Answer to Question #205563 in Management for Lihle

Question

Compare the three aggregate plans (Level Output, Overtime and Temporary Employee). What will you advice the company if this was a newly established branch with no workers, and they are faced with the following three choices;

1. Hire 15 employees
2. Hire 14 employees and use overtime to cover for the shortage in expected output.
3. Hire 14 employees and use temporary employees to cover for the shortage in expected output.

[6 Marks]

Answer 1

Aggregate plans identify resources needed. Staffing plan as part of aggregate planning involves:

Level output - the firm maintains a steady employment level and a steady production rat. When demand is somewhat low, the firm establishes higher inventory levels due to constant production and uses the surplus during increased demand.

Overtime - this is a chase plan that matches demand shifts by varying the output rate in a period. It requires workers to work extra hours a day or an extra day per week thus the firm can temporarily increase its capacity without hiring additional workers.

Temporary employee - this is a hybrid plan that entails a firm utilizing temporary workers or casual labor who only work when needed during short-term peaks, on an on-call basis.

If this was a newly established branch with no workers, and they are faced with the above three choices, I would advise the company to take option 3(hire 14 employees and use temporary employees to cover for the shortage in expected output). This is because option 1 and 2 are not favorable for a frim that has just started production. Level output will increase labor costs, cost of excess inventory and possibly backorder cost. Overtime plan in case of a shortage in expected output is associated with overtime costs and an overworked workforce which might negatively affect productivity and quality. Using temporary employee plan in case of a shortage in expected output is cost-effective and offers the new company the flexibility needed to keep staffing levels optimal as business needs change. In addition to flexibility, cost is saved as temporary employees go without benefits given to fulltime hires. Also, regular employees stay fully productive but not overworked.