Table of contents

Overview of the topic……………………………………………………………….. 3-4

Analysis of case study……………………………………………………………….5-6
Recommendation……………………………………………………………………....7
References……………………………………………………………………………8-9
Overview
The term “capacity” not only signifies the actual time taken by a facility to produce its goods
but also the maximum capability it can exhibit. To ensure smooth functioning of these
operations capacity management is essential. Besides making sure that enough capacity is
generated to meet the required demand, capacity management also identifies bottlenecks and
ensures the maximum utilization of all the resources to avoid incurring expense (Jonsson,
2002). In addition, capacity planning also discerns the amount of capacity required for the
manufacturing of new products(Müller, Bosse & Turowski, 2017). However, a number of
determinants such as availability & skills of workers, speed of technology, number of
machines, waste, defects, adequate resources, most of which are under management control,
needs to be addressed before it affects firms capacity (Li, Biggs & Thies, 2005). In many
instances, short term capacity planning can tackle these problems. The purpose of short-term
capacity planning is to successfully manage unforeseen demand changes in an economic way
(Suwa, 2014). A company, namely Toyota, allowed any worker in the assembly line to
terminate the production process if they found fault in the system or product; using lean six
sigma; a tool for performance improvement by reducing defects and wastes (Sugumaran,
Shishank & Dekkers, 2009). Adaptation of this short term capacity management allowed
Toyota to maintain quality of their product and manufacturing of productive commodities.
Apart from this, aggregate planning and long range capacity planning is equally important as
it ensures availability of adequate manufacturing resources to fulfill organisations distant
future production needs respectively. Likewise long term planning helps in making long term
investment plans which should be decided with careful analysis as it impacts the firm's
operation. Some of the long term plans are layout, process design, facilities, size which are
also the determinants of effective capacity.

Furthemore, to ensure if the capacity plan is working effectively, measurement of its

appropriateness is essential and can be determined by its impact on these five major
performance objectives; Quality, Dependability, Speed, Flexibility and cost. Quality is to
provide good product or service, Dependability is to deliver products on time, Speed is to
respond quickly to its customers, Flexibility is to maintain variety of products and service so
as to meet customers need and lastly cost is to ensure the price of the products and services is
both reasonable and able to maximise firms profit(Ayodele, 2003) . However, KFC still is not
able to meet two major objectives i.e. speed and flexibility due to which it loses to bear a
competitive advantage over Mcdonald's; announced as number one fast food chain in 2020
(Uddin, 2020).On the contrary, these internal factors are not sufficient and firms do also need
to incorporate external decisions such as environment stewardship and corporate
responsibility to influence customers purchasing power and also reduce additional strains on
natural resources caused by emerging markets, particularly India (1.1 billion populace) and
China (1.3 billion populace) as it ultimately poses threat on the inputs and outputs of the
supply chain globally.
Fig 1: shows the integrative nature of supply chain and how philosophical paradigms such as
sustainability permeate through all of its stages.

Furthermore, after setting both the internal and external objective a capacity decision needs to
be made so as to manage fluctuation on demand. Organisations who add capacity anticipating
the demand opt for lead capacity strategy whereas adjusting capacity only after surge of
demand utilise lag capacity strategy (Tenhiälä, 2011). Likewise, match capacity strategy, is a
mix of these two, which avoids over or under production.

Apart from capacity management, demand management is also equally essential as it

forecasts the demand beforehand and finds a balance between demand and supply by having
adequate inventory levels to fulfill consumer needs without having a surplus (Melo &
Alcântara, 2015) . Since all organisations face an unknown future, error between forecasts
and actual demand is to be expected. However, forecasts do help businesses to access long
term capacity needs, reduce cost of inventories, reduce stock outs and induce smoother
production plans (Acar, Kocaoğlu & Yılmaz, 2014). Toyota, due to inaccurate forecasting,
have faced dead stock failing to deliver its products resulting in missed opportunity. For a
uneering forecast, PESTLE analysis should be done to determine the influence of external
factors on the demand in the long run.

Furthermore, another important aspect of operation management is location which is the

process of deciding a geographic site for a firm’s operation. When determining the
desirability of a specific location, managers of both service and manufacturing organizations
need to consider both the supply and demand side factors. Supply side factors including
consumer and supplier proximity; to shorten customer lead time, labour skills, image will
impact the overall consumer satisfaction and revenues whereas, demand side factors such as
labor costs, land costs, transport costs will impact the cost(Madavi & Sangode, 2019).
Weighted score method, a prioritisation framework is regarded as the easiest technique of
location selection as it allocates each criteria a relative weight, depending on how essential
the criteria is to the situation (Sharma & Phanden, 2021). However, selecting facility location
near suppliers or customers is not the only way to reduce transportation cost and shorten
customer lead time, warehousing is another alternative. Warehousing refers to the
arrangement through which products are stored when they're not needed immediately and are
stored in such a way that they are preserved against deterioration (Mason, 2003).
Consolidating warehouses and Hub-and-Spoke systems are used to reduce transportation cost
whereas spot stok warehouses are used to meet seasonal demand and also to shorten customer
lead time which induces satisfaction (Navickas et al., 2016).
All in all, the capacity and demand management and location components of the supply chain
management as their major role is to control supply chain cost to increase firms' benefit.

Case Analysis

The case illustrates the application of these three major components of supply chain
management in improving their performance.

In the face of new challenges brought up by covid both the companies were able to build an
efficient and effective passage for transporting goods to the final customer. The stockpiling
traits of consumers due to food insecurities led to a huge pressure on Lidl for managing their
inventories. However, Lidl efficiently managed it due to its good demand forecasting and are
hopeful that the sale will rise post Covid. Good demand forecasting is necessary as it enables
a company to set the appropriate levels of inventory, correctly pricing its goods and knowing
how to extend (Ivanov, Tsipoulanidis & Schönberger, 2019). The contributing factors for
successful demand forecast were changes in seasonality; pandemic , pricing strategy and
quality of goods; directly influencing consumer buying behaviour (Pilinkienė, 2021). Also, to
reduce the negative impact of demand variability due to covid, Lidl increased its flexibility
by extending its categories; national cheese. Croxton et.,al (2002) suggested that acquiring
flexibility helps a business to best control the planned and unplanned variability of the
system. For instance, when one of the latest goods was launched by a soda firm, demand was
more than twice the amount expected; resulting in revenues increment for smooth functioning
of firms operation.

From the above point it is clear that demand variability cannot be removed from the system
due to uncertainty of the future. In this regard, demand forecasting can never be completely
accurate . An incorrect consumer demand forecast would contribute to over-stock or under-
stock, which could lead to increased inventory costs of organizational efficiency (Hyndman,
Kraiselburd & Watson, 2013). Therefore, the best strategy for this would be to do inventory
control by simultaneously managing the previously stocked product and cutting the
production of least selling products while increasing the highest selling product (Freeman &
Waters, 1993). Also, frequent use of inventory is favoured as organisational flexibility is
reduced as operational resources need to be organised efficiently in order to exponentially
grow inventory turnover (Samanta, 2015).

Despite having only one boat per week and strike in Lisbon serving as a fly in the ointment,
the cannery’s sudden sales rise is possible through lead strategy capacity decision i.e capacity
was generated in anticipation of demand similar to Lidl. Lead strategy helped drawing clients
from its competitors as it met short term demand by acting as a capacity cushion (Ceryan &
Koren, 2009). However, the cannery has depicted a sales rise of 20 percent even though most
of their customers have already stocked up. If they continued to produce higher capacity on
the basis of this forecast they would increase their capital expenditure very early.
The evidence from the case clearly depicts how the performance objective of Santa Catarina
aligns with their competitive factors to increase consumer satisfaction. Their product
portfolio consisted of high quality tuna with low price; Bela Aurora ,fast delivery and wide
range of categories to choose from; catering the needs and wants of customers. Beside
satisfying individualistic needs through costs, quality and flexibility, the community's
demand of wanting to sustain the environment holds equal priority (K & P, 2019). Research
has shown that 62% of corporations agree that incorporation of sustainable techniques
increases longevity and provides a competitive edge globally (Antonides, 2017). Santa
Catarina, with this approach, opted for a pole and line system, an economically responsible
fishing method reducing predatory action; deemed safe for dolphins (Irigoyen & Venerus,
2008). This approach prevents the scarcity of raw materials, directly influencing global
supply and demand chain.

However, the pole and line method of one person catching one fish at a time creates delays in
the process of transforming resources into finished products. The case evidence suggests that
despite the increase of manual labour, the cannery didn’t hire additional manpower to balance
the surge of demand due to Covid. For the alternative, they opted for a short term capacity
planning decision to exert overtime duties on employees. The lack of overtime policies in the
long run will turn out to be a bad operating decision as it increases the chance of error due to
declining performance as a result of burnout; impacting overall productivity of the firm
(Tajgman & Veen, 1998). Had they opted the long term planning to hire additional staff, the
production would have been much smoother with less capacity constraints.

Furthermore, Santa Catarina selected its location on the basis of suitability of site mainly
focusing on the availability of raw materials. It’s facility was located on the sea shore side of
Sao George which had infinite availability of raw materials. Moreover, they cultivated their
own herbs which helped them to produce healthier products, significantly increasing their
quality. In addition the transportation cost would also be reduced as they don't have to import
these herbs. Being on an island, its mode of transport i.e. ship helps them to carry products in
bulk and also produces less carbon emission compared to other modes (Bhadauria, Sharma &
Patel, 2011).

However, selecting the location only on the basis of raw materials did put them at a big
disadvantage. The factors that they should have considered while selecting location are
customer proximity labor pool and competition in the market with which they would have
been able to decrease customer lead time, appoint skilled labor and gain more brand visibility
(Kasatkin, 2017). The fact that Santa Catarina is able to do so well in the market is because of
its supplier lidl. If they had selected an urban area, then they would have to directly export
with which they would have generated revenues and also be able to maintain close
relationships with foreign suppliers; opening more doors to opportunities.

Recommendation:

Both the companies forecasted about surging their sales even after all the customers have
stocked up and possess inventory risk. In order to tackle the situation, they should opt for just
in time inventory. Just in time, is a popular inventory management method which in
particular improves efficiency, reduces costs and waste by only receiving products as
required(Ukil et al., 2016) . By applying this approach Lidl and Santa Catarina should be able
to have less dead stock as both the company have food based products and would face losses
if the products stocked in inventory are passed its expiry date. However, to fully gain from
this method they should invest in improving their demand forecasting.

Santa Catarina, a labour intensive firm has incorporated manual labor in its production
process mainly to create employment opportunities. However, the skills of labor and that of
the machine cannot be compared. Looking at their layout it is evident that manual canning is
the source of time constraint. Hence, in order for them to instil maximum utilization of their
capacity automatic canning should be embodied while removing the manual labor.
Decreasing the task for their employees would result in the increment of their performance,
simultaneously increasing their overall productivity.

Lidl, during this pandemic, has a high chance of suffering from bottlenecks. So,the food
retailer should hire multi-skilled staff who can be transferred to the designation of bottleneck.
For instance if a bottleneck appears at the checkout in a grocery store then a tannoy call
would make a request,’ professional employees to report at the checkout in order to boost the
payment capacity where waiting lines are severe.

Since Santa Catarina, the only way of transportation is shipped once a week, its ability to
match demand is consistently low. Opting for airways would be costly which directly affects
the cost of their product. So, using a spot stock warehouse would be the best option for them.
Using a spot stocking warehouse enables companies to store goods during times of maximum
sales in regions close to the high demand regions (Boer & Voordijk, 2014). This way they
will be able to meet seasonal demand as a small amount of the total produced goods will be
stored in the warehouse.

Santa Catarina should strongly use the subcontracting process owing to the reason that setting
up the factory in the residential area would account for huge capital expenditure. The
company has to look for many functions like production, marketing, sales, human resources,
logistics, and finance. Following, it would take a considerable amount of time to effectively
execute these functions. The best solution for Santa Catarina is to enter an agreement with a
third party such as a person or company to perform some portion of production work like
catching tuna fishes. The person who does the work is known as a subcontractor who is
specialized in their fields having outstanding knowledge. This will reduce the cost to a
greater extent as the Santa Catarina variable cost like labor is minimized (Biruk, Jaśkowski,
and Czarnigowska, 2017). This cost can be used to invest in other modes of transport like
airports. Though, there is a limitation of size, transporting by sea and airports would make
goods reach a faster speed, thus meeting supply with demand

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