Question

A manufacturer supplies fresh milk to high-priced hotels. Advise the manufacturer on a suitable Aggregate Planning Strategy. Justify your answer.

Answer 1

Answer-As a manufacturer of fresh milk to high-priced hotels, the manufacturer at first needs to have clear understanding of the types of aggregate strategies and then decide a suitable type for fresh milk supply.

As we know, Aggregate planning is an operational activity critical to the organization as it looks to balance long-term strategic planning with short term production success.

There are two basic types of aggregate planning strategies-level strategy, and chase strategy. The third strategy, called the 'hybrid strategy',is utilizing the best of both strategies. Let us understand clearly all these three strategies.

Level strategy

This is also known as a production-smoothing plan or a stable plan.It focuses on maintaining consistent production and human resources in a company. The expected demand rate is achieved by varying the associated factors such as finance and human resources.Though this strategy helps in maintaining human resources, it also leads to stocking inventory. There are also chances of not meeting the expected targets, which might result in backlogs costing a lot more to the firm.

The level strategy is best suited to situations where inventory carrying costs are not high.

Chase strategy

It is also known as a just-in-time production plan.Just in time (JIT) is a manufacturing methodology designed to decrease wastage by receiving goods only as they are needed. JIT process was developed in Japan to make the best use of limited resources.It focuses on matching the anticipated demand with rigorous production. Though this strategy aims to meet the demand, it usually results in stressed employees, which increases attrition.

This strategy is best suited to situations where the cost of changing the production rate is relatively not high.

Hybrid strategy

The hybrid strategy focuses on blending both level and chase strategies for better and more fruitful results. The hybrid strategy in aggregate production planning keeps the balance between production rate, hiring/firing, and stock level.

The best suitable strategy for the milk manufacturer would be a hybrid strategy where he/she must to utilize the production alternatives available with him/her optimally. That satisfies the demand, with the overall objective of minimizing the total production cost. It has the following benefits-

1. Simultaneously achieve differentiation and low price relative to competitors.
2. Ability to deliver enhanced benefits.
3. Achieve sufficient margins for reinvestment.
4. Much greater volum so that margins may still be better because of a low-cost base, (much as Tesco is achieving given its market share in the UK.)
5. Expand the market base with a superior product at a lower price to establish a foothold from which it can move further.

An appropriate aggregate planning strategy helps in achieving the same.