nissan and Toyota.  This strategy assumes that the difference between production units and forecasted demand units will be covered by the variations in output during the period (Foo, 2016).  If there are excess units produced or unutilized labour, the strategy encourages that alternative work for the employees should be found.  This strategy holds that maintaining experienced employees creates certain savings in a company.  Mixed strategy is the next supply based aggregate planning strategy.  This is a reactive strategy that involves altering supply capacity to meet demand forecasted in a given period. This may be  achieved by hiring or firing employees, making adjustments in inventory or varying overtime working hours among others(Chen & Sarker, 2015).

3. Different ways to keep track of inventory in organizations

             Keeping track of inventory ensures an organization has adequate inventory to finish jobs on time and it helps in reducing the carrying costs of inventory as it affects the bottom line.  Organizations keep track of inventory through various methods. One of the methods is carrying out regular audits.  Physical inventory is usually one of the methods used in this and it involves counting every item of inventory physically periodically (Wako, 2018). 

Spot checking is another regular audit method and it involves   counting stock to verify whether it’s in line with inventory plan. Cycle counting to check whether different items are in a certain place at a given time is also used. The next method is forecasting inventory accurately (Wako, 2018).  The company utilizes historical data, trends in the environment, past ordering trends etc. to forecast demand which then informs inventory levels. In using this, computer based simulation models and processes in Excel are utilized.  Drop-shipping is the next way of keeping track of stock levels in an organization.  This method does not encourage holding inventory instead after a product is purchased from a third party vendor the organization then undertakes direct shipment to customers (Wako, 2018).

            The next modern method of tracking inventory is through use of electronic methods. One of the most commonly used is Radio-frequency identification (RFID). This uses electromagnetic fields to identify and track inventory tags automatically.  This technology allows constant reading and reporting of inventory usage patterns and levels in real time.  The system also tracks assets effectively in real time (ASAP systems, 2019)