Aggregate Planning Homework: Cost Analysis and Recommendations

This assignment solution focuses on aggregate planning, specifically using the chase strategy to determine optimal production costs. The document outlines the core concepts of aggregate planning, including the goal of balancing capacity and demand to minimize costs. A detailed calculation is presented, demonstrating the application of the chase strategy, which involves matching production capacity to demand fluctuations through workforce adjustments. The solution includes a breakdown of costs such as backlog, wages, layoffs, hiring, and holding costs, providing a comprehensive analysis. The assignment concludes with a recommendation to minimize layoffs to reduce the total production cost, offering practical insights for business decision-making and cost optimization in operations management.

Running head: AGGREGATE PLANNING 1
Aggregate planning
Name
Institution affiliation

AGGREGATE PLANNING 2
Some strategies could be used in aggregate planning. The methods include chase, level and
mixed strategies. An aggregate plan usually contains the targets on the sales, production, the
levels of inventory, and the total customer backlogs. The planning aims at minimizing the cost
on the overall demand forecasted. A successful aggregate plan reduces the effects of being
shortsighted in business, have day-day schedules, ordering small amounts of materials, laying off
of workers and rehiring other workers. With all these effects avoided, cost savings can be noted
(Mirzapour, Baboli, and Sazvar, 2013). In other words, aggregate planning tends to balance off
the capacity and the demand by minimizing cost.
The following calculation is done using the chase strategy of aggregate planning. The plan aims
at matching the total demand with the capacity per period. This results in the hiring of new
employees and laying off other employees who may be unhappy or insecure or even
underperforming. The significant merit in using this strategy is that its flexible, it allows for
inventory to be held at minimum levels. To many firms, they consider this as savings (Ning, Liu,
and Yan, 2013). Other firms tend to use the just-in-time concept and use chase strategy as their
method of aggregate planning.
The following shows the calculation using the chase strategy
The following columns are created to calculate the total production cost
 Month
 Demand, expressed in units
 The number of working days, this is the total number of days per month, we assume that
the employees don’t get an off day

AGGREGATE PLANNING 3
 The total employees per month, this is calculated from the overall demand forecast,
divided by aggregate demand forecast and the number of days
 The backlog cost is the total backlog cost per month, multiplied by aggregate demand
forecast per worker per day, multiply by the number of days and the number of
employees.
 Total wages paid, multiply the pay per hour by the number of hours worked and days and
the total number of employees.
 Lay of cost, the number of laid-off employees multiply by the cost of lay off
 Hiring cost, number of hired employees multiplied by the total cost of hiring
 Holding cost, the holding cost per gar multiplied by the aggregate demand forecast,
multiply by the number of days per month and the number of employees
 The total production cost is the addition of column 5,6,7 and 8
month
deman
d
day
s
employee
s
backlog
cost wages
lay-off
cost
hiring
cost
holding
cost
$ production
cost
January 2760 31 35 65100
13020
0 0 0 21700 217000
February 3320 28 30 50400
10080
0 3000 0 16800 171000
march 3970 31 33 61380
11880
0 0 1350 20460 201990
April 3540 30 30 54000
10800
0 1800 0 18000 181800

AGGREGATE PLANNING 4
may 3180 31 29 53940
10788
0 600 0 17980 180400
June 2900 30 26 46800 93600 1800 0 15600 157800
Total 1109990
Recommendations
Using the chase strategy is best in this case because we are provided with all the information
relevant for this strategy. In coming up with the total production cost, all the expenses incurred
must be calculated and the aggregate planning is done according to the forecast demand. I would
recommend the firm to reduce the number of lays off to minimize the total production cost.

AGGREGATE PLANNING 5
References
Mirzapour Al-e-Hashem, S. M. J., Baboli, A., & Sazvar, Z. (2013). A stochastic aggregate
production planning model in a green supply chain: Considering flexible lead times,
nonlinear purchase and shortage cost functions. European Journal of Operational
Research, 230(1), 26-41.
Ning, Y., Liu, J., & Yan, L. (2013). Uncertain aggregate production planning. Soft
Computing, 17(4), 617-624.