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smu mba assignment help of MK0010 1. Define Aggregate Planning and its strategies to meet demand and supply

Answer: Aggregate Planning consists of drawing up a strategy to meet demand. To make it feasible, a production swing with foreseen demand for planning horizons between six and twelve months is compiled. This balancing can be undertaken by acting on the productive resources capable of influencing and changing production capacity in the short and very short term. It seeks to combine these productive resources in a way to meet the demand and
simultaneously reach the minimum cost possible.

Steps taken to produce an aggregate plan begin with the determination of demand and the determination of current capacity. Capacity is expressed as total number of units per time period that can be produced (this requires that an average number of units be computed since the total may include a product mix utilizing distinctly different production times). Demand is expressed as total number of units needed. If the two are not in balance (equal), the firm must decide whether to increase or decrease capacity to meet demand or increase or decrease demand to meet capacity. In order to accomplish this, a number of options are available.

Options for situations in which demand needs to be increased in order to match capacity include:

Pricing: Varying pricing to increase demand in periods when demand is less than peak. For example, matinee prices for movie theaters, off-season rates for hotels, weekend rates for telephone service, and pricing for items that experience seasonal demand.

Promotion: Advertising, direct marketing, and other forms of promotion are used to shift demand.

Back ordering: By postponing delivery on current orders demand is shifted to period when capacity is not fully utilized. This is really just a form of smoothing demand. Service industries are able to smooth demand by taking reservations or by making appointments in an attempt to avoid walk-in customers. Some refer to this as "partitioning" demand.


New demand creation: A new, but complementary demand is created for a product or service. When restaurant customers have to wait, they are frequently diverted into a complementary (but not complimentary) service, the bar. Other examples include the addition of video arcades within movie theaters, and the expansion of services at convenience stores.

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