14.4 Aggregate Planning in Services
Aggregate planning in service organizations presents unique challenges compared to manufacturing due to two key characteristics:
- Services cannot be inventoried – they are produced and consumed simultaneously.
- Backlogging is often not feasible – customers may be unwilling to wait, resulting in a potential loss of business.
As a result, service-based aggregate planning focuses primarily on managing capacity and demand in real time. While service firms vary in the nature of their offerings, they typically follow similar planning steps. For instance, an accounting firm might approach aggregate planning as follows:
Estimate workload based on seasonal patterns such as tax filing periods or audit cycles.
Assess staffing needs, including full-time employees and potential temporary hires.
Allocate tasks to ensure balanced workloads and timely completion of client deliverables.
Equip staff with diverse skills to increase flexibility and responsiveness.
Example: Accounting Firm
Suppose an accounting firm anticipates the following demand (in billable hours) over the next four months:
| Month | 1 | 2 | 3 | 4 |
|---|---|---|---|---|
| Demand (hours) | 2000 | 3500 | 4000 | 2500 |
Available Resources:
- Full-time staff: 10 accountants
- Capacity per accountant: 160 billable hours/month
- Temporary staff cost: $50/hour
Planning Calculations:
- Total capacity (full-time staff):
10 accountants × 160 hours/month × 4 months = 6,400 hours - Total forecasted demand:
2000 + 3500 + 4000 + 2500 = 12,000 hours - Shortfall in capacity:
12,000 − 6,400 = 5,600 hours - Cost of meeting the shortfall with temporary staff:
5,600 × $50 = $280,000
Strategic Considerations
The firm must now evaluate its options:
- Hire temporary staff to cover the shortfall, incurring additional costs.
- Use overtime, if feasible, to increase capacity without hiring.
- Turn down work, which may reduce revenue and risk losing clients.
Each option involves trade-offs between cost, service quality, and client satisfaction. The optimal strategy will depend on the firm’s priorities, such as maintaining client relationships, managing labour costs, and ensuring timely service delivery.
