Nestle Capacity Planning
Capacity planning is the technique of determining the manufacturing capacity needed by using a business enterprise to satisfy converting demands for its products. In the context of capacity planning, design capability is the maximum amount of work that an organization is able to finish in a given period. Examples of this are the seasonality of products. Capacity define as “the maximum level of value-added activity over a period of time”. Thus, three main factors come into force here – the capacity of resources and labour force, the process operation which itself leads to satisfying customers through matching demand. It is very important to plan and coordinate all 3 factors very effectively because a difference in capacity and performance easily affects: costs, revenues, working capital, flexibility, quality of goods, the speed of response and others.
PRODUCTION CAPACITY OF NESTLE
The world’s leading nutrition, health and wellness company Nestle?, with a 100-year presence in Turkey, is completing the construction of its breakfast cereals production facility which is going to meet the domestic demand and make Turkey an export and production base for the nearby countries. Nestle? is going to start the production of the breakfast cereals, which it has imported up to this date, in Turkey. Built with the support of the Investment Support and Promotion Agency of Turkey (ISPAT) in Karacabey, Bursa, the breakfast cereals production facility will begin production with a production capacity of over 10,000 tons in the second half of 2011. All of the raw materials to be used in the production processes will be procured domestically and Nestle? will buy 4,350 tons of sugar, 5,350 tons of wheat, 4,000 tons of corn and 1,000 tons of rice per year as of 2013. By the completion of production facility, almost all Nestle products which are sold in Turkey shall be produced in Turkey. The production facility, which will transform Turkey into a regional hub in the breakfast cereals category, is launched to the press through a meeting attended by Minister of Trade and Industry.
Capacity planning is composed of three individual stages, which are briefly elaborated below:-
Level Capacity Plan
This particular stage is committed to controlling and monitors the individual level of stock with the company. The mechanisms as part of the stage are planned for maintaining the same degree of production capacity for the company regardless of the demand. With the help of the activities adopted in the certain stage, the company aims to stabilise the employment, lowering the cost of unit, and higher utilisation of processes (Park, Ungson, and Cosgrove 2015). However, level capacity planning induces the company the need for production storage and inventory, rather than the falling sales. Therefore, Nestle should need to consider the “shelf-life” factor critically to control the situation efficiently when the production exceeds the demand. On the other hand, Nestle deals with the food products, which are non-durable goods. Based on the understanding, it is evident, that the certain stage of planning also brings some vital challenges for Nestle other than the identified benefits.
Chase Demand Plan
Demand chase plan is exactly opposite to the level capacity planning. Chase demand related planning process deals with the products that cannot be stored and should be sold immediately. The food and beverage product sold by the company is the effective example of such type of goods (Mahalder 2014). As part of this particular planning, the production process is controlled by the company to produce the equal number of goods as demanded by the target market. The particular approaches as part of the identified planning are introduced by Nestle under some certain conditions, especially during the picks and falls of demand in the identified market at a given period. Some of the critical measures embraced by Nestle during the period are:
• Reduction or extension of working days
• Recruiting human capital on a part-time basis
• Developing a full-time employment or laying off extra staffs
Demand Management –
Another useful level in the planning process of Nestle is growing the demand management mechanism for managing with the fluctuations commendably. Some of the well-known advantages of identified functions as a part of the specify making plan are a reduction of cost associated with the commercial enterprise process, improvement of services, advanced utilisation of company’s assets and capacities, and ultimately contributing to the increase of earnings. The planning process is majorly developed by transferring the demands of the client from extra condensed ranges to greater secure phases (Vachani and Post 2012). The corporation comprehensively does the diagnosed exercise thorough developing the opportunity products, providing discounts, or providing new outputs to the customers. One of the maximum compelling examples of the individual approach is cutting the price of an individual food product of the company to increase the client demands and purchasing power in the summertime. Accordingly, the stored products of the organization may be sold to the identified market consumers effectively.
From the overall information, it can be proposed that the selection of appropriate planning and control process influences the achievement of short or long-term goals requires the company analyse and determine the consequences of the activities.
The timing of capacity change
Changing the capacity of an operation is not just a matter of deciding on the best size of a capacity increment. The operation also needs to decide when to bring ‘on-stream’ new capacity. For example, Figure 6.10 shows the forecast demand for the new air-conditioning unit. The company has decided to build 400-units-per-week plants in order to meet the growth in demand for its new product. In deciding when the new plants are to be introduced the company must choose a position somewhere between two extreme strategies:
? capacity leads demand – timing the introduction of capacity in such a way that there is always sufficient capacity to meet forecast demand;
? capacity lags demand – timing the introduction of capacity so that demand is always equal to or greater than capacity.
Figure 6.10(a) and (b) shows these two extreme strategies, although in practice the company is likely to choose a position somewhere between the two. Each strategy has its own advantages and disadvantages. The actual approach taken by any company will depend on how it views these advantages and disadvantages. For example, if the company’s access to funds for capital expenditure is limited, it is likely to find the delayed capital expenditure requirement of the capacity-lagging strategy relatively attractive.
Figure 6.10 (a) Capacity-leading and capacity-lagging strategies, (b) Smoothing with inventories means using the excess capacity in one period to produce inventory that supplies the under-capacity period