Aggregate planning is a mid-range planning process where companies develop strategies for the next few months, typically ending in 12 to 18 months. Certain industries use aggregate planning more than others do, such as manufacturing, production and construction. These industries rely on these plans to allocate resources among several different jobs or projects. Human resources is responsible for supplying one of three major economic resources: labor. Aggregate planning offers distinct strengths and weaknesses for companies in the business environment.
For most companies, payroll is their largest business expense. Aggregate planning helps companies plan the specific number of employees for each project and the wage for each individual or group of employees. Companies often use a mix of skilled and unskilled labor. Using skilled labor—which is typically more expensive—to complete basic tasks can increase operating costs and create ineffective operations. Aggregate planning seeks to avoid this through adequately determining the needs for labor.
Aggregate planning helps companies set well-defined goals and objectives for completing projects. Business owners and managers can also break down large business projects into a smaller set of tasks. Each task follows a sequential completion process that works to advance the company’s overall mission. The human resource department may use temporary labor to accomplish short-term goals to avoid hiring long-term employees who will remain with the company after accomplishing goals.
The constant use of aggregate planning in business can lead to high employee turnover, whether using temporary labor or laying off workers after project completion. Not only does this create more paperwork for the human resource department, but it can also lower employee morale. Employees are typically uncomfortable when working in an organization that has a high employee turnover. Individuals may think they are next in line for dismissal, shifting their focus from productivity to finding ways to keep their jobs.
Short-term aggregate planning can create some level of inflexibility in a company’s operations. Human resources may be unable to adequately staff the company, if it does not meet the requirements for accomplishing goals. Changes in the business environment or economic market can also affect the company’s aggregate planning process. A sudden loss of business credit or tight monetary and fiscal policies can make it difficult for the human resource department to respond to these changes.