CMA Intermediate · Operations Management and Strategic Management · Operations Planning
A firm uses a level (steady) production strategy in aggregate planning to meet seasonal demand. Which statement is correct about this strategy?
Under a level production strategy, output and workforce stay constant, and inventory built in slack periods or backlogs absorb the fluctuations in demand. Changing workforce each month is the chase strategy, and level strategy actually increases inventory holding costs.
- AWorkforce size is changed every month to match demand
- BOutput is kept constant, and inventory or backlogs absorb demand fluctuationsCorrect
- CIt eliminates all inventory holding costs
- DIt requires frequent overtime and subcontracting in peak months
Explanation
Under level strategy output rate and workforce stay constant; stock builds in low-demand periods and is used in peak periods, or backorders occur. Changing workforce monthly is the chase strategy. Inventory costs are not eliminated; they rise.
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