Page 14 - CIMA OCS Workbook February 2019 - Day 2 Tasks

CIMA FEBRUARY 2019 – OPERATIONAL CASE STUDY

EXERCISE 2 (CAPACITY PLANNING AND FORECASTING DEMAND)

UPDATE
Tony Trigg has expressed concern at the level of inventory of raw materials and finished goods
held by Trigg Adventure. He has asked Ben Darcy to consider ways that the business could reduce
inventory levels whilst not risking running out of stock of the products.

TRIGGER

This morning you find the following note on your desk.

Note from Ben Darcy (Production Director)

Following the instructions from Tony Trigg, I have been looking at how we schedule production in the
factory. I am sure that if we managed our production capacity better then we could reduce our
reliance on high inventory. I do understand Tony’s concerns – in 2017, our inventory was F$4,247k
and increased to F$4,394k last year. That’s a huge proportion of our total assets, not to mention the
knock on effect this is having on the amount we are paying for inventory insurance as the premium is
based on the highest expected value of inventory.

I have gathered the following information relating to our production and demand:

1. All domestic products are produced for inventory, rather than being based on orders. This is
because of the seasonal nature of demand for domestic products. This means that during the early
months of the year, when sales are low, production output increases the amount of finished goods
inventory.

2. The demand for domestic products increases over the summer months, with a slump in demand in
January, February and March. Demand for commercial products follows a similar pattern but this
pattern is much less pronounced.

3. Inventory levels are maintained to ensure enough timber to fulfil production requirements for at
least four weeks.

I am sure that there are different approaches to capacity planning that we could use, but I’m not sure
what they are or how they might affect the issues above. I’d really appreciate if you could explain
this.

Please also include in your response a discussion of why it’s so important for Trigg Adventure to
forecast demand with a good degree of accuracy and some techniques to help us do this.

Thank you for your assistance with this.

TASK
Respond to Ben Darcy’s request.
(Time allowed: 30 minutes)

36 KAPLAN PUBLISHING