Capacity Management and Forecasting Techniques for Dough Limited

This report discusses the problems faced by Dough Limited, a commercial bakery firm, and provides recommendations for capacity management and forecasting techniques. It covers the definition of key terms, capacity strategies, and recommendations for which strategies to use. It also discusses forecasting techniques and their usefulness, including MAPE, Master Production Schedule, and MRP.

Running header
Name:
Title:
Institution:

Operations Management 2
The report entails the problems associated with Dough Limited. The Director Peter Pan has three
weeks to prepare a report for the share holders meetings and has asked me to write a report for
him with specific guidelines which he provided. The document covers a detailed report and
definitions of some of the key terms. This is followed by conclusion on the matter and a list of
references from where the information was sourced.

Operations Management 3
Contents
Introduction.................................................................................................................................................4
Capacity management.................................................................................................................................5
Capacity calculation.................................................................................................................................5
Definition of key terms in capacity calculation........................................................................................5
Capacity strategies......................................................................................................................................6
Influencing demand planning strategy....................................................................................................6
Chase strategy.........................................................................................................................................6
Level production strategy........................................................................................................................7
Sub-contract strategy..............................................................................................................................7
Casual labor production strategy.............................................................................................................7
Recommendations of which strategies to use.............................................................................................7
Level strategy..........................................................................................................................................7
Sub-contract and casual labor production strategy.................................................................................8
Forecasting techniques and if they are useful or not..................................................................................8
Weighted moving average.......................................................................................................................8
Regression forecasting.............................................................................................................................8
Exponential smoothing forecasting technique........................................................................................9
Errors in forecasting....................................................................................................................................9
MAPE.......................................................................................................................................................9
Master Production Schedule.......................................................................................................................9
MRP.........................................................................................................................................................9
Conclusion.................................................................................................................................................11
References.................................................................................................................................................12

Operations Management 4
Introduction
This is a conclusive report about Dough Limited which is a commercial bakery firm. The
company is currently experiencing production problems due to break down of machinery which
was installed in the year 2012 when the company was new and this is leading to a lot of wastage
due to poor quality bread which is sold off as pig food or destroyed. There is also a high rate of
employee turnover and an increase in the number of customer complaints about the quality of the
company’s products and this is leading to a decreased overall in the profit margin. The company
is currently running at 60% utilization of its capacity. The Managing Director Peter Pan is to
have a share holders meeting in three weeks to explain the issues involving production and the
recommended strategies to address the same. Peter Pan having failed his Operation Management
course thrice, he has approached me to write a report for him to present during the meeting. He
also gave me guidelines on the areas to tackle.

Operations Management 5
Capacity management
Capacity is the maximum output that a company can produce within a stipulated period given the
resources at their disposal. Therefore, capacity management refers to the effective planning of
use of the available resources endowed to a company to ensure that it meets the current and
future business production targets in a cost effective manner and entails monitoring the
production process. (Hugos. 2018).
Poor capacity management can be an impediment to any firm’s business prospects and thereby
negatively influencing their financial performance. There capacity management is crucial to
Dough limited for the following reasons:
1. It will help the company come up with achievable goals with regards to production thus
enabling them to meet their set output without any wastage.
2. The company is able to look for alternatives for the machines it uses for production to
make them more efficient and cost effective which leads to better quality of output at
lower costs increasing their profitability margin.
3. The company has a lot of time wastage in between the shifts and thus by capacity
management they can plan better on how to go about it and thus increasing their
utilization which is currently at 60%.
Capacity calculation
This is the measurement of output that a company can receive, hold, store or produce in a given
time period. There are several capacities that can be calculated, namely; design, effective,
utilization and efficiency capacities. Capacity calculation will help Dough Limited estimate the
effectiveness by which they are utilizing their production potential given its design and
efficiency, and if the company is meeting them. (Ma and Qin 2015).
Definition of key terms in capacity calculation
Design – This the initial plan of a plan output capacity. Design capacity is the maximum output a
company can achieve in a given period of time. It is calculated by dividing output with the
number of days, that is;

Operations Management 6
actual output
number of days
Efficiency – This is how the work center is used in comparison with the standard rate of
production. Efficiency capacity is calculated as follows;
Actual rate of production × 100
Standard rate of production
Effectiveness - Effective capacity is the output that the company projects given its current
operating constraints. It is obtained by dividing actual output by efficiency. (Lavoie. 2016).
actual output
efficiency
Utilization – this is the amount of time available which is the maximum hours that we can expect
from the company when it is active. Utilization capacity is calculated as follows;
actual output × 100
effective capacity
Capacity strategies
There are strategies that can be used around capacity management and they are follow:
Influencing demand planning strategy
This is the process of evaluating, analyzing and projecting of demand by using market signals
such as customer orders and sales channels so as accurately forecast future demand patterns. This
will help a company to produce what the market will absorb especially if the company is dealing
in highly perishable goods.
Chase strategy
This is a production strategy which involves saving on costs until an order is placed. This is
where production is set to meet and match demand so as to avoid excess unsold output leading to
wastages and also leading to losses. Subsequently workforce is adjusted to meet and acclimate to
the changing demand. It is an important strategy for companies producing perishable goods.
(Nagle and Sazvar. 2016).

Operations Management 7
Level production strategy
This is a strategy whereby a company produces the same amount of output during all periods of
production, for example producing 1000 units daily despite the demand. In this strategy, the
workforce is constant despite anticipated changes in demand.
Sub-contract strategy
This is a strategy that that is under the mixed production strategy and it involves the cutting of
the total costs which in this case relates to the labor costs. In this strategy, more employees are
hired during the peak period of demand to increase the level of output produced and their
contract runs till the lean period and they are laid off without any benefits since they are not
permanently employed when demand falls. This will help reduce the cost of production and there
maintaining profitability margin even during the lean period and also matching demand in the
peak periods. (Gutelius, 2015).
Casual labor production strategy
This is a strategy that involves hiring of less trained employees. This will mean that the company
will forego training expenditure thus reducing their cost of production. Also, casual laborers tend
to be paid less they are not highly trained but are effective. This will translate to high and
cyclical quite rates.
Recommendations of which strategies to use
Level strategy
Dough limited has a lot of waste output due to poor quality. The experts who set up the company
estimated effective capacity should be 75% of design capacity meaning the firm has a capacity of
producing 1400 loaves per hour. Currently, the company has exceeded this capacity which
explains the high rate of wastage due to poor quality and also there is an increased number
customer complains. This could also be the reason for the regular breakdown of machinery since
they are exceeding their allocated work load. So as to reduce machine breakdown leading to low
quality, the firm will have adopt the level strategy and produce the required output capacity of
1400 loaves per hour. This will also ensure there no losses incurred due to wastages resulting
from poor quality.

Operations Management 8
Sub-contract and casual labor production strategy
Sub-contract and casual labor production strategy means that Dough Limited will produce output
directly proportional to demand and thus during the lean period it will lay off some of its workers
thus reducing their operational costs and consequently increasing on their profitability margin
which is falling due to increased operational costs. Operational costs involve total costs (fixed
and nominal costs) and permanent labor is a fixed cost. By introducing Sub-contract and casual
labor production strategy, labor will hence forth be a nominal cost and can thus be adjusted
accordingly. Also, under this they will consider on which shifts are productive and take the
necessary steps.
Forecasting techniques and if they are useful or not
Weighted moving average
This is a statistical indicator that shows how the price has moved on average over a given time
period. They are used to help highlight trends, spot trend reversals and provide trade signals
thereby indicating the direction in which the price is moving towards. (Ptak and Schragenheim.
2016). It is a weighted average is the last n price in which the weighting falls with each previous
price. The formula is as follow:
(Price X weighting factor) + (Price previous period X weighting factor-1)...
According to me, this forecasting technique is not useful as Dough Limited does not have any
pricing issues or is not encountering unfair competition with price as a factor. (Hinterhuber and
Liozu. 2017).
Regression forecasting
This is a technique that seeks to establish the relationship between a target (a dependent variable)
and the predictor (an independent variable). (Wang, et al 2016). This forecasting technique can
be useful for Dough Limited as they can use it to tell the relationship between their machine
production level per hour and he number of low quality bread produced. Above 1,400 loaves, the
technique can be used to tell the relationship with the excess production and the number of low
quality loaves. It can also be used to tell if there is a relationship between working shift hours
and staff turnover. (Chan and Mai, 2015).

Operations Management 9
Exponential smoothing forecasting technique
This is a series of observation that are indexed by time whereby you assign exponentially
decreasing weights over time. (Montgomery, Jennings and Kulahci. 2015). The method is used
in making short-term forecast or predicting the foreseeable future. This technique may be useful
for Dough Limited to predict the short term future of the progress of their production and the
expected problems.
Errors in forecasting
MAPE
This is the Mean Absolute Percentage Error. It is used to forecast errors associated with It is an
average absolute percentage error for each period of time. It is very crucial for interpreting the
relative error. Since Dough Limited will be using the regression forecasting technique, MAPE
will be used since it is most adapted at checking errors associated with the regression model and
also since the company is dealing with high volume items. (Ivanov, Tsipoulanidis and
Schönberger. 2017).
The formula for MAPE is as follows:
1 Ʃ(actual – forecast) × 100
n actual
where n stands for time period. (Pan, et al 2018).
It should also be noted that MAPE is not suitable for measuring low volume data.
Master Production Schedule
This is a plan that is linked with production, staffing and inventory and it indicates how and
when each product will be demanded within a given period of time. It can be implemented via
MRP. (Herrera, et al. 2016).
MRP
It stands for Material Requirement Planning and it works back from the production plan for the
already finalized output so as to come up with the required components and raw materials. The
system is usually software based. It leads to a decrease in capital costs and also enhances

Operations Management 10
maximum use of the production resources leading to increased profit ratio. (Ptak, and
Schragenheim. 2016).
In this case of Dough Limited, it is will be very crucial since they are adopting the sub-contact
and casual labor strategy. Since they want to minimize on cost associated with labor, the
company will thus have adequate information based on forecast demand and thus is able to
estimate when to hire and lay off workers as well as the duration of the sub-contracts.

Operations Management 11
Conclusion
It can thereby be concluded that the report is detailed and shows that Dough Limited has
analyzed its problems conclusively. It has also evaluated the most suitable solutions as discussed
and how to counter measure any errors that may occur due to forecasting.

Operations Management 12
References
Chan, S. H. J., & Mai, X. (2015). The relation of career adaptability to satisfaction and turnover
intentions. Journal of Vocational Behavior, 89, 130-139
Gutelius, B. (2015). Disarticulating distribution: Labor segmentation and subcontracting in
global logistics. Geoforum, 60, 53-61
Herrera, C., Belmokhtar-Berraf, S., Thomas, A., & Parada, V. (2016). A reactive decision-
making approach to reduce instability in a master production schedule. International Journal of
Production Research, 54(8), 2394-2404.
Hinterhuber, A., & Liozu, S. M. (2017). Is innovation in pricing your next source of competitive
advantage? 1. In Innovation in Pricing (pp. 11-27). Routledge. Technique
Hugos, M. H. (2018). Essentials of supply chain management. John Wiley & Sons
Ivanov, D., Tsipoulanidis, A., & Schönberger, J. (2017). Demand Forecasting. In Global Supply
Chain and Operations Management (pp. 301-315). Springer, Cham.
Ma, Y., & Qin, X. (2015). BRT Approach Capacity Calculation Method at an Intersection in an
Elastic Route BRT System. In ICTE 2015 (pp. 1598-1606).
Montgomery, D. C., Jennings, C. L., & Kulahci, M. (2015). Introduction to time series analysis
and forecasting. John Wiley & Sons.
Pan, W. T., Han, S. Z., Yang, H. L., & Chen, X. Y. (2018). Prediction of mutual fund net value
based on data mining model. Cluster Computing, 1-6.
Ptak, C. A., & Schragenheim, E. (2016). ERP: tools, techniques, and applications for integrating
the supply chain. Crc Press.
Ptak, C. A., & Schragenheim, E. (2016). ERP: tools, techniques, and applications for integrating
the supply chain. Crc Press.
Sepehri, M., & Sazvar, Z. (2016). Multi-objective sustainable supply chain with deteriorating
products and transportation options under uncertain demand and backorder. Scientia Iranica.
Transaction E, Industrial Engineering, 23(6), 2977.
Wang, G., Gunasekaran, A., Ngai, E. W., & Papadopoulos, T. (2016). Big data analytics in
logistics and supply chain management: Certain investigations for research and
applications. International Journal of Production Economics, 176, 98-110

Operations Management 13