A hybrid production plan is the third of three different approaches to manufacturing production we will explore. This approach takes the best parts of the other two approaches while mitigating the negative attributes. I believe there are very few true chase or level environments and the overwhelming majority of businesses actually use variations of the hybrid approach.
There are several things to consider concerning this strategy. We will explore each in turn, as we have already done in the two other parts of this series.
Demand: A hybrid production plan works in either a stable demand environment or one that has dynamic demand variation.
Production: The business that uses this approach will require a demand forecasting process as in the level approach. Inaccurate forecasts are not as significant a risk however. If the forecast has error, the risk of too much or too little inventory in the long-term is minimal. The Master Schedule or Operations Manager can just adjust the future production plans to correct for the forecast error.
Inventory: The hybrid approach will have inventory levels closer to the chase strategy, but slightly higher. This creates an advantage over the level production plan which has high inventory levels for a portion of the year..
Peak Facility Capacity: The peak facility or organizational capacity will be more than the level approach but significantly less than the chase approach. This creates an advantage over the chase production plan.
Financial Implications: The cost to hold inventory and the cost to change capacity are more balanced in the hybrid approach. When combined, these typically lead to an aggregate cost advantage over the other tow approaches for most businesses.
Business Fit: The level production plan can be a good fit for nearly all businesses. As previously stated, I believe most businesses are using variations of a hybrid production plan.
To summarize, there are tradeoff and compromises required in each approach. Take a moment to review the table graphic that compares key measurements of the three simulations in the series. Note that while there is a minor change from beginning inventory to ending inventory that amount is not significant. Also note that each simulation did not stockout at any point.
Production & Inventory Management, by Donald W. Fogarty, John H. Blackstone, Jr., and Thomas R. Hoffman. 2nd ed.
APICS Dictionary, 13th edition.
APICS Basics of Supply Chain Management Participant Guide, version 4.1