Student number: 19048000

Module name: Operation and Supply Chain Management

Module number: UMMDNX-15-2

Word count: 2324

Overview
Capacity refers to the maximum level of load that can be handled by the operating unit to
produce the maximum output (Morgan, 2006). Authors define capacity under three categories
which is design capacity, effective capacity and actual capacity. Design capacity is an ideal type
i.e. on perfect condition, which does not include any delays but effective capacity includes
planned stoppages. Actual capacity is same as effective capacity, however, it includes
unplanned/manageable losses too. Hilletofth & Ericsson (2010) highlight that capacity is a
dynamic concept which is interrelated with demand fluctuations and needs constant management
on micro levels, so capacity management has paramount importance for the minimization of
unplanned losses, maximization of effectiveness and utilization of resources (Van Meighem,
2003).
In the management process the aggregate capacity needs to increase or decrease with respect to
the fluctuations in demand. Hence, it is very important to adjust capacity inorder to effectively
respond to the fluctuations. Some adjustments are short term and require less time and resource,
however some require longer time and greater resource. Authors (Aarabi & Hasanian, 2014)
suggest that with proper capacity planning, the need of frequent and short-term adjustments in
the operation management is minimized. (Klassen & Rohleder, 2002) mention that firms should
be very careful as capacity decisions are strategic and major determinant of the initial and
operating cost, it can affect the management functionality and also it requires a lot of financial
and other resources. Hence for proper utilization of capacity various factors such as machine
work, shift and hiring and firing of the employees are to be considered while making respective
capacity decisions (Klassen & Rohleder, 2002). Consequently, while altering and adjusting the
capacity various capacity constraints could occur in the process which might create ‘bottleneck’
in the process. To mitigate these processes the TOC (Theory of Constraints) by Goldratt is found
to be the most effective as it portrays the idea of constant improvement (Simsit et al, 2014, pp
931). To back this theory up Balderstone & Mabin (1998) concluded from their report that
application of TOC has shown substantial progress in both operational and financial variables.
Morgan (2006) put forward the necessity to consider the future demand while taking the decision
to alter the capacity as the whole process largely involves commitment of resource, cost and
time. Moreover, it can have long-term effects to the company.
Authors (Hilletofth et al, 2009, Klassen and Rohdeler, 2002) define demand management as a
process that deals with the creation of synergy between marketing management and operation
management to understand the market and develop strategies and action plans emphasizing on
improvements of decisions that affect the demand accuracy. Demand is determined both by the
internal and external factors depending upon the sector, however for production companies it is
generally determined by the external factors and is difficult to control (Hilletofth et al, 2009).
Various external factors such as competitors, substitutes, complementary products, government
policies, etc. affect the demand. Therefore, the companies who understand the demand pattern
and its reliability better can be aware about the potential impacts of these factors on the demand
of their product (Forslund & Johnsson, 2007). It can be volatile and unpredictable, so calculating
the future demand and selecting a specific method to forecast needs to be done with utmost
accuracy. Based on the qualitative and quantitative approach, forecasting is done to predict the
future by considering the anticipations in demand. Accurate forecasting helps in timely capacity
planning and provides ease in the management of demand between the peak and non-peak
periods as they are the most initial activities and decide major supply chain decisions (Santos &
D’Antone, 2014).
To match the demand and to make adjustment decisions every firm has three choices for
strategy; lead strategy where capacity leads demand, match strategy where capacity matches
demand and lag strategy where capacity lags demand. Researchers (Van Meighem, 2003,
Tenhiala, 2010) have examined these various strategies and its effectiveness in manufacturing
and service companies. Lead capacity is an expensive strategy, however, it builds good customer
relationship because of availability and the advantages of this relationship can exceed the cost of
maintaining capacity (Sugumaran et al, 2009). In the match strategy capacity is added with
respect to the fluctuation in demand and investment decisions are extensively associated with
forecast. Inaccurate forecasting leads to shortages in case of missed demand or wastages in case
of oversupply (Tenhiala, 2010). Therefore, there is a crucial need for the companies to anticipate
demand as demands can be volatile and is difficult to control as it is generally determined by the
external factors (Pham et al, 2016).
Another important component of the whole supply chain process is the location of the company’s
manufacture and operation. Generally, the location decisions are not made on an operational
level but they should consider a number of issues that are solidly related to them such as
inventory control, warehousing and transportation modes and capacities (Melo et al, 2007). It is
extremely crucial for both the supply and demand departments to co-ordinate while making these
decisions as the imbalances and inclination can cause mismanagement and disruptions in the
chain management. Among different techniques, Weighted score method is believed as the
simplest and straight forward way as this method provides a framework which numerically ranks
the according to a criteria that is based on cost versus benefit basis. Selecting proper location
cuts costs and helps companies to deliver the productions as it reduces lead time. Warehousing is
also an important location factor that eases the delivery process but is applicable when there is
high demand.

Case analysis

The case illustrates the overall supply chain processes adapted by the Santa Catarina cannery to
manage its production and supply chain processes to meet the unpredictable rise of demand of
canned Tuna fish after the announcement of lockdown. It explores Santa Catarina’s partnership
with Lidl to export its tuna cans. Researchers Woodside, Golfetto & Gibbert (2015) mentions
that customer value based theory has become prevalent in the current economies and the
companies that are differentiated and have competitive advantage can outclass their competitors
if they can sustain their production and supply chain management. Santa Catarina cannery is a
tuna processing and canning industry that uses artisanal methods as the overall processes form
catching the fish to preparing and canning are done manually. Morever, no artificial
preservatives are added as all the ingredients have origins from fajas of Sao Jorge. Boehe and
Cruz (2010) suggest that including corporate social responsibility and globally sustainable
approaches in production increases product demand. Santa Catarina’s sustainable approach and
the use of 100% organic ingredients has provided it with a growing niche market as its
differentiated products has provided them with competitive advantage.
Santa Catarina joined partnership with Lidl, a retail chain, for exporting canned tuna to
Germany, Greece and Belgium since March. Santa Catarina cannery faced a great challenge in
managing its capacity after the demand hiked following the lockdown announcements. This
demand was unprecedented and caused a lot of difficulties for Santa Catarina’s manually labored
processing unit. Scholars Stefanov & Blanco (2006) mention that failure to provide the product
deliveries in time, decreases customer satisfaction causing detrimental effects to the customer
relationship. Hence, Santa Catarina used short-term capacity planning measures by increasing
the working hours for the labour staff as they were the integral part of the cannery and readily
available. Managing short term demand rises are difficult to as they require immediate actions
and can be costly and might positively or negatively affect the readily available employees
(Klassen & Rohleder, 2002). Likewise, this caused three weeks of immense stress to employees
to match capacity with the rising demand. Authors Lagemann and Meier (2014) present in their
research that a company’s flexibility in managing and adjusting its capacity depict its ability to
adapt to uncertainties. However (Davizon et al, 2015) argue that firms should be able to sustain
the flexibility because if not sustained properly the companies will face great challenge in
managing costs. Santa Catarina seemed quite flexible as the cannery managed to adjust capacity
in the short term however it over-utilized its labour resources. Santa Catarina had made small
positive enhancements in their productions to decrease lead time and accelerate productivity in
the previous year with expect of, however it is highly dependent on its manually skilled labours,
so overlooking the productivity issues in the short term can cause negative lags in the process.
Likewise, in the long-term, operational costs might rise as the productivity of the factory staffs
might decrease which will eventually lead to the requirement of hiring more skilled manpower.

Most of the firms prioritize either Demand chain management (DCM) or Supply chain
management (SCM) (Lagemann & Meier, 2014). Companies prioritizing the demand-led
approach have strengths in the management and coordination of the demand processes. In
contrast, companies focusing the supply-led approach focuses more on the execution of their
supply chain processes by developing accurate capacity planning to maximize supply chain
abilities and benefits. Aarabi & Hasanina (2014) suggest that without proper understanding of
demand a firm cannot maintain proper supply chain coordination. Considering export Santa
Catarina seems to focus more on supply-led approach, however Lidl focuses on both supply-led
and demand-led approach. It is evident from the case as Lidl have forecasted the demand of
Portugese cheese identifying various criteria and are approaching the necessary markets to export
it. Good forecasting helps companies to better manage product mix and also make better
investment decisions. Likewise, Lidl had already planned to partner with Santa Catarina to
export Tuna which proved to be successful. Although sales had shown unpredictable growth in
in March, the expected growths was being met which shows that Lidl had good accuracy in
terms of making forecasts. Lidl are the retailers who deal with the end customers which provides
them greater power to access demand management (Rexhausen et al, 2012) , however during the
unprecedented hike in the demand of Santa Catarina’s tuna, Lidl failed to exhibit proper demand
management which caused stress and difficulties for Santa Catarina to balance supply and
demand.

Moreover, the challenging location factor and the reliance of transportation on a single channel
added more pressure to supply the produced and canned tuna. Even after growing the capacity, a
major constraint for the cannery was the challenge to deliver its produced goods to the location
as the Santa Catarina factory is located in an island and there was boat only once a week.
Researchers Lagemann & Meier (2014) in their paper explained the risk of depending on a single
channel for delivery of the goods and products. For instance, in their paper they describe the
difficulties various companies had to after the earthquake in Japan. Relying on a single source
these companies had no options that to bear the consequences of the adversity. Likewise, Santa
Catarina faced great challenge to deliver their finished goods due to strike in Lisbon port. Their
dependency on single mode of transport with time limitations made them helpless. This
negatively impacted the overall efficiency and created great tensions for Lidl too.

RECOMMENDATION:

Santa Catarina is a company that has different objectives than a regular company as it counters
the global trend of just profit maximization. It incorporates various sustainable and corporate
social responsibility dynamics in its overall business and management process. It had a huge hike
in demand of its products and met the demands but with great stress and over-exploitation of
resources. Therefore, Santa Catarina should adapt JIT/Lean strategy for the smooth management
and balance in planning the capacity and balancing the supply. Secondly, more positive
enhancements are needed in their overall production process to create capacities to meet the
forecasts. Considering the feedback from the new markets, they should export aggressively to
new markets through Lidl. As the processes are being carried out to enter various markets, Santa
Catarina cannery should be ready to be flexible in terms of managing the minimum and
maximum levels of demand. Thirdly, Santa Catarina is a growing business and has gained
competitive advantage because of its location and master class, manually made Tuna. There is no
question about changing the location of the facility as there is high risk of losing their
competitive edge. Hence, they should scale up their work force by hiring more skilled manpower
and consistently focus on providing superior value for the customers to create a niche customer
base. Doing this will allow Santa Catarina to charge higher prices, deliver higher value to their
customers in a cost efficient way. Since the demand for low priced tuna is increasing and
moreover,the Covid-19 has negatively impacted the economy, both Lidl and Santa Catarina
should focus on selling lower priced Tuna through Lidl’s retail chain as the buying power of
people will be in a decreasing trend till the economy revives. Furthermore, the sale of sustainably
caught cod fish has increased which shows a positive acceptance of the consumers towards the
sustainable goods. Considering this, Santa Catarina can anticipate little or higher growth in their
demand in the coming months.

Since the co-ordination between both the companies did not seem very integrated from the case
both the companies should practice Collaborative Planning, Forecasting and Replenishment
(CPFR) as this will be mutually beneficial. While in times of scarcity, Lidl can use various
demand management techniques to hold and manage demand. Lidl has greater power in the
demand management, and Santa Catarina in the Supply management. Therefore, both the
companies should foster collaborative environment through sharing information, forecasts and
plans. This will allow both the companies to create integrated plans and develop process
efficiency. Henceforth, both of them should take decisions considering the mutual benefits of to
build a greater customer base in the short term and to outclass their competitors in the long run.
Therefore, these are some ways which might help both the companies in planning, strategizing
and managing their resources and capabilities to maintain and exceed their growth forecasts.
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