Discuss key issues to be considered when implementing aggregate planning

Question

What will be an ideal response?

Answer 1

Answer:
1. Think beyond the enterprise to the entire supply chain. Most aggregate planning done today takes only the enterprise as its breadth of scope. However, there are many factors outside the enterprise throughout the supply chain that can dramatically impact the optimal aggregate plan. Therefore, avoid the trap of only thinking about your enterprise when aggregate planning. Work with partners downstream to produce forecasts, with upstream partners to determine constraints, and with any other supply chain entities that can improve the quality of the inputs into the aggregate plan. As the plan is only as good as the quality of the inputs, using the supply chain to increase the quality of the inputs will greatly improve the quality of the aggregate plan. Also make sure to communicate the aggregate plan to all supply chain partners who will be affected by it.
2. Make plans flexible because forecasts are always wrong. Aggregate plans are based on forecasts of future demand. Given that these forecasts are always wrong to some degree, the aggregate plan needs to have some flexibility built into it if it is to be useful. By building flexibility into the plan, when future demand changes, or other changes occur, such as increases in costs, the plan can appropriately adjust to handle the new situation. A manager should perform sensitivity analysis on the inputs into an aggregate plan. Using sensitivity analysis on the inputs into the aggregate plan will enable the planner to choose the best solution for the range of possibilities that could occur.
3. Rerun the aggregate plan as new data emerges. Aggregate plans provide a map for the next three to eighteen months. This does not mean that a firm should only run aggregate plans once every three to eighteen months. As inputs into the aggregate plan change, managers should use the latest values of these inputs and rerun the aggregate plan. By using the latest inputs, the plan will avoid suboptimization based on old data and will produce a better solution. For instance, as new demand forecasts become available, aggregate plans should be reevaluated.
4. Use aggregate planning as capacity utilization increases. Surprisingly, many companies do not create aggregate plans and instead rely solely on orders from their distributors or warehouses to determine their production schedules. These orders are driven either by actual demand or through inventory management algorithms. If a company has no trouble efficiently meeting demand this way, then one could claim the lack of aggregate planning may not significantly harm the company. However, when utilization becomes high and capacity is an issue, relying on orders to set the production schedule can lead to capacity problems. When utilization is high, the likelihood of producing for all the orders as they arrive is very low. Planning needs to be done to best utilize the capacity to meet the forecasted demand. Therefore, as capacity utilization increases, it becomes more important to perform aggregate planning.