Management may choose to build up capacity in anticipation of demand or in response to developing demand. Cite the advantages and disadvantages of both approaches.
Demand capacity managing is focused on the premise that the correct resources may be used properly manner at the appropriate time to improve match real as well as predicted demand with the flow of a particular firm.
The strategy of potential development in anticipation of demand pertains towards the completion of excess goods as well as raw materials purchased by a corporation to satisfy expected demand. Capacity development in anticipation of need is a dangerous practice. If the need is current and potential future, the investment will be justified because the business may gain a sizable share of the market. If it does not materialize, the corporation should refocus the resources spent. This method works well in high developing places.
The advantages of this approach include helping to satisfy predicted rises in demand, reducing stock-outs, possible loss due to lost sales, as well as unsatisfied consumers. Workers perform at quiet times when capacity is built up in anticipation of need. This also reduces additional expenses or the expense of hiring more personnel when demand is strong since it produces surplus items that may be held until they are ready for sale.
This enables the scheduling of personnel to make an item constantly without incurring the additional expenses of producing a large number of items when demand is strong. Furthermore, because raw materials, as well as aspects, are subject to cost fluctuations, businesses may procure anticipation stock when prices are lesser because it permits for bulk buys as well as gives them more bargaining power when bargaining expenses for a reduced price rather than settling for urgent buys at increased unit prices.
The conservative technique of developing capacity only when the demand develops pertains to constructing capability only when real demand is detected rather than anticipated demand. This technique has the benefit of reducing trash because there is essentially no risk of excess production. It also avoids excess expenses, cost of materials, inventories of raw materials including keeping charges, as well as other expenditures that can be highly expensive as a consequence of not having any stock maintained.
The disadvantages of developing capability in anticipation of customers include that prediction mistakes may arise since it is frequently difficult to anticipate how demand will vary due to a variety of factors to be considered. Buying more than businesses require will be quite expensive, as well as one may eventually sell the things at a deficit.
Furthermore, holding things in storage costs income in the form of overhead expenses, which are the expenditures incurred by a corporation for the inventories, and the space processing and storage, the machinery required to transport it around, as well as the staff as well as technology required to continuously monitor it.
An additional drawback is the possibility of expiration, which occurs when unwanted items are held for an extended amount of time as well as become outdated as well as valueless. The disadvantage of this approach is that a firm will not have any extra stock on hand in the event of an unforeseen increase in consumption. This will lead to a loss of sales as well as client unhappiness, which may outcome in clients migrating to rivals in search of an option
Some other disadvantages is that not getting sufficient stock kept can lead to additional charges as well as possibly the expense of recruiting extra staff to ensure that the item can maintain with the unforeseen rise in demand.
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