4. Differentiate between a level production strategy and a chase demand strategy.

ANS: A level production strategy plans for the same production rate in each time period. A level
strategy avoids changes in the production rate working within normal capacity restrictions. Labor and
equipment schedules are stable and repetitive making it easier to execute the plan.

A chase demand strategy sets the production rate equal to the demand in each time period. While
inventories will be reduced and lost sales eliminated, many production rate changes will dramatically
change resource levels, i.e., the number of employees, machines, etc.

Define Material Requirements Planning (MRP) and how it can benefit an organization.

ANS: Material Requirements Planning (MRP) is a forward-looking, demand-based approach for planning
the production of manufactured goods and ordering materials and components to minimize
unnecessary inventories and reduce costs. MRP projects the requirements for the individual parts or
subassemblies based on the demand for the finished goods as specified by the MPS. The primary output
of an MRP system is a time-phased report that gives

1. Purchasing department a schedule for obtaining raw materials and purchased parts.

2. Production managers a detailed schedule for manufacturing the product and controlling
manufacturing inventories

3. Accounting and financial functions production information that drives cash flow, budgets and financial
needs.

MRP depends on understanding three basic concepts – (1) the concept of dependent demand, (2) the
concept of time-phasing, and (3) lot sizing to gain economies of scale.
What is chase demand strategy?

If demand for a company's products or services are stable over time or its resources are
unlimited, then aggregate planning is trivial. ... Producing at a constant rate and using inventory
to absorb fluctuations in demand (level production) Hiring and firing workers to match demand
(chase demand)

Chase Strategy

The chase strategy refers to the notion that you are chasing the demand set by the market.
Production is set to match demand and doesn't carry any leftover products. This is a lean
production strategy, saving on costs until the demand – the order – is placed. Inventory costs are
low, and the cost of goods for products sold is kept to a minimum and for a shorter length of
time. This is common in industries where perishables are an issue or with a company that doesn't
have a lot of extra cash on hand and doesn't want the added risks of loss, theft or unsold
products. The production schedule is based on orders and immediate demand.

Level Production

As the title suggests, level production is a strategy that produces the same number of units
equally. This is common in industries where demand is cyclical and production capabilities are
limited or capped. For example, assume a manufacturing plant can only produce 10,000
calculators per month. The demand for calculators changes based on consumer cycles that peak
during the start of the school year and tax season. If the demand in peak seasons is 20,000 per
month, the plant could not meet the demand. By consistently producing 8,000 per month, the
manufacturer keeps new inventory flowing during nonpeak seasons but is still prepared for peak
seasons.

LEVEL STRATEGY.

A level strategy seeks to produce an aggregate plan that maintains a steady production rate
and/or a steady employment level. In order to satisfy changes in customer demand, the firm must
raise or lower inventory levels in anticipation of increased or decreased levels of forecast
demand. The firm maintains a level workforce and a steady rate of output when demand is
somewhat low. This allows the firm to establish higher inventory levels than are currently
needed. As demand increases, the firm is able to continue a steady production rate/steady
employment level, while allowing the inventory surplus to absorb the increased demand.

A second alternative would be to use a backlog or backorder. A backorder is simply a promise to

deliver the product at a later date when it is more readily available, usually when capacity begins
to catch up with diminishing demand. In essence, the backorder is a device for moving demand
from one period to another, preferably one in which demand is lower, thereby smoothing demand
requirements over time.

A level strategy allows a firm to maintain a constant level of output and still meet demand. This
is desirable from an employee relations standpoint. Negative results of the level strategy would
include the cost of excess inventory, subcontracting or overtime costs, and backorder costs,
which typically are the cost of expediting orders and the loss of customer goodwill.

CHASE STRATEGY.

A chase strategy implies matching demand and capacity period by period. This could result in a
considerable amount of hiring, firing or laying off of employees; insecure and unhappy
employees; increased inventory carrying costs; problems with labor unions; and erratic
utilization of plant and equipment. It also implies a great deal of flexibility on the firm's part. The
major advantage of a chase strategy is that it allows inventory to be held to the lowest level
possible, and for some firms this is a considerable savings. Most firms embracing the just-in-time
production concept utilize a chase strategy approach to aggregate planning.

Most firms find it advantageous to utilize a combination of the level and chase strategy. A
combination strategy (sometimes called a hybrid or mixed strategy) can be found to better meet
organizational goals and policies and achieve lower costs than either of the pure strategies used
independently.

Read more: https://www.referenceforbusiness.com/management/A-Bud/Aggregate-

Planning.html#ixzz5ZQr1hXtS

https://www.referenceforbusiness.com/management/A-Bud/Aggregate-Planning.html
Strategies for Meeting Demand

If demand for a company's products or services are stable over time or its resources are
unlimited, then aggregate planning is trivial. Demand forecasts are converted to resource
requirements, the resources necessary to meet demand are acquired and maintained over the time
horizon of the plan, and minor variations in demand are handled with overtime or undertime.
Aggregate production planning becomes a challenge when demand fluctuates over the planning
horizon. For example, seasonal demand patterns can be met by:

1. Producing at a constant rate and using inventory to absorb fluctuations in demand (level
production)
2. Hiring and firing workers to match demand (chase demand)
3. Maintaining resources for high-demand levels
4. Increasing or decreasing working hours (overtime and undertime)
5. Subcontracting work to other firms
6. Using part-time workers
7. Providing the service or product at a later time period (backordering)

When one of these is selected, a company is said to have a pure strategy for meeting demand.
When two or more are selected, a company has a mixed strategy.

The level production strategy, shown in Figure 11.4(a), sets production at a fixed rate (usually
to meet average demand) and uses inventory to absorb variations in demand. During periods of
low demand, overproduction is stored as inventory, to be depleted in periods of high demand.
The cost of this strategy is the cost of holding inventory, including the cost of obsolete or
perishable items that may have to be discarded.

The chase demand strategy, shown in Figure 11.4(b), matches the production plan to the
demand pattern and absorbs variations in demand by hiring and firing workers. During periods of
low demand, production is cut back and workers are laid off. During periods of high demand,
production is increased and additional workers are hired. The cost of this strategy is the cost of
hiring and firing workers. This approach would not work for industries in which worker skills are
scarce or competition for labor is intense, but it can be quite cost-effective during periods of high
unemployment or for industries with low-skilled workers.

http://www.prenhall.com/divisions/bp/app/russellcd/PROTECT/CHAPTERS/CHAP11/HEAD03
.HTM