Most businesses don’t have the time or resources to develop a sophisticated production strategy. However, without a well-developed production strategy, your business is at risk of running out of products and being unable to meet customer demand.
Chase Production Strategy is a simple but effective way to plan your production and avoid stock-outs.
This post will cover what you need to know about the Chase Production Strategy, including how to implement it and the advantages and disadvantages.
What is the Chase Production Strategy?
The chase production strategy is a production strategy in which production is adjusted to meet the fluctuations in customer demand. This contrasts with a level production strategy, in which production is constant regardless of demand.
Chase production strategy is a way to plan your production and avoid stock-outs. The basic idea is to keep track of customer demand and produce enough products to meet demand while leaving room for inventory. It is suitable for seasonal items.
This strategy is also called the “Demand matching” strategy because, in this production strategy, you will vary production to meet customer demand.
When to use the Chase production strategy?
It is best suited for businesses that experience significant fluctuations in demand. This can be due to seasonal factors, such as a business that sells ice cream cones in the summer and hot chocolate in the winter. It can also be due to other factors, such as a business that produces custom products or operates in a highly competitive market.
How to Implement Chase Production Strategy?
There are a few simple steps to implementing the Chase Production Strategy:
- Determine your desired production level – You must decide how much product you want to produce in advance. This number should be based on your projected sales and the amount of product you need to keep in stock.
- Calculate customer demand – Once you know your desired production level, you can calculate the demand for your product. Please track how much product your customers buy and when they buy it. This information will help you plan your production in advance.
- Produce enough products to meet demand – Produce enough products to meet customer demand while leaving room for inventory.
- Adjust production as needed – Match your production to customer demand. If demand increases, increase production. If demand decreases, decrease production.
Risks of Chase Strategy
There are a few risks associated with using the chase strategy:
- Variations in the market – If there is a sudden change in the market, your production levels may not be able to meet customer demand.
- Changes in order – If customers change their orders at the last minute, your production levels may not be able to meet customer demand.
- High inventory levels – If you produce too many products, you will have high inventory levels and excess products that you may be unable to sell.
- Wrong estimation of market demand – If you underestimate the market demand, you may not be able to meet customer demand. If you overestimate the market demand, you may have excess inventory you cannot sell.
Chase Production Strategy Example
Let’s take an example of a company producing caps using the chase production strategy.
The company sets a goal to produce 1000 caps per month. At first, they started calculating customer demand per month. They track consistent orders from previous months and calculate the average to determine customer demand. Based on this information, they plan to produce 250 caps per week. They made the necessary arrangements for the inventory.
Next month, they will adjust production as needed to match customer demand. If demand increases, they increase production. If demand decreases, they decrease production. This way, they can avoid stock-outs and always have enough hats to meet customer demand.
Advantages of Chase Production Strategy
- Helps you avoid stock-outs – By keeping track of customer demand and producing enough products to meet demand, you can avoid running out of products and frustrating your customers.
- Meets customer demand – The strategy meets customer demand by producing the right amount of products to match demand.
- Flexible – The Chase Production Strategy can be adjusted to meet changing customer demand. This allows businesses to respond quickly to changes in the market and ensure that they are always meeting customer needs.
- Prevents excess inventory – By producing only what is needed to meet customer demand, businesses can avoid having excess inventory that they cannot sell. This helps to keep costs down and prevents waste.
Disadvantages of Chase Strategy
- Increased inventory levels due to longer production runs
- Lower product quality as a result of increased batch sizes
- Longer lead times from order to delivery
- Difficulty in responding to changing customer demand
- Higher production costs per unit due to economies of scale not being realized
Chase production strategy v/s Level production strategy
|Chase production strategy||Level production strategy|
|Under the chase production strategy, production is adjusted to match fluctuations in customer demand. This means that businesses may need to hire and fire workers more frequently, and they may need to purchase more expensive equipment that can be easily scaled up or down.||Under the level production strategy, production is kept constant regardless of demand. This means businesses will produce the same amount of products each month, even if demand fluctuates.|
|Reduces the inventory cost and improves the customer satisfaction.||This can lead to high inventory costs and stockouts if demand is higher than expected.|
|It is challenging to implement and more expensive.|
It is easier to implement and less expensive than chase production.
The chase production strategy is one of the aggregate production planning strategies that a business can use to produce and manufacture products. This type of strategy has advantages and disadvantages, as explored in this article.
Ultimately, whether or not the chase production strategy is right for your business will depend on various factors, including your specific industry and operating environment.