Chase Method of
Aggregate Planning
Kevin Craner
OPERMGT 345
Boise State University
Overview
• What is aggregate planning?
• What are the inputs to
aggregate planning?
• Strategies for meeting demand
• Principles of chase demand and
level production
• Advantages/Disadvantages
• Practical exercise
Aggregate Planning
• Aggregate planning is an
intermediate planning method
used to determine the
necessary resource capacity a
firm will need in order to meet
its expected demand.
Inputs to Aggregate
Planning
•
•
•
•
Determine demand for each period.
Determine capacities for each period.
Determine pertinent company policies.
Determine unit cost based on all relevant
sources.
• Develop alternative plans and calculate the
cost for each.
• Chose the best overall plan based on
company objectives and cost.
Capacity and Demand
• If capacity and demand are nearly
equal emphasis should be placed on
meeting demand as efficiently as
possible.
• If capacity is grater than demand the
firm might chose promotion and
advertising in order to increase
demand.
• If capacity is less than demand the
firm might consider subcontracting a
portion of the work load.
Goal of Aggregate
Planning
• To develop a realistic production
plan on an aggregate level that
will satisfy organizational goals
and customer demand needs at
the lowest total cost.
Available Strategies for
Meeting Demand
•
•
•
•
•
•
Chase demand
Level production
Subcontracting
Overtime/Undertime
Employing temporary workers
Backordering
Principles of the Chase
Method
• The chase method helps firms
match production and demand
by hiring and firing workers as
necessary to control output
Principles of a Level
Production Method
• The level method allows for a
constant rate of production and
uses inventory levels to absorb
fluctuations in demand.
Graph of Level vs.
Chase Strategy
Brainstorming Exercise
• Does your firm currently use
aggregate production planning?
– If so, which strategy for meeting
demand is being used and why?
– If not, should the firm be using
aggregate production planning and
which strategy should be used?
• What benefits could aggregate
production planning provide your
firm?
Chase Demand Strategy
• Cost of strategy – hiring and firing
workers
• This strategy would not be feasible
for industries which require highly
skilled labor or where competition
for labor is fierce.
• This strategy would be cost effective
during periods of high unemployment
or when low-skilled labor is
acceptable.
Level Production
Strategy
• Cost of strategy – holding items
in inventory.
• Tends to be the preferred
strategy of many organizations,
including labor unions.
Advantages of Chase
Strategy
• Reduced inventory costs.
• High levels of worker utilization.
Disadvantages of Chase
Method
• Cost of fluctuating workforce
levels.
• Potential damage to employee
morale.
Advantage of Level
Strategy
• Worker levels and production
output are stable.
Disadvantages of Level
Strategy
• High inventory costs.
• Increased labor costs.
Hershey’s use of Chase
Strategy
• Demand for chocolate is high
during the winter months.
Facilitated by the location of
Hershey’s manufacturing facility,
the company hires farmers from
the surrounding areas to aid in
meeting demand.
Hershey’s (cont.)
• When demand drops in the
spring and summer months the
farmers are let go and thus able
to return the their fields.
Chase vs. Level
• A rapidly growing television
manufacturer is looking at way to
reduce costs. They are currently
using a level production strategy and
wish to know if switching to a chase
strategy would be more cost
effective. Given the following data
compare the two methods to
determine which one has the lowest
cost.
Chase vs. Level (cont.)
Quarter
Demand Forecast
1
100,000
2
90,000
3
130,000
4
160,000
Hiring cost
= $300
Firing cost
= $500
Inventory carrying cost = $1.50 per unit per
quarter
Production per employee = 400 units per
quarter
Beginning workforce
= 300 workers
Summary
• Aggregate production planning is a
vital tool to aid firms in balancing
supply and demand.
• All possible strategies should be
considered initially and then
eliminated based on cost and
organizational policy.
• While pure strategies such as chase
demand and level production may
work for some firms, most tend to
use a mixed strategy.
Sources
Aggregate Planning:
http://www.uoguelph.ca/~dsparlin/aggregat.
htm.
Russell, Roberta S. and Bernard W. Taylor III.
Operations Management. New Jersey:
Prentice Hall, 2000.
Stevenson, William J. Production / Operations
Management.
Massachusetts: Irwin, 1993.