Page 14 - CIMA OCS August 2018 Day 2 Tasks

CIMA MAY 2018 – OPERATIONAL CASE STUDY

EXERCISE 2 (CAPACITY PLANNING)

UPDATE

During a recent management meeting, a discussion took place about how there is increasing
demand for new flavour combinations in both green tea and infusions and an explosion of weird
and wonderful flavours of both onto the market. This could provide a way forward for the
company.

Demand for Thomas Fine Teas’ products has been relatively stable in the past but the company
recognises the unpredictable nature of future sales if they were to expand their range in response
to these developments in consumer buying behaviour. Steve Gomez (Head of Production)
expressed concerns about how Thomas Fine Teas is forecasting demand and managing its
production capacity.

TRIGGER

This morning you receive the following email:
From: Steve Gomez (Head of Production)
Sent: Today
Subject: Capacity planning

I’ve come away from a meeting just now with some points I think you can help me with.

As you know, we are exploring the possibility of increasing the ranges of green tea and infusions
that we offer to the market. These are exciting times for us at Thomas Fine Teas but they are also
uncertain times for us in terms of demand and therefore production levels.

In fact, Christie Smith (FD) popped into our meeting to address this very point. In the past it has
not been considered necessary to employ capacity planning in the factory but our worry going
forward is that we need to balance demand and productive capacity. If we offer new products to
market, this will present a new challenge in our operations and therefore is a concern for us.
Although extensive market research has shown that demand for green teas and infusions will
grow at around 5-6% per year for the foreseeable future, we do not have a crystal ball to be able
to accurately predict this level of demand, despite our best efforts.

Christie is aware of the term ‘capacity planning’ but her practical experience of this is limited. We
have uncertain times ahead in terms of demand levels and she would like to see us planning our
production capacity accordingly.

I’m a bit tied up at the moment so I would appreciate it if you could draft me something we can
use to help explain some ideas to Christie. In particular, could you address the following:

• A brief explanation of the three possible approaches to capacity planning (level capacity
plan, chase demand plan and demand management planning) and a recommendation
from you as to which approach is the most appropriate for us here at Thomas Fine Teas.

• A discussion of why it’s so important for Thomas Fine Teas to forecast demand with a
good degree of accuracy and some techniques to help us do this. Please also consider
why it may be particularly challenging to forecast demand in our industry sector.

36 KAPLAN PUBLISHING