Operations Concept: Aggregate planning
Planning means the ability to set performance goals and expectations for individuals and groups to direct their efforts in achieving the organization’s objectives (David, 2010). Planning also deals with the standards that are applied in order to determine the outcomes from the set objectives and goals. Employees should be included in planning; this is to enable them gain knowledge on what duties they must undertake. It is also necessary to make the employees aware of the right procedure expected in carrying out their responsibilities. This will ensure that they can then be accountable against the output they deliver (Simchi-Levi, 2010).
Planning is relevant as it enables the organization take up opportunities at the same time anticipate emergencies and deal with them appropriately. Planning is essential in all departments of an entity. Staffing recommendations require planning as one has to set qualifications which are to be assessed against employees.
Policy documents are to be planned to draw out the goals that are to be achieved both in the short and long term. The organization has to have policies in place to deal with the various issues affecting the organization. Resources are particularly critical in a business and hence why budgets are drawn to organize and meet the daily operations (David, 2010). This is necessary as resources have to be allocated to the right areas at the appropriate time.
Advice and guidance help the organization to improve its activities; plans have to be applied to enable the organization meet up with the changing environment. The dynamic business world needs daily assessment. This ensures that the business is able to keep up to date with changing environments. The change is classified as either intangible or tangible.
Changes in values, attitudes and cultures are referred to as intangible whereas tangible changes include government regulations, technology and market forces. So as to handle the various requirements, plans need to be made and implemented. Planning does not make the environment stop changing; however, it helps the business realize success amidst the change.
Planning is also vital since it precedes all other management functions. Managerial operations are meant to support objectives of the business. Controlling, staffing, organizing and directing are enhanced by planning. It allows for all the functions to be in sync. The functions done are offset by the process of planning.
Plans aid businesses to focus on objectives which providing means through which the goals should be achieved. This is necessary because lack of precise definition of job expectations and clarity lead to unproductive work. All functions in management maintain coordination in an organization; the beginning of coordination is planning. It is essential to create harmony and interdependence between the departments as each focuses on a similar set of strategies.
Accomplishments need to be measured against plans; deviations and corrections can be made to ensure the enterprise lies within its set goals. Performance must, therefore, be monitored according to the set plans. This is to be able to take appropriate and immediate action if something is not working as expected. Effectiveness in an organization is backed by planning.
With the right plans, an organization can meet the objectives with resources allocated. They must also yield maximum results to the enterprise.
One has to understand knowledge areas such as planning practices and processes of change in the environment. Planning activities such as administrative and legal arrangements must be known; the consequences and impacts of planning to each party involved should also be measured. Institutional and political frameworks should be clearly learnt.
Methods of making policies, processes and techniques in different scales must be addressed. Sustainability, development and conservation are areas which must be understood. One should be aware of the design in the environment and the cultural and legal settings in international institutions are to be planned effectively. In a changing environment, knowledge should be sourced in ecological, environmental and physical change (David, 2010).
Spatial outcomes in the changing processes of socio-economic nature should be known. Development processes regarding property and land markets occurring in the present time must also be known. Interaction processes in natural and built environments should be identified.
When a business that specializes in production of bottles wants to diversify to new markets, it needs to carry out research to break through the market and realize maximum sales. Planning has to be done in advertising and customer preferences. Forecasting on expectations and how to meet the sales target must be done. A budget should be drawn on resources required in expansion of the business.
The management must employ the right task force to market the products to capture the market in place effectively. Expansion will only be realistic if the products are accepted and sales realized. The right selling techniques must be employed, and this will only be achievable when plans made are in sync with the objectives. They must be assertive, clear and yielding results as appropriate plans will help the management meet the demand of the new market and diversify successfully.
Assumptions of EOQ model
In the EOQ model, demand is assumed to be constant; knowledge about demand through time is assumed to be certain while the order quantity is assumed to be fixed (Schroeder, 2008). Shortages are not allowed. Lead time is assumed to be constant for the order receipts and also that receiving of the order quantity is done once; there are no periodic times when the order is taken. Once a certain quantity order is made that same amount should be delivered.
The ordering cost is usually assumed to be per each order. Carrying cost per day is assumed to be for each unit of inventory. Lead time is assumed to stand at zero. Inventory level must start at zero. The planning horizon is assumed to be infinite.
With the above assumptions, the model is often taken to be unrealistic to a certain level. Demand can never be fixed to one level. This is because the business world is dynamic and experiences change at all times. Competition from other players shifts the demand of products from one level to another.
The firm also experiences growth depending on the products they manufacture and the level they are at in the industry. New products have low demand until the point they are well known in the markets. The products, which are mature, could be demanded more and decline in demand as new entrants emerge; also, the monopolies are exclusive, and they set their own demand and prices.
This goes to prove that making an assumption of constant demand over time is not logical to the situation at hand. Ordering cost is particularly challenging to determine as prices are affected by so many factors and resources are scarce. Order prices will have an impact on the selling price and thus overall sales. It is, therefore, a highly sensitive matter. It is also necessary to compare prices of other substitutes with those of the products so as to maintain the market share and capture even more customers.
Carrying cost per every unit of stock is exceedingly variable in this theory; the variances are wide thus increasing the margin of error. The results obtained will not give a true picture of the organization’s inventory. Lead time is random and positive as opposed to the assumption of being zero. The model parameters can thus not be estimated in accuracy. The inventory must be constantly reviewed so as to order at the reorder point. This presents a strenuous task of constantly taking in stock levels.
When the demand and lead time are constant, the reorder point is known with certainty. Reorder point will be calculated by multiplying lead time with demand. When lead time or demand varies, there will be a variance in the average stock that is required to meet demand during the period of lead times. This will enable demand to be at a level of certainty in the period of lead times. The cost of holding out must be balanced against the extra inventory holding cost. When safety stock is held, it has to be added to the average inventory. In the EOQ model, when there is uncertain demand, supplements must be made through holding safety stock (Stevenson, 2008).
Safety stock is held to help in avoiding stock outs during lead time before a new order is received. In a company which is relatively new, safety stock is kept while the company draws up the trend of its demand in the market. It can be used as a form of insurance until the business has formed a reasonable trend on how the demand shifts over time.
Safety stock should not be too much to avoid holding costs which are high. Also, storage of products for a long time span will make them prone to breakage, spillage and spoilage. Too little will lead to losing sales and thus a balance must be reached between the two.
The EOQ model is no longer being used today in many organizations; the models have been discarded to incorporate other models. These alternate models provide for frequent replenishing of stock, while reducing the time in which the clients have to wait before getting products (Render & Heizer, 2010). The model is used in various organizations where demand is relatively, but still, adjustments are made to deal away with the unrealistic assumptions.
The leveling technique is customer oriented and currently being used today. It is independent to working and leveling systems and hence can complement any system for the different functions applied. The alternative approaches were provided because currently, the suppliers offer credit to clients and thus the time before they pay and interest accrued must be incorporated.
Shortage must be allowed. Inflation must be considered together with deterioration. Models like just in time allow for reduction in physical space. It is, however, argued that EOQ model is still cost efficient to use. In this regard, the firm has to apply the model best suited to its demand trends and resources available.
Capacity planning includes those strategies that are employed to determine the demand of services and goods in any organization (Allspaw, 2008). Searching for new oil fields involves being able to find the right locations for extraction of oil. Capacity planning involves knowledge of the demand in place versus the expectations needed in the industry. In looking for oil fields, the company should ensure it has done research. It has to determine the number of oil fields, which are needed, to expand into new markets. The theory entails that the company must plan to meet the expected results against actual plans.
In searching for the oil fields, the company should take into account the interim and long term changes in demand. This will be able to help the company adjust to the future demand according to the data from the forecasts made (May, 2011). The company has to employ resources and use machines to facilitate the process when drilling for oil. The plans made are geared towards minimizing cost and maximizing on profits. It also has to plan on labor employment for desired level of production.
Drilling is an activity that will ultimately enable the company reach where the oil fields are. The drilling must be planned well to the respective locations. It has to be strategic on the areas which should be drilled first according to the goals of the company and demand in different places.
Extending an existing oil refinery or building a new one involves daily operations of a company. The company must analyze if it would be economically viable to start a new plant or expand an existing one. This will be in accordance to the new fields set up and the demand for oil in the market. Capacity planning entails that the company balances between the expansion processes in accordance to changing demand. Overestimation and underestimation must be avoided.
The new sites must be located in the proxy to other sites discovered to increase effectiveness and efficiency of the company (Barry, 2009). The new sites must be allocated enough resources. This will help them set up effectively in the new areas they have been set up. The management must ensure that it has set in place the right plans. It should ensure that the new sites are established and that they can run successfully.
Managing an oil refinery entails making sure that the different departments coordinate together. There must be financial management, operations and production management. The resources employed should be used in the departments. This will allow for running the refinery efficiently. Employees must be paid well and also motivated for maximum output. They must be given performance contracts, which will help them understand what is expected of them.
Meetings must be planned to review if there are any issues affecting management that should be dealt with. Management must communicate well in the event of any changes made and people should be willing to tackle the issues challenging them to the officials involved. They should organize all functions to be able to achieve the necessary objectives.
Delivering fuel grades to petrol stations must be timely. The demand must be met as it occurs, and customers should not complain of any shortages or delays. The company needs to know the requirements of different stations so as to effectively meet customer demands. The time they place orders must be taken into account. The company should be able to coordinate the rest of the activities and produce the desired level of oil to deliver to the petrol stations.
Delivery of the oil according to the demand needed will enable the company create loyalty from its customers. They will trust the suppliers and have no doubts when dealing with them. The company should also realize the provision of quality services will increase its market share and also the positive things customers discuss about it. It is crucial for the company to deliver high standard services and products to all its customers.
The company must also ensure it differentiates the different grades ordered. It should not confuse the products to be delivered to different stations. This can cause adverse effects and a lot of losses to the company. To avoid this, then careful attention must be paid to each order. Also, counterchecking must be done by different employees before delivery.
Managing the sale of nonfuel goods in a petrol station could be a chance for the company to further increase the sales revenue. Activities involved are ensuring the stock of fast moving goods is always available. The goods that are not easily sold must be maintained at low levels. This will ensure stock does not expire while at the shop. Advertising is essential to make customers aware of the products offered. The prices must be affordable to meet the competition and be able to acquire an edge beyond the other market players.
Capacity planning will ensure that there are no shortages experienced in the shop. All expenses will be met, and the shop will be able to have many sales. The shop can also put products on offer to encourage customers to sample them before they plan to buy them. With the right strategies employed, the shop will experience high sales and customer loyalty.
References
Allspaw, J. (2008). The Art of Capacity Planning. California: O’Reilly Media
Simchi-Levi, D. (2010). Operations Rules: Delivering Customer Value through Flexible Operations. Massachusetts: The MIT Press
Schroeder, R. (2008). Operations Management. New York: McGraw-Hill
Barry, R. (2009). The Management of International Oil Operations. Oklahoma: Pennwell Corp.
May, M. (2011). Investing in Oil and Gas. New York: Investors Press
Stevenson, W. (2008). Operations Management. New York: Irwin
Render, B. & Heizer, J. (2010). Operations Management. New York: Prentice Hall
David, F. (2010). Strategic Management: Concepts. New York: Prentice Hall
