Which of the following statements about aggregate planning is true?
A. An advantage of the counter seasonal product and service mixing option is that it matches seasonal fluctuations without hiring/training costs.
B. In aggregate planning, back orders are a means of manipulating supply while part-time workers are a way of manipulating product or service demand.
C. A pure chase strategy allows lower inventories when compared to a pure level scheduling.
D. A disadvantage of subcontracting is that it may require skills or equipment outside the firm’s areas of expertise.
E. The option of varying workforce size by hiring or layoffs is used where the size of the labor pool is small.
The Correct Answer Is:
- C. A pure chase strategy allows lower inventories when compared to a pure level scheduling
A pure chase strategy allows lower inventories when compared to a pure level scheduling. In contrast to maintaining a set inventory level, a pure chase strategy focuses on producing and delivering products only as they are needed. In other words, inventory levels fluctuate continuously depending on customer demand, rather than remaining constant. By storing and maintaining less excess inventory, this approach can result in lower overall inventory costs. The downside is that stockouts are more likely, and customer orders will take longer to fulfill.
Additionally, when production ramps up and down frequently to meet changing demand, a pure chase strategy can result in higher production costs. Because production lines are constantly being adjusted, this can cause inefficiency and increase costs. The production and delivery of orders will only occur as needed, which can also lead to longer lead times. As a result, customer orders can be delayed and customer satisfaction can be negatively affected.
A pure level-scheduling strategy, on the other hand, aims to maintain a constant level of inventory based on forecasting future demand. As a result, stockouts can be minimized and customer demand can always be met. Moreover, it allows for more predictable and consistent production schedules, resulting in reduced production costs and increased efficiency. As excess inventory is kept on hand, this approach can also lead to higher inventory costs.
There are advantages and disadvantages to both pure chase and pure level scheduling strategies. Business goals and priorities will determine the strategy to be used. A pure chase strategy may be preferred by companies with highly variable demand, while a pure level scheduling strategy may be preferred by companies with a more stable demand. To choose a strategy that aligns most effectively with the company’s short- and long-term goals, it’s necessary to consider both short- and long-term implications.