Managers Policies for dealing with load leveling

In addition to aggregate planning, managers use a number of policies to cope with the problems that result from seasonality; among them are the adoption of counter-seasonal products, influencing demand, some interesting organizational adaptations, and legal coordination with other organizations.

Counter-seasonal Products:

One of the most common managerial strategies for obtaining good utilization of facilities and work force and stabilizing employment is to acquire counter-seasonal products and integrate them into the system. The strategy here is to find product lines that use existing production technology but have a demand pattern that complements that of the existing lines. The classic example is lawn mowers and snow blowers.

A figure is drawn to show a situation where the original plant load built up to a peak during the summer, resulting in large hiring and layoffs costs and high investment in physical capacity for the peak. By adding the proposed product line, the total plant load would be much more level throughout the year. The costs of labor fluctuations are eliminated, the basis for improved labor relations is established, and both labor and facilities utilization are improved. The new peak physical capacity requires only a 50 percent increase over the old, assuming that temporary measures such as overtime can be used for the late summer mini-peak. But, physical production should be approximately double. Assuming the same revenue per unit of load, total revenue would double in addition to the other advantages.

Obviously, the decision to adopt a new product line is one that is made at high levels in any organization. The decision involves all the major functional units, but its impact on the production function is very important indeed. Vergin (1966), in his analysis of eight manufacturing organizations, found that the counter-seasonal product was the dominant managerial strategy, almost to the exclusion of other very attractive alternatives, such as aggregate planning.

Influencing Demand:

This well known managerial practice is illustrated by post-Christmas sales, and the airlines’ offering of special process during the off season and for night flights. But these pricing practices have ramifications beyond simply increasing sales. Managers can also influence demand by compensatory allocation of promotion budgets. By stimulating demand during the off-season, managers can help level plant load, which has important effects on costs, capacities, and employment stabilization. As we will see later, formal models of aggregate planning have been constructed that make production and marketing decisions jointly in order to approach a system optimum.

Organizational Adaptations:

Managers make fundamental adaptations in their organizations in an attempt to smooth demand in relation to resources that are often fixed. For example, in one of the early applications of aggregate planning, a chocolate factory changed its location to a rural area in order to take advantage of the farm labor available in the fall and winter season. Thus, a hiring and layoff smoothing strategy became compatible with seasonal fluctuations in production. The guaranteed annual wage in the meat packing industry makes it possible to vary the length of the work week without substantial wage variations. Of course, the adoption of counter-seasonal products is also an adaptive response.

An interesting organizational adaptation that has implications for seasonal operations is that of Blackburn College. Every student must work for the college 15 hours per week, regardless of his or her financial position. Besides certain educational and operational cost values to such a program, the cost of labor force fluctuations between summer and the academic year is zero. According to the treasurer, they have a highly intelligent work staff that retires every four years, without pension.