Which of these is among the demand options of aggregate planning?
Options:
A. Subcontracting B. back-ordering during high-demand periods C. changing inventory levels D. varying workforce size E. varying production rates through overtime or idle time |
The Correct Answer Is:
B. back-ordering during high-demand periods
The correct answer to this question is option B: “back-ordering during high-demand periods.” Aggregate planning is a strategic process used in manufacturing and production industries to balance capacity and demand.
It involves making decisions about production, workforce, inventory, and subcontracting to meet the fluctuating demand for products.
Let’s explore why option B is the correct choice and then discuss why the other options are not suitable for demand options in aggregate planning.
Correct Answer (Option B): Back-Ordering During High-Demand Periods:
Back-ordering is a demand option in aggregate planning that allows a company to accept customer orders during high-demand periods, even if the company’s current production capacity cannot meet the immediate demand.
This approach is often used when increasing production to match the surge in demand would be costly or inefficient. Instead, companies accept orders and promise to deliver the products at a later date when production capacity becomes available.
Here’s why back-ordering is a suitable demand option in aggregate planning:
- Customer Satisfaction: Back-ordering ensures that customers can still place orders, even during peak demand, which helps maintain customer satisfaction and loyalty.
- Optimized Production: It allows companies to maintain a consistent, efficient production schedule without abrupt increases in capacity. This helps in resource optimization.
- Lower Inventory Costs: Since companies are not producing more than their capacity allows, back-ordering can help reduce excessive inventory costs during low-demand periods.
- Cost Efficiency: It is often more cost-effective than abruptly ramping up production and hiring additional staff, as it prevents costly overproduction during seasonal demand spikes.
Now, let’s discuss why the other options are not suitable as demand options in aggregate planning:
A. Subcontracting:
While subcontracting is a strategy used in aggregate planning, it is not a demand option but rather a capacity management option.
Subcontracting involves outsourcing part of the production process to external suppliers to meet demand fluctuations. It is not directly related to handling customer orders during high-demand periods.
C. Changing Inventory Levels:
This is an inventory management strategy rather than a demand option. Adjusting inventory levels is more about managing available stock. Rather than directly addressing how to meet customer demand during high-demand periods.
Changing inventory levels is a critical component of aggregate planning as it involves strategically adjusting stock levels to align with anticipated demand, ensuring optimal resource utilization and minimizing holding costs.
D. Varying Workforce Size:
This is a capacity management option rather than a demand option. Adjusting workforce size typically involves hiring or laying off employees to match production capacity with demand.
It doesn’t address how to handle customer orders during high-demand periods.
E. Varying Production Rates Through Overtime or Idle Time:
Again, this is a capacity management strategy, not a demand option. It involves adjusting production rates to match capacity and demand more efficiently but doesn’t directly deal with how to address customer orders during high-demand periods.
In summary, back-ordering during high-demand periods is a demand option in aggregate planning because it allows companies to manage customer orders during periods of increased demand while efficiently utilizing their existing production capacity.
The other options listed are related to capacity and inventory management rather than direct strategies for handling demand fluctuations.
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