October 20, 2007

Operations Management Lesson 6 Exercise

Create a new entry in your Blog using the subject ‘Operations anagement Lesson 6 Exercise’. Find extreme or good examples of the following practices and justify the reasons for their adoption: 1. Level capacity management; 2. Chase capacity management; 3. Yield management; 4. Queue design.

Level Capacity Management

“The level capacity plan satisfies high demand from existing stocks. When demand goes below capacity, overproduction is stored as inventory in anticipation of higher demand in later months. The disadvantage of this approach is that this tends to build in high stock levels and hence high levels of working capital are required. “Companies can be left with excess stocks on their hands”.

An example of level capacity management could be the first step of the production of salt by evaporation (in Italy there is one industry like this in Salina).
In hot countries, salt is produced by allowing the sun to evaporate sea water in shallow pools or ‘pans’; the steps are in order:
Evaporation, Wash, Centrifugation, Grinding, Drying, Sack, Packaging, Shipping.
All the salt product by evaporation is accumulate in big pile and used when needed.
Normally, they  produce much more salt then they need as, in this specific case, there isn’t the problem for the company to stock or to be left with excess stocks on their hand, as the cost of stocking and the raw material is zero.

blog lesson 6 img1v2 (salina)

Chase Capacity Management

Opposite to the level capacity management is the chase capacity, “organisations could decide to match capacity and demand by altering the availability of resources. This might be achieved by employing more people when it is busy and adopting strategies such as overtime and additional shifts. The amount of planning does increase, but this is compensated by better utilisation of resources”.

An example of chase capacity management could be all kind of work with seasonal cycle p.e the management of a restaurant in a seaside resort, during the winter there are few costumers and therefore there are few waiters; only during the weekends (not always) and the summer the restaurant will be full of clients. During this period staff with a time contract will be taken to speed up the services.

Yield management

“Yield management is a collection of methods, that can be used to ensure an operation maximizes its potential to generate profit. “

An example of yield management can be seen in the streets of Rome, during the period of Porcini mushrooms. Every morning at the market you can see a farmer with its barrows that sells fresh mushrooms at a fixed price, it is logical that the purchaser will be the person who want the mushrooms for dinner and would like to pay that price for them, as the time pass, the possibility to have unsold goods increase and, in order to attract people to buy the mushrooms, the farmer will start to reduce the price.
The price is closely linked to the timing and quantity remained.

Queue design

An example of queue design is the queue that is made within the Big shop (like a supermarket) in the patrol station on highway close to Rome. Normally during the peak season (p.e. during holidays) a long queues are formed at the cash desk, in order to optimize the queue and make more pleasant stay in the queue, the manager decided to draw the line along the shelves of the shop and especially the area of the magazines. In this way the customers may both be attracted to products which had not seen previously, and thumb the magazines.


Zoe Radnor (2007); «Operation Management »;Warwick Business school

N. Slack, S. Chsmbers, R. Johnston, A. Betts; «Operation and Process Management »; Prentice Hall

- 2 comments by 1 or more people Not publicly viewable

  1. This blog was great. I loved your example of salt manufacture. I suppose, however, that the process depends partly on the weather, etc – so you ned to ensure stocks are sufficiently high.

    Another issue might be the capacity of the packing plant – if a rush of orders come in.

    Your petrol station example was also good – how to turn a problem into an opportunity!

    26 Oct 2007, 15:29

  2. the packing plant it’s not a real problem, as they use 2 automatic packing machines that could pack up to 80,000KG/hour

    28 Oct 2007, 11:09

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