Last period we discussed capacity and constraint management. Capacity is defined as the ability to hold, receive, store, or accommodate. In other words it is the maximum amount of work that an organization is capable of completing in a given amount of time. Constraint is when a companies system is limited in achieving its goals by at least one constraint. Managing both capacity and constraint will help the company identify the constraint and restructure the rest of the organization around it. If there’s a discrepancy between the capacity of a company and the demands of its customer then it could result in inefficiency, either in under utilized resources or unfulfilled customers. The goal of management is to minimize any discrepancies from occurring.
When trouble is on the horizon a strategic capacity plan takes formation. This type of planning matches capacity with anticipated demand requirements. Capacity can be increased through introducing new techniques and better utilization of existing capacity. A companies goal is to achieve its optimal or effective capacity which is the capacity at which it expects to achieve given is operating constraints. Now, theres a lot that is taken into consideration when assembling a strategy to alleviate any discrepancies in the organizations strategy. A company has to forecast accurately, understand its technology and find its optimum level of operation.
All things considered, there are a lot of companies that find themselves having discrepancies with their capacity and demand. One that quickly comes to mind are QSR’s. They have to accurately measure their output versus their demand. If they misjudge or miscalculate their capacity and constraints, it could cost them money in the short run. Additionally, their establishment could create a perception of inadequacy to the customer and cost them even more in the long run.
There are many other examples of companies or industries that often face this problem . Can you think of any? What problems do they potentially face with discrepancies in their management of capacity and constraints? Or can you think of a company that manages their capacity and constraints very well?
On Friday we discussed what forecasting is and how it is the underlying basis of all business decisions. A quick recap, forecasting is the process of predicting a future event. There are three types of forecasts used today; Economic, Technological, and Demand forecasts. Now, when we think of forecasting as related in this class, we assume that only companies take part in forecasting to predict events such as product demand, product development, sales numbers etc. What about the United States Government? Do they forecast? The answer is yes! If you think about it governments are just like companies with internal departments, agencies and people that they employ. Similar to companies, governments address business cycles or fiscal years in their case to mitigate any occurring or potential problems. More often than not, the majority and most important forecasting a government will do is an economical one. The strategic importance for a government to conduct an economic forecast is ensure that they are efficiently using their resources and operating at a capacity that they can maintain. If only the United States government would have taken this into consideration years ago.
Moreover, forecasting has time horizons such as short, medium and long range forecasting. The U.S. Government has to submit an economic outlook or forecast to the Congressional Budget Office every year and it includes all forecasting time horizons. However, these forecasts are not always accurate and some forecast might suggest that the system is stable and will continue as is. It is safe to assume that the U.S. Government uses a quantitative method as a forecasting approach. Mainly because it uses historical data and mathematical techniques to forecast the following fiscal year.
The United States Government faces daunting economic and budgetary challenges. The economy has struggled to recover from the recession that was triggered by an enormous decline in house prices and a financial crisis that the country has never seen before. Now, with sharply lower revenue and elevated spending, it wouldn’t take a genius to forecast a not so bright upcoming year for the economy but I believe there is still hope in turning it around. It won’t happen overnight but rather years from now.
Can you think of any other companies, governments, project managers etc, who use forecasting for their business decisions? If so, what approach do you think they took?