Aggregate Planning

Aggregate planning is a way to figure out the quantity and timing of production for the intermediate-range which is usually between 3 to 18 months.  In a manufacturing firm this involves operations managers properly figuring out a way to meet forecasted demand by adjusting production rates, labor levels, overtime work, subcontracting rates and other controllable variables. In the service sector demand management has a more prominent role and is necessary for service firms because of the variability on a wide range of services. Through capacity and demand options a important goal of aggregate planning is trying to meet certain forecast while minimizing cost over the Intermediate-range. Both service and manufacturing firms can use a number of different ways to create their aggregate planning approach but service firms usually use a combination of the eight capacity and demand options.  Because of the different nature of the manufacturing and service firms there are also a lot of differences in aggregate planning.

In manufacturing firms, the people in charge of production and the operations managers are normally more concerned with the capacity options that are available to them whereas in service firms they usually use a combination of both capacity options and demand options. Manufacturing firms have to ho have physical materials, facilities, employees and equipment ready at the right time manufacture an item in order to meet forecasted demand. This is one of the key differences between manufacturing and services firms because manufacturing planning has the addition of physical process which has fixed various fixed components in order to meet a particular forecast. In the case of a service firm is typically different because of the fact that capacity and demand for services is usually difficult to predict so the key focus on planning decisions surround processing times and things where the primary input to most services process is labor. Since there are a wide range of services and it is more difficult to predict demand in the service sector, they typically need to have the capacity to be a bit more flexible with their workforce in order to satisfy more customer demand.  Aggregate planning in services and in manufacturing also differs because of the nature of each of the products. If you were manufacturing cars or potato chips like the example mentioned about Frito Lay you typically have fixed process, the buildup of inventories but also more accurate forecasting when demand will exceed capacity so you typically have the ability to make accurate forecast or make seasonal adjustments based on your forecast. This is not the case in a service firm because most services are perishable and cannot be inventoried so you this makes it harder to produce the service earlier in anticipation for higher demand which is very difficult to predict in a service firm. Services also tend to be more customizable as opposed to manufactured goods and can be offered in many different way shapes or forms when compared to a manufacturing firm which makes it a little bit more difficult for a service firm to allocate capacity. One other difference is that services cannot be transported so this means service capacity must be readily available especially in the workface in a service firm. One final difference between the two is that service capacity is typically changed by fluctuations in labor rather than fixed components like space, and labor.