All the following statements about aggregate planning for services are true, EXCEPT:
A. No inventories are held.
B. The decision is between using temp workers and overtime.
C. The unit of measure is usually FTE.
D. There is no need for aggregate service planning because demand forecasts are inaccurate.
The correct answer and explanation is :
The correct answer is:
D. There is no need for aggregate service planning because demand forecasts are inaccurate.
Explanation:
Aggregate planning is a critical process in service industries just as it is in manufacturing. It involves balancing capacity and demand to ensure efficient service delivery while minimizing costs. Let’s analyze why option D is incorrect and why the other options are true.
- No inventories are held (Option A – True)
Unlike manufacturing, where goods can be produced in advance and stored as inventory, services are typically produced and consumed simultaneously. For example, a hotel room that is not booked for a night represents lost revenue that cannot be recovered later. - The decision is between using temp workers and overtime (Option B – True)
Service organizations do not have the flexibility of producing inventory to meet fluctuations in demand. Instead, they adjust capacity using workforce management strategies, such as hiring temporary workers, offering overtime, or modifying service hours. - The unit of measure is usually FTE (Full-Time Equivalent) (Option C – True)
In service industries, aggregate planning is often measured in terms of labor hours rather than units of goods. A common metric is Full-Time Equivalent (FTE), which represents the number of full-time employees needed to meet demand. - There is no need for aggregate service planning because demand forecasts are inaccurate (Option D – False)
Even though demand forecasts may have some level of inaccuracy, they are still essential for planning. Service organizations rely on forecasting to adjust staffing, schedules, and capacity. Without aggregate planning, businesses would struggle to manage fluctuations in demand, leading to customer dissatisfaction, excessive labor costs, or missed revenue opportunities.
Conclusion:
Despite forecast inaccuracies, service organizations still engage in aggregate planning to balance demand and capacity efficiently. Therefore, option D is incorrect.