Page 10 - CIMA OCS August 2018 Day 2 Suggested Solutions

CIMA AUGUST 2018 – OPERATIONAL CASE STUDY

EXERCISE TWO (CAPACITY MANAGEMENT)
Email
To: Steve Gomez
Sent: Today
Subject: RE: Capacity planning
The term capacity planning is the process of determining the production capacity needed by an
organisation to meet changing demands for its products. In light of potential future
developments in our product range, I agree this is of crucial relevance to us at Thomas Fine Teas.

Approaches to capacity planning
There are three possible approaches to capacity planning:
• Level capacity plan – maintains production activity at a constant rate.
• Chase demand plan – aims to match production with demand. Will require a flexible
approach to production and a good forecasting system.
• Demand management planning – attempts to influence demand to smooth variations
above or below capacity.
Having outlined these three approaches, it has to be said that, in reality, most organisations
combine several approaches when managing capacity.
For Thomas Fine Teas I would suggest the chase demand approach. It is essentially how we
currently work already as typically production is carried out to sales orders but it may mean some
changes, for example, staff may be required to work additional shifts or short-term rentals may be
required for equipment. The level capacity plan is inappropriate for our business as it is too
simple an approach, often resulting in a build-up on inventory or in stock-outs. Whilst demand
management planning is always worth considering, the nature of the food and drink industry is
such that there is limited scope for initiatives which keep demand stable.

Forecasting demand
Being able to forecast demand is of the utmost importance to a business such as ours. It helps
when matching production with demand (chase demand plan) as well as assisting in workforce
scheduling and production planning. In addition, it helps us with decision making and control.
There are two broad techniques for demand forecasting: expert opinions and surveys whereby
information is gathered on the likely purchase behaviour of the buyer and also statistical
techniques which use past demand as a guide to the future.

In terms of the expert opinions and surveys, one technique would be for us to conduct an expert
opinion poll. Tea and infusion experts would be asked to give their opinion about likely demand
for our range of products in future periods. This can be very subjective and experts may have a
range of opinions.
Alternatively, we could use the Delphi technique which is a variation on the expert opinion poll. A
group of experts would be questioned repeatedly until the responses are the same/ similar.
Participants are supplied with responses to previous questions and such feedback may result in
the expert revising their opinion. In addition to these expert opinions we could make use of
customer surveys. Customers would be surveyed in order to ascertain their demand in the future
period. All customers may be surveyed or a sample taken (less costly but also less accurate).

I also mentioned statistical techniques to help forecast demand. Time series analysis would be
one suggestion. Past data would be analysed to determine the trend in demand and any seasonal
variations. This information can then be used to predict future demand. Of course, we can only
start using this technique once we have experienced a period of sales for our newly developed

66 KAPLAN PUBLISHING