This week a portion of our study focused on sales and operations planning. The sales and operations planning process helps companies provide better customer service, lower inventory, shorten customer lead times, stabilize production rates, and give top management a better view of the business (Chase & Jacobs, 2011). Sales and operations planning evolved into aggregate planning that stresses the importance of cross-functional teamwork and tightly integrated efforts between sales, distribution, logistics, operations, finance, and product development (Chase & Jacobs, 2011).
Aggregate planning focuses on intermediate-range (three to 18 months) plans that target lowering costs and using capacity most efficiently. The main purpose of an aggregate plan is to determine the best combination of production rate, workforce level, and inventory (Chase & Jacobs, 2011). Chase Strategy
The chase strategy is one of three production strategies for aggregate planning in use today. According to Hamlett (2013), the chase strategy, or demand matching strategy, sets production to meet or match the demand for products. It is an appropriate strategy for production situations with variable demand and little to no inventory. To handle variations in demand, a company matches the production rate to the order rate by hiring and firing employees. The chase strategy is used mostly in service industries that focus on meeting forecasted demand and adjust the workforce accordingly. Meeting demand can come in the form of workforce adjustments that include the use of day labor, contractors, seasonal workers, and overtime pay. Advantages and Disadvantages
A primary advantage is the flexibility to meet demand fluctuations. Another advantage is keeping inventory low, freeing up cash to buy other items such as raw materials or components, thus reducing inventory carrying costs that are associated with holding inventory in stock. The cost of capital, warehousing, depreciation, insurance, taxes, obsolescence, and shrinkage are all inventory carrying costs (Hamlett, 2013). Due to variations in product demand a company using the chase strategy can experience fluctuating workforce levels in response to changing demand. The impact to the company is increased hiring and training costs and a decrease in employee morale (Ritzman & Krajewski, 2003). Examples of Chase Strategy
The combination of improved productivity and flat or declining global demand has businesses requiring supply chain re-engineering. The result of these efforts has made them more efficient than ever before. Finding demand to absorb the supply generated is a growing challenge that has affected companies large and small, including the iconic chocolate company Hershey’s (Kash, 2011). After years of growth and success, Hershey’s hit a rough period in which senior management saw diminished financial results. Management realized they were not properly aligned to compete effectively, requiring an overhaul in strategy. Research and employee surveys revealed senior management was not aligned in their beliefs about how the company should compete in the future. The result was conflicting messages across the entire operation.
Marketing had not responded to retailers growing need for lower inventories, better use of shelf space, and less product packaging complexity (Kash, 2011). The changes in the marketplace caused Hershey’s to review every aspect of its “demand chain” without impacting the current supply chain in place. Hershey discovered that many products were not aligned with consumer demand and retailers were not happy about carrying increasing inventory due to confusing product offerings (Kash, 2011).
The company identified the need to move from a supply-driven approach to a demand-driven, consumer-focused strategy based on a pull versus push model (Kash, 2011). It was clear Hershey could no longer win pushing more variations of supply into the market; instead it needed to employ a customer focused supply approach. The resulting transition to a demand-driven model exceeded expectations with the company, in February 2010, announcing record cash flows from 2009 operations doubling 2008 cash flows and 35 percent higher than 2004 record cash flows (Kash, 2011).
Another example of a company using the chase strategy is retailer Neiman Marcus that ramps up temporary employment to meet an increase in holiday sales. The increased employees are utilized both in-store and in the warehouse to meet customer demand. Neiman Marcus mails out their “Christmas Book” in mid-September and sees a large increase in orders immediately afterward. Sales volume begins a steep ascent that peaks in early December (Auguston, 1992).
The September demand represents 52 percent of peak shipments, and October represents 91 percent of peak shipments. Demand in November and December are in excess of 100,000 shipments per week reaching a peak demand volume of 28,000 orders per day translating to more than double normal sales (Auguston, 1992). Neiman Marcus meets this enormous demand shipping 90 percent of holiday sales within 1 day and 99 percent within 2 days with 99.4 percent accuracy. Achieving these extraordinary results requires advanced planning that includes hiring 300 additional people to work in their distribution center during the holiday season. Twenty percent of these temporary workers return each year (Auguston, 1992).
The chase strategy helps companies match production to demand by hiring and firing workers as necessary. The chase strategy is a best fit for companies that require manufacturing flexibility and change capacity on a frequent basis. The major cost of this strategy is the hiring and firing of workers and the associated decline in morale. For industries that require highly skilled labor, or where there is strong competition for labor, this strategy is not an optimal choice. This strategy is effective when low-skilled labor is acceptable and during periods of high unemployment.
Auguston, K. (1992, December). Neiman Marcus Plans Picking to Meet Peak Holiday Demands. Modern Material Handling, 10(25), 44-48. Chase, R., & Jacobs, F. R. (2011). Operations and Supply Chain Management (13th ed.). Boston, MA: McGraw-Hill Irwin. Hamlett, K. (2013, Spring). Strategies Used in Production Planning & Scheduling. Retrieved from http://smallbusiness.chron/strategies-used-production-plannig-scheduling-1808.html Kash, R. (2011, April). The Hershey Company: Aligning Inside to win on
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Topic: Chase Strategy OPS571 Week 3
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