Page 10 - CIMA OCS Workbook February 2019 - Day 2 Suggested Solutions

CIMA FEBRUARY 2019 – OPERATIONAL CASE STUDY

EXERCISE TWO (CAPACITY PLANNING AND FORECASTING DEMAND)

Email
To: Ben Darcy
From: You
Subject: RE: Capacity planning and forecasting demand

Capacity planning

I have considered the information that you provided and agree that there are alternatives to
capacity planning that Trigg Adventure could use. These are detailed below:

Level capacity planning

Level capacity planning ignores changes in demand and maintains the production at a constant
level. The idea is that during quiet periods in demand during January, February and March stocks
of finished goods would be built up in anticipation of increased sales in the run up to the warmer
months.

It appears that this is the approach that Trigg Adventure is using and this is currently leading to
high levels of finished goods inventory as there is a great deal of time between the period of quiet
sales and the period of high demand and this would tie up a lot of space and capital. It
encourages the production of inventory with no consideration of how fast moving the stock is at a
particular time.

A level capacity planning approach does allow for the production operations to be efficient as
products can be produced in fairly large batches, for example the basic/ deluxe towers and
extension arms. It also allows economies of scale for the purchase of raw materials, for example
timber, plastic slides and climbing nets.

Chase demand planning

Chase demand planning tries to match production to the forecast demand. In this way as a
product's sales are expected to increase the production can be increased to allow for sufficient
finished product to satisfy the increased demand.

The use of a chase demand planning approach may solve the problem of high inventory of slow
moving product lines allowing production to be focussed on faster moving lines. It relies on Trigg
Adventure being able to forecast sales reasonably accurately and it would appear from the
information that this would require a lot more detailed analysis to make it sufficiently accurate.

Demand management planning

Demand management planning takes the view that rather than trying to manage the production
planning, the demand should instead be manipulated to bring this in line with the current
production levels.

The simplest way to do this is through price. Where a product is moving more slowly such as
domestic equipment in the summer months then the price could be dropped to stimulate the
demand thus not requiring any change in production levels.

66 KAPLAN PUBLISHING