Capacity Planning Strategies For Call-Us Plumbing | SCM Trends

Capacity Planning Factors for Call-Us Plumbing

Capacity planning is identified as the activity of the determination of the various types of the capacity related for the production purpose these are needed to meet the various types of the changing demands for its product line (Purchasing-procurement-center, 2017)

The three factors taken into consideration for capacity planning at Call-Us plumbing are listed below as follows:

The company produced this amount in the last month.

The actual output is selected by multiplying the Actual Output in Last Month with 12.

The Company is designed to produce 5500000 plumbing items per annum.

Call Us Plumbing Supply Company
Parameter	Capacity (in Units)
Actual Output in Last Month	300000
Actual Output per annum	3600000
Potential Output per annum	5500000
Capacity Utilization Rate	(Potential Output/ Actual Output) x 100
Capacity Utilization Rate	65%

The three types of the capacity planning strategies are shown below as follow:

This option produces goods on regular basis before the order is placed and the master production schedule determines the number of units in the production.

This strategy is used by the companies in customizing the production needs based on the customized needs of the customers.

Assemble to order:

The assembling is the process by which the order is prepared from a stock selection of ingredients. Various fast food restaurants and automobile sector are known to incorporate this strategy (Web.eng.fiu.edu, 2017)

The chase strategy will help the company in producing only those items which are needed to meet the exact needs of the consumers.

The make to order will further ensure that the company is able to deliver the necessary items as per the requirements of the consumers.

The strategy of assembly to order will be further able to prove to be beneficial for assembling as per the customer demand (Smallbusiness.chron.com, 2017).

Firms keep a supply of the inventory for meeting the variations in the production demand. This is because the demand for the raw materials keeps on fluctuating. The second reason has been seen in form of catering to the cyclical and seasonal demand of the consumers (Shodhganga.inflibnet.ac.in, 2017).

The present total annual stocking cost is illustrated below as follows:

	Unit
	Valves	Dollars
Annual Demand (D)	10000
Present Order Quantity (Q)	400
Annual cost for carrying one unit (C’)		$           0.40
Annual cost per order (S’)		$           5.50
Total Annual Stocking Cost(TSC 1)	(Q/2)x C’+(D/Q)x S’
Total Annual Stocking Cost (TSC 1)		$       217.50

	Unit
	Valves	Dollars
Annual Demand (D)	10000
Present Order Quantity (Q)	400
Annual cost for carrying one unit (C’)		$           0.40
Annual cost per order (S’)		$           5.50

Economic Order Quantity (EOQ)	SQRT(2xDxS’)/C
Economic Order Quantity (EOQ)	524.40

The total amount of stocking stock in case EOQ was employed is $ 209.76. The calculation for the same has been shown below as follows:

	Unit
	Valves	Dollars
Annual Demand (D)	10000
Present Order Quantity (Q)	400
Annual cost for carrying one unit (C’)		$           0.40
Annual cost per order (S’)		$           5.50

Economic Order Quantity (EOQ)	SQRT(2xDxS’)/C
Economic Order Quantity (EOQ)	524.40

Total Annual Stocking Cost in case of implementing EOQ
Total Annual Stocking Cost (TSC 2)	(EOQ/2) x C’+ (D/EOQ)xS’
Total Annual Stocking Cost (TSC 2)		$       209.76

The estimated annual savings in the stocking cost has been computed as $ 7.74. The computation of the same has been depicted below as follows:

Estimated annual savings in stocking costs
Savings	TSC 1 – TSC 2
Estimated savings in stocking costs		$           7.74

The calculation of the EOQ has been stated below as follows:

	Unit
	Valves	Dollars
Annual Demand (D)	10000
Present Order Quantity (Q)	400
Annual cost for carrying one unit (C’)		$           0.40
Annual cost per order (S’)		$           5.50
Demand per day (d)	40
Production per day (p)	120

Economic Order Quantity (EOQ)	SQRT(2xDxS’)/C x SQRT p/SQRT (p-d)
Economic Order Quantity (EOQ)	642.26

Capacity Planning Strategies for Call-Us Plumbing

The total annual stocking of the cost has been identified as $ 171.27. The computation of the same has been illustrated below as follows:

	Unit
	Valves	Dollars
Annual Demand (D)	10000
Present Order Quantity (Q)	400
Annual cost for carrying one unit (C’)		$           0.40
Annual cost per order (S’)		$           5.50
Demand per day (d)	40
Production per day (p)	120

Economic Order Quantity (EOQ)	SQRT(2xDxS’)/C x SQRT p/SQRT (p-d)
Economic Order Quantity (EOQ)	642.26

Total Annual Stocking Cost
Total Annual Stocking Cost  (TSC 3)	(EOQ/2)x(p-d)/(p)x C’+(D/EOQ)x S’
Total Annual Stocking Cost (TSC 3)		$       171.27

 The estimated savings in the in total annual stocking cost in compare to EOQ and the total annual stocking cost has been identified as $ 38.49. The computation of the same has been depicted below as follows:

Estimated annual savings in stocking costs
Savings	TSC 2 – TSC 3
Estimated annual savings in stocking costs		$         38.49

The fixed order quantity of the material is based on the concept of placing the order in a respective order process. Although, when the order is placed the inventory falls to a critical level the order point is determined by the quantity we order and receive for another batch of materials. The variable order is the conceptualizing the maintaining the inventory in several time periods so that the specific demand order of the customers can be met (Michalski, 2013).  

1. Just-in –time – This method is mainly focused on reducing the flow times with the production system and the response times related to the customers and the suppliers. The incorporation of this strategy was adopted by companies such as Toyota and British Motor Corporation (Balcik et al., 2016)

2. Kanban- This is identified as an inventory control principles for controlling the supply chain process in manufacturing organization. The application of this technique has been evident in Pixar, Zara and Spotify (The Leadership Network, 2015).

Four management inventory tools for Mr. Swartz have been listed below as follows:

Software – This can be implemented by using both spreadsheet and databases, which use menu-driven user, interface.

Theoretical management modules- This involved calculating the safety stock

Audit systems- This is recognized as the stage of rechecking of all the critical categories in the inventory.

Hardware – Mr. Swartz can further incorporating RFID tags to keep track of the inventory in the most advanced way (Dekker et al., 2013).

SCM is defined as the flow of goods and services, including raw materials, work-in-process and finished goods from the point of production to consumption.

The different SCM process identified in Canterbury of New Zealand:

Planning – The important consideration of this has been based on creating appropriate metrics for monitoring and maintaining relationship.

Purchasing- This is associated to the sourcing of the sport items from the suppliers providing best price.

Processing- This deals with measuring of quality levels, production output and worker productivity.

Inventory Management Tools for Call-Us Plumbing

Distribution – Coordinating the receipt of orders from customers, develop a network of and set up an invoicing system to receive payments (John et al., 2015).

Reason of keeping supply of the inventory

Meeting production demand

Catering to the cyclical and seasonal demand of the consumers

The six current trends in SCM are shown below as follows:

1. Planning demand at end of the inventory cycle

2. Acquainting to new technology with globalization

3. Managing of increased price pressure and competition

4. Outsourcing of the necessary products and services

5. Accustoming with Reduced and complex PLC stages

6. Collaborating stakeholders in the various environment of the extended supply chain (Supply & Demand Chain Executive, 2017)

The four SCM strategies are described below as follows:

Lean: This involves reducing the non-value added activities

Agile: The companies adopt this strategy by constantly changing their SCM activities according to customer activities

Postponement: This is related to the concept of delaying the final manufacturing unit, until actual customer order is received.

Speculation- This involves increasing the savings by distributing and the production of finished goods in bulk (Dunbar, 2014).

As per the given situation the most appropriate SCM strategy for Call-Us plumbing would be adoption of a agile strategy as it can produce as per the customer demand (Coelho & Laporte, 2014).

7. Based on the present findings the capacity utilization rate is 65%. It has been further observed that based on the first strategy of annual stocking the company can save $ 7.74, while in the second strategy of POQ, the company can save $ 38.49.

8. The improvement in the overall performance strategy can be brought by following the second strategy of inventory. In this way the company will be able to ensure higher EOQ of 642.26 and higher Estimated annual savings in stocking costs with $ 38.49.

Reference List and Bibliography

Balcik, B., Bozkir, C. D. C., & Kundakcioglu, O. E. (2016). A literature review on inventory management in humanitarian supply chains. Surveys in Operations Research and Management Science.

Brandenburg, M., Govindan, K., Sarkis, J., & Seuring, S. (2014). Quantitative models for sustainable supply chain management: Developments and directions. European Journal of Operational Research, 233(2), 299-312.

Christopher, M. (2016). Logistics & supply chain management. Pearson UK.

Coelho, L. C., & Laporte, G. (2014). Optimal joint replenishment, delivery and inventory management policies for perishable products. Computers & Operations Research, 47, 42-52.

Dekker, R., Fleischmann, M., Inderfurth, K., & van Wassenhove, L. N. (Eds.). (2013). Reverse logistics: quantitative models for closed-loop supply chains. Springer Science & Business Media.

Dunbar, N. (2014). Hospital storage, monitoring, pretransfusion processing, distribution, and inventory management of blood components. Technical manual. 18th ed. Bethesda: AABB, 213-29.

Fawcett, S. E., Ellram, L. M., & Ogden, J. A. (2014). Supply chain management: from vision to implementation. London: Pearson.

John, N., Etim, J., & Ime, T. (2015). Inventory Management Practices and Operational Performance of Flour Milling Firms in Lagos, Nigeria. International Journal of Supply and Operations Management, 1(4), 392-406.

Mangan, J., Lalwani, C., & Lalwani, C. L. (2016). Global logistics and supply chain management. John Wiley & Sons.

Michalski, G. (2013). Value-based inventory management.

Monczka, R. M., Handfield, R. B., Giunipero, L. C., & Patterson, J. L. (2015). Purchasing and supply chain management. Cengage Learning.

Purchasing-procurement-center (2017). 4 Categories of an Inventory Management Tool. [online] Available at: https://www.purchasing-procurement-center.com/inventory-management-tool.html [Accessed 15 Mar. 2017].

Shodhganga.inflibnet.ac.in. (2017). [online] Available at: https://shodhganga.inflibnet.ac.in/bitstream/10603/73544/13/13_chapter%204.pdf [Accessed 15 Mar. 2017].

Smallbusiness.chron.com. (2017). What Are the Strategies Used in Production Planning & Scheduling?. [online] Available at: https://smallbusiness.chron.com/strategies-used-production-planning-scheduling-1808.html [Accessed 15 Mar. 2017].

Stadtler, H. (2015). Supply chain management: An overview. In Supply chain management and advanced planning (pp. 3-28). Springer Berlin Heidelberg.

Supply & Demand Chain Executive. (2017). Six Key Trends Changing the Supply Chain Management Today. [online] Available at: https://www.sdcexec.com/news/10358095/six-key-trends-changing-the-supply-chain-management-today [Accessed 15 Mar. 2017].

The Leadership Network. (2015). How Kanban systems are used in different industries. [online] Available at: https://theleadershipnetwork.com/article/lean-manufacturing/kanban [Accessed 15 Mar. 2017].

Web.eng.fiu.edu. (2017). [online] Available at: https://web.eng.fiu.edu/chen/Spring%202013/EGN%205620%20Regular/OM%20Files/C14-C15.pdf [Accessed 14 Mar. 2017].

Wieland, A., & Handfield, R. B. (2016). Supply Chain Management. In 5th World Conference onProduction and Operations Management. P&OM 2016.

Wisner, J. D., Tan, K. C., & Leong, G. K. (2014). Principles of supply chain management: A balanced approach. Cengage Learning.