The process of ascertaining the company’s overall volume and ability to perform in terms of its entire resources is called aggregate capacity.
It is very important for an organization to understand the capacity of its resources. This will help the business to know its production capacity which will further lead to proper sales forecasting and prompt supply of products to the customers. This will also ensure to maintain the right amount of balance between the demand and supply without stressing out the resources.
The resources can vary from company to company but aggregate capacity takes into account both manual and machinery resources and does not really differentiate between the two.
To quote an instance, if the company is into the production of bikes, the aggregate capacity will consider only the end product numbers. It will not take into account the complexity of each bike, the variations, and the specialties. It looks from a macroscopic view.
Steps involved in aggregate capacity management
- Understanding the aggregate demand and supply for a specific period of time
- Preparation of suitable plans and contingency plans for situations where the demand levels might fluctuate.
- Finalising on an appropriate plan.
How to manage demand fluctuations through aggregate capacity management?
Generally, the business will have pure strategies ready to meet such unexpected situations. However, a combination is also used based on the needs.
- Altering the size of the workforce: this involves getting more people to work or laying off people when there is an excess of the resource.
- Altering the usage of the human resources: utilizing the existing workforce by providing overtime, incentives and such schemes.
- Changing the size of inventory: depending on how much the production can be leveraged the inventory is ordered.
- Outsourcing, sub-contracting, varying the plant capacity: passing on the work and meeting the production requirements.
Get more definitions about Aggregate capacity and other ERP related terms here.