Operations Management: Capacity Management and Forecasting Demand

OPERATIONS MANAGEMENT
CASE STUDY ASSIGNMENT
Dough Bakery

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Table of Contents
Introduction:..................................................................................................................2
Part A: Capacity Management and Forecasting demand............................................2
1.2 Definition and explanation:..................................................................................2
1.3 Calculation and explanation:...............................................................................4
1.4. Short term and long term strategies for Dough Bakery:....................................4
Question 2: FORECASTING AND DEMAND...............................................................4
2.1 Purpose of Forecasting.......................................................................................4
2.2 Simple Moving Average (3 months)....................................................................4
2.3 Line Charts of data..............................................................................................6
2.4 Forecasting Error.................................................................................................7
2.5 Recommendation................................................................................................8
PART B: Production Planning and Supply chain management...................................9
Question 3: Productivity................................................................................................9
3.1 Single Factor Productivity...................................................................................9
3.2 Multi factor productivity.......................................................................................9
3.3 Overall productivity..............................................................................................9
Question 4: INVENTORY MANAGEMENT..................................................................9
4.1 Strategic importance of Inventory Management:................................................9
4.2 Overview of ABC analysis.................................................................................10
4.3 EOQ MODEL.....................................................................................................14
Question 5: Material Resource Planning:...................................................................15
Benefits for the implementation of Material Resource Planning for Dough Bakery15
Question 6: Integrated Supply chain management....................................................16
Integrated supply chain and inventory management for Dough Bakery:................16
Conclusions:...............................................................................................................17
References:................................................................................................................18
Appendix:....................................................................................................................19

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Introduction:
Operation management has become an essential factor in attaining success for
sustaining in ling rum. However, the nature of the organization has gone through
several phases of shifts and changes to integrate the contemporary operation
management policies and practices for better performance and improved efficiency
to attain competitive advantage in the market. The study has incorporated initially
with the concept of capacity management followed by the supply chain and inventory
management process and determination using some real-life example as extracted
from the case study of Dough Bakery.
Part A: Capacity Management and Forecasting demand
1.1
Capacity management refers to the measurement of the company regarding the
exact capacity of production and delivery of the services. Therefore, capacity
management forecasts the production amount that the company would be capable in
producing and deliver to its customers. In the opinion of Harris, Intelligence &
Healthcare (2017), capacity management also assists the production department of
a company to restrict the production according to the capacity of generating products
and services along with warehousing those products for future sales. Moreover,
capacity management also assists the operational team to trim down the production
cost through reducing wastage of material and producing excess and idle products.
Managing capacity of an organization is an essential skill to improve efficiency in
terms of maximizing profitability against the minimal or optimal investment of the
materials and finance.
1.2 Definition and explanation:
Design capacity:
The Design capacity is the maximum output that a system would generate against
certain inputs in the presence of a standard condition for the production. In most of
the organizations, the design capacity is straight forward in nature. Design capacity
sometimes includes the process of capacity planning as it defines the design of the
system to determine the maximum capacity of a system in producing output based
on the inputs including labor, power, materials, and parts. In case improving capacity
is not always a simple concept of increasing input as executing so would overload
the production leading to reduce the quality of the output.
Effective capacity:
Unlike the design capacity, the effective capacity refers to the expected productivity
or output of a system based on its current operating constraints. In a system of an
organization, the effective capacity is expected to be less than the design capacity
as the facility may have been designed for the earlier version of the products rather
than designing for the latest version of the products and services. It is always
observed that comparatively less capacity and production in a system possesses the
highest efficiency rather than engaging the system in producing the highest
maximum output.

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Utilization:
Following the previous two definitions and concepts, utilization would be referred to
as the actual input of the production constraints, incorporated in producing the
optimal output. In other words, utilization would be referred to as the employment of
material in its actual amount and means to generate the expected and maximum
output projected. In most of the cases, utilization would be determined as the ratio of
design capacity.
Utilization = Actual output / Design capacity
Moreover, utilization would also be termed as the ratio of the design capacity where
the expression would be represented as Utilization = (hours actually worked /.
Available hours) X 100%
Efficiency:
Efficiency is also accounted as the measure for the production to determine the
capability of a facility to generate output. According to Dolinayova, Kanis & Loch
(2016), efficiency refers to the parameters of an organization to determine the
capacity efficacy of an enterprise in the production and delivery of the products and
services. Efficiency would also be termed in the form of expected capacity
represented as follows:
Efficiency = Actual Output / effective capacity
Thus, efficiency in the capacity means would also be termed as the actual output as
a percentage of effective capacity and thus, represented further as
Efficiency = (Actual rate of production / standard rate of production) X 100%
These determinations are important for the production manager and operation
manager to gather knowledge on the expected output of a facility or the process.
1.3 Calculation and explanation:
a) Company is using 80% efficiency in the year 2017
Efficiency = Actual Output / effective capacity
80% = 1,242,920 / effective capacity
Effective capacity = 1,242,920 X 100 / 80
= 1553650
Utilisation = Actual output / Design capacity
= 1,242,920 / 1553650 = 80%
b) Efficiency = Actual Output / effective capacity
= 113,067 / 129471 = 87.33%
According to the given information the efficiency has been calculated on the 2018
data. Here, the increasing of capacity would impact on the productivity of the

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company based on the effective capacity. The current problem has been arisen due
to increase in capacity of production, as better use of machineries has been
executed trough reducing the product quality. The increasing demand of loaves has
been enforced to plan producing 1400 unit per day and therefore, reduced the quality
of the products.
1.4. Short term and long term strategies for Dough Bakery:
In the case of the short term strategy, Dough Bakery would develop good reward
management to reduce the staff turnover during the transformation phase in terms of
increasing capacity.
Moreover, in the case of the long term suggestions, a hike in capacity in production
will be the strategies to be adopted to gain a competitively better position in the
market.
Question 2: FORECASTING AND DEMAND
2.1 Purpose of Forecasting
The main aim of forecasting or anticipating is to predict the trend of sales or demand
so that the forecast planner can provide the relevant information to the other
departments of the organization. This technique utilizes historical or past data for
predictive analysis to estimate and allocate future expenses. The techniques used
for this purpose are moving averages, exponential smoothing, trend analysis, etc.
2.2 Simple Moving Average (3 months)
The Simple moving average is the most common technique of forecasting, where the
sales data or the demands are taken based on moving average. Here, for Dough
bakery for May, the sales are forecasted by taking the average sales of February,
March, and April. The sales figure or Feb 2018 is forecasted.
3 weeks moving average
Month Sales
Forecas
t
Feb 87319
Mar 90092
Apr 92140
May 100137 89850
June 103087 94123
July 104026 98455
Aug 105896 102417
Sep 108084 104336
Oct 109579 106002
Nov 111300 107853
Dec 112193 109654
Jan 113067 111024
Feb 112187

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b) the Weighted moving average is another technique of demand forecasting. Here,
the given weights are assigned to the actual sales data. In the question, the weights
are given as 0.5, 0.3 and 0.2. The maximum weighted is assigned to the most recent
month or year. For forecasting the sales of May, 0.5 weight is assigned to the sales
data of April, 0.3 is assigned to march, and so on.
3 Months weighted moving Average
Month Sales
Forecas
t
Feb-17 87319
Mar-17 90092
Apr-17 92140
May-17
10013
7 90561
Jun-17
10308
7 95729
Jul-17
10402
6 100013
Aug-17
10589
6 102967
Sep-17
10808
4 104773
Oct-17
10957
9 106616
Nov-17
11130
0 108394
Dec-17
11219
3 110141
Jan-18
11306
7 111402
Feb-18 112451
2.3 Line Charts of data
3 Months simple moving average