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In the service sector, which of the following aggregate planning strategies might direct your client to a competitor?
subcontracting
A firm practices a pure chase strategy. Production last quarter was 1000. Demand over the next four quarters is estimated to be 900, 700, 1000, and 1000. Hiring cost is $20 per unit, and layoff cost is $5 per unit. Over the next year, what will be the sum of hiring and layoff costs?
$7,500
What four things are needed to develop an aggregate plan?
(1) a logical overall unit for measuring sales and output; (2) a forecast of demand for a reasonable intermediate planning period in aggregate planning terms; (3) a method to determine the relevant costs; (4) a model that combines forecasts and costs so that scheduling decisions can be made for the planning period
To make revenue management work, the company needs to manage what three issues?
(1) multiple pricing structures; (2) forecasts of the use and duration of the use; and (3) changes in demand
Identify the five conditions that make revenue management of interest.
(1) service or product can be sold in advance of consumption; (2) fluctuating demand; (3) relatively fixed resource (capacity); (4) segmentable demand; and (5) low variable costs and high fixed costs
________ for developing aggregate plans work with a few variables at a time and are easy to understand and use.
Graphical techniques
What is the primary management challenge when implementing revenue management?
Identifying differences in customers' willingness to pay and pricing accordingly.
Which choice best describes level scheduling?
Inventory goes up or down to buffer the difference between demand and production.
________ is a capacity option that works especially well in the service sector where labor needs are relatively unskilled.
Using part-time workers
Frito-Lay uses aggregate planning to match capacity with demand because of the ________ associated with its specialized processes.
low variable cost and high fixed cost
A(n) ________ is the result of the disaggregation of an aggregate plan.
master production schedule
Which of the following is NOT an input to S&OP?
master production schedule
Which of the following is NOT an advantage of level scheduling?
matching production exactly with sales
The objective of aggregate planning is to meet forecast demand while ________ over the planning period.
minimizing cost
A hotel room that goes unrented, a dental appointment that no patient booked, and an airline seat that went unsold, are all examples of ________ in services.
perishable inventory
Aggregate planning for service firms that provide intangible output deals mainly with:
planning for human resource requirements and managing demand.
Which of the following aggregate planning options attempts to manipulate product or service demand?
price cuts
In level scheduling, what is kept uniform from month to month?
production/workforce levels
What is the effort to plan the coordination of demand forecasts with functional areas of the firm and its supply chain?
sales and operations planning
Which of the following would most likely fall under the scope of only an operations manager?
setting inventory levels
Under which of the following do planning tasks associated with job assignments, ordering, job scheduling, and dispatching typically fall?
short-range plans
Dependence on an external source of supply is found in which of the following aggregate planning strategies?
subcontracting
In aggregate planning, which one of the following is not a basic option for altering demand?
subcontracting
Because service firms do not inventory their output, a pure chase strategy is not appropriate.
FALSE
Identify (a) the demand options for aggregate planning; and (b) the capacity (supply) options for aggregate planning.
(a) Demand options are: influencing demand (through price, promotion, advertising, selling), back ordering during high-demand periods, and counterseasonal product and service mixing. (b) Capacity options are: changing inventory levels, varying workforce size by hiring or layoffs, varying production rates through overtime or idle time, subcontracting, and using part-time workers.
List, in order, the five steps of the graphical method of aggregate planning. Is it possible that these steps can be properly followed and the solution properly implemented without using a graph? Explain.
1. Determine the demand in each period. 2. Determine capacity for regular time, overtime, and subcontracting each period. 3. Find labor costs, hiring and layoff costs, and inventory holding costs. 4. Consider company policy that may apply to the workers or to stock levels. 5. Develop alternative plans and examine their total costs. The steps can be followed and the solution implemented with tables of values and without graphs.
What are successful techniques of controlling the cost of labor involved in service firms?
1. accurate scheduling of labor-hours to assure quick response to customer demand 2. an on-call labor resource that can be added or deleted to meet unexpected demand 3. flexibility of individual worker skills that permits reallocation of available labor 4. flexibility in rate of output or hours of work to meet changing demand
A manager is applying the transportation model of linear programming to solve an aggregate planning problem. Demand in period 1 is 100 units, and in period 2, demand is 150 units. The manager has 125 hours of regular employment available for $10/hour each period. In addition, 50 hours of overtime are available for $15/hour each period. If holding costs are $2 per unit each period, how many hours of regular employment should be used in period 1? (Assume demand must be met in both periods 1 and 2 for the lowest possible cost and that production is 1 unit per hour.)
125
What is the typical time horizon for aggregate planning?
3 to 18 months
Which of the following statements about aggregate planning is TRUE?
A pure chase strategy allows lower inventories when compared to a pure level scheduling.
Which of the following is consistent with a pure chase strategy?
A) vary production levels to meet demand requirements B) vary work force to meet demand requirements C) vary production levels and work force to meet demand requirements D) little or no use of inventory to meet demand requirements E) All of the above are consistent with a pure chase strategy.
________ is an approach to determine the quantity and timing of production for the intermediate
Aggregate planning
The objective of aggregate planning is usually to meet forecast demand while smoothing employment and driving down inventory levels over the planning period.
FALSE
Explain the fundamental difference between the "capacity options" and the "demand options" of aggregate planning strategies.
Capacity options do not try to change the demand but attempt to absorb the demand fluctuations; capacity options deal with supply, not demand. Demand options try to smooth the demand pattern, but do not impact supply or capacity.
The aggregate planning process usually includes dispatching of individual jobs.
FALSE
The level scheduling strategy allows lower inventories than the pure chase strategy.
FALSE
________ is the process of breaking the aggregate plan into greater detail.
Disaggregation
What is disaggregation?
Disaggregation is the process of breaking the aggregate plan into greater detail.
Advertising and promotion are methods of manipulating product or service supply in aggregate planning.
FALSE
One of the demand options of aggregate planning is to vary the workforce by hiring or layoffs.
FALSE
Plans for new product development generally fall within the scope of aggregate planning.
FALSE
________ maintains a constant output rate, or work force level, over the planning horizon.
Level scheduling
Which of the following statements regarding aggregate planning in services is FALSE?
Level scheduling is far more common than using a chase strategy.
Which of the following statements regarding aggregate planning is TRUE?
Mixed strategies in aggregate planning may utilize inventory, work force, and production rate changes over the planning horizon.
________ involves capacity decisions that determine the allocation of resources to maximize revenue or yield.
Revenue management (or Yield management)
What is a disadvantage common to the following two strategies: (1) varying inventory levels and (2) back ordering during periods of high demand?
Shortages or backorders may result in lost sales, i.e., customers may go elsewhere.
A hotel room that goes unrented and an airline seat that goes unsold are both examples of perishable inventory in services.
TRUE
Aggregate planning for fast food restaurants is very similar to aggregate planning in manufacturing, but with much smaller units of time.
TRUE
Aggregate planning in manufacturing ties organizational strategic goals to a production plan.
TRUE
Aggregate planning occurs over the medium or intermediate future of 3 to 18 months.
TRUE
Disaggregation is the process of breaking the aggregate plan into greater detail; one example of this detail is the master production schedule.
TRUE
Finding an ideal mixed strategy is complicated by the huge number of possible strategies.
TRUE
Graphical techniques are easy to understand and use, but are not well-suited for generating optimal strategies.
TRUE
In aggregate planning, the amount of overtime and the size of the work force are both adjustable elements of capacity.
TRUE
Mixed strategies in aggregate planning may utilize inventory, work force, and production rate changes over the planning horizon.
TRUE
One motive for using demand-influencing aggregate planning options is to create uses for excess capacity within an organization.
TRUE
One of the four things needed for aggregate planning is a logical overall unit for measuring sales and output.
TRUE
One question that operations managers must answer when generating an aggregate plan is whether prices or other factors should be changed to influence demand.
TRUE
Techniques for controlling the cost of labor in services include accurate scheduling of labor hours to assure quick response to customer demand, on-call labor for unexpected demand, flexibility of labor skills for reallocation of available labor, and flexibility in rate of output or hours of work to meet changing demand.
TRUE
The strategies of aggregate planning are broadly divided into demand options and capacity options.
TRUE
The transportation method of linear programming is an optimizing approach to aggregate planning.
TRUE
The use of part-time workers as an aggregate planning option may be less costly than using full-time workers, but it may also reduce quality levels.
TRUE
When developing an aggregate plan, one of the adjustable elements of capacity is the extent of subcontracting.
TRUE
Compare the chase strategy versus level scheduling.
The chase strategy sets production equal to forecasted demand, using varying workforce levels, overtime, idle time, part-time employees, or subcontracting. Its main advantage is low inventory levels. The level strategy maintains a constant output rate, production rate, or workforce level over the planning horizon. A stable workforce generally leads to better quality, less turnover and absenteeism, and more employee commitment to corporate goals.
What is the typical planning horizon for aggregate planning?
The typical planning horizon is intermediate—3 to 18 months ahead.
If a service firm were to attempt level scheduling for aggregate planning, should its level of output be at average demand, peak demand, or minimum demand?
This is a critical-thinking question for students. The answer depends on the ability of customers to reschedule or reserve service times, and upon the organization's view toward lost sales. Level = average if customers can reserve or reschedule. Level = maximum if the organization wishes to prevent lost sales.
What directly results from disaggregation of an aggregate plan?
a master production schedule
Which of the following is NOT one of the four things needed for aggregate planning?
a mathematical model that will minimize costs over the intermediate planning period
Which of the following is the term used for intermediate-range capacity planning with a time horizon of three to eighteen months?
aggregate planning
Revenue (or yield) management is best described as:
allocation of scarce resources to customers at prices that will maximize revenue.
Revenue management is MOST likely to be used in which one of the following situations?
an airline attempting to fill "perishable" seats at maximum revenue
Which of these is among the demand options of aggregate planning?
back-ordering during high-demand periods
Disaggregation:
breaks the aggregate plan into greater detail.
Which of the following characteristics makes revenue management UNATTRACTIVE to organizations that have perishable inventory?
capacity is easily changed
Which of the following aggregate planning strategies is a capacity option?
changing inventory levels
Which of the following aggregate planning strategies is a demand option?
changing price
The ________ strategy sets production equal to forecasted demand.
chase
Developing a mix of ________ products is a widely used demand smoothing technique.
counterseasonal
Which choice below best describes the counterseasonal product demand option?
developing a mix of products that smoothes out their demands
An aggregate plan satisfies forecast demand by potentially adjusting all EXCEPT which of the following?
facility capacity
Under which of the following do planning tasks associated with production planning and budgeting, as well as setting employment, inventory, and subcontracting levels, typically fall?
intermediate-range plans
A firm uses the pure chase strategy of aggregate planning. It produced 1000 units in the last period. Demand in the next period is estimated at 800, and demand over the next six periods (its aggregate planning horizon) is estimated to average 900 units. Which of the following tactics would be most representative of following a chase strategy?
lay off workers to match the 200-unit difference
A firm uses graphical techniques in its aggregate planning efforts. Over the next twelve months (its intermediate period), it estimates the sum of demands to be 105,000 units. The firm has 250 production days per year. In January, which has 22 production days, demand is estimated to be 11,000 units. A graph of demand versus level production will show that:
level production of 420 units per day is below the January requirement.
Which of the following is NOT one of the successful techniques for controlling the cost of labor in services?
little flexibility in worker hours to decrease the burden on management
Top executives tend to focus their attention on which type of forecasts?
long-range
To use revenue management strategies, a business should have which combination of costs?
low variable and high fixed
Which of the following aggregate planning options is NOT associated with manipulation of product or service demand?
subcontracting
"An optimal plan for minimizing the cost of allocating capacity to meet demand over several planning periods" best describes which of the following?
the transportation method
Which of the following aggregate planning methods does not work if hiring and layoffs are possible?
the transportation method
Among the mathematical approaches to aggregate planning, ________ is good at working with inventories, holding costs, overtime, and subcontracting, but not with hiring and layoffs.
the transportation method of linear programming
Aggregate planning would entail which of the following production aspects at BMW for a 12-month period?
total number of cars to produce
Which of the following actions is consistent with the use of level scheduling?
use inventory to meet demand requirements
Industries in which revenue management techniques are easiest to apply are those where:
use tends to be predictable, and pricing tends to be variable.
Which of these aggregate planning strategies is a capacity option?
using part-time workers
Which of the following is NOT consistent with level scheduling?
varying production levels and/or work force to meet demand requirements
Which of the following aggregate planning strategies is known to lower employee morale?
varying work force size by hiring or layoffs
