Shutdown. The output rates, output per available productive day, are shown in figure.Let’s examine three “ pure strategies” that the planner could use to cope with these wideswings in monthly demands.Strategy 1.
Vary the number of Productive employees in Response toVarying output Requirements ( also known as Chase 1 plan)
.Here, first the average productivity per employee is first calculated which determines thenumber of employees needed to meet the monthly required output demand. Theemployees are laid off when the output demand falls. As a result there is always Hiringand laying of employees. In our example, productivity per employee is 10 wagons / day.Therefore about 16 employees are needed in January, 53 in February, 62 in March and soon.This strategy has disadvantages. The hiring and layoff costs are going to be high, indirectcosts of training new employees are going to be there, employee morale low, requiredwork skills may not be readily available when they are needed, lead times necessary tohire and train the new employees must be accounted for in the planning process, societyreaction negative. Finally this strategy is not feasible for the companies constrained byguaranteed wage and also hiring and layoff agreements.
Maintain a Constant Work Force Size but Vary the Utilization of the Work Force
( also known as Level # 1
Suppose, for example, we chose the strategy of employing 70 workers per monththroughout the year. On an average, this work force would be capable of producing 700wagons each day. During the lean months (January, February, March, July, October, November, December), the work force would be scheduled to produce only the amountforecasted, resulting in some idle working hours. During high-demand months (April,May, June, August, September), overtime operations would be needed to meet demand.The work force would therefore be intensely utilized during some months andunderutilized in other months.A big advantage of this strategy is that it avoids the hiring and layoff costsassociated with strategy 1. But other costs are incurred instead. Overtime, for example,can be very expensive, commonly at least 50 percent higher than regular-time wages.Furthermore, there are both legal and behavioral limits on overtime. When employeeswork a lot of overtime, they tend to become inefficient, and job-related accidents happenmore often.Idle time also has some subtle drawbacks. During slack periods, employee moralecan diminish, especially if the idle time is perceived to be a precursor of layoffs.Opportunity costs also result from idle time. When employees are forced to be idle, thecompany foregoes the opportunity of additional output. While wages are still paid, some potential output has been lost forever.
Vary the Size of Inventory in Response to Varying Demand ( also known as Chase #2 plan )
Finished goods inventories in make-to-stock companies can be used as a cushion againstfluctuating demand. A fixed number of employees, selected so that little or no overtimeor idle time is incurred, can be maintained throughout the planning horizon. Producing ata constant rate, output will exceed demand during slack demand periods, and finishedgoods inventories will accumulate. During peak periods, when demand is greater than