Level Capacity Plan

The inventory size is varied keeping the workforce size and utilization of work constant. The number of workers ( working size) is kept constant throughout the time period under consideration. During months of low demand the excess units required over the units produced are taken from the inventory. The benefit of this plan is that the cost of hiring and training new. Workers is zero. Also the cost of laying off workers is zero, as the workforce size is constant. The employee morale is high due to sense of job security. During periods of low demand, there is a high inventory cost due to its large size.

Figure: Level Capacity Plan

Figure shows the level capacity plan of a company manufacturing a product on produce to stock and sell basis. In the first quarter aggregate demand is less than production and inventory builds up till the end of the First Quarters . in the second third and fourth quarters are inventory levels Decline because production is less than the aggregate demand. In the fifth Quarter the production is more than the aggregate demand and hence Inventory builds up again.