Running Head: Operational Management
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Table of contents
Definitions of capacity planning 2
Stages for measuring capacity 3-4
Processes for capacity planning 4
Application by Lockheed Martin Corporation 4-6
Definition of supply chain management 6
Forms of supply chain 6
Principles of good supply chain management 7
Application by Lockheed Martin Corporation 8
The research is on the importance of capacity planning and supply chain management and how Lock Martin Corporation should apply the two in its business. Capacity planning and capacity are defined, stages of measuring capacity are discussed, the importance of capacity planning and their applications by Lockheed Martin. Supply chain and supply chain management are defined, forms of supply chains, principles that enable supply chain management and how Lockheed Martin applies them. Finally, there is the conclusion, which is a summary of all the major points.
Capacity planning is a strategic function that involves analysis of what a company should produce to meet changing demands. It is a long-term decision and seeks to establish the level of the organization’s resources. Capacity is a measure of an organization’s ability to meet the customers’ demand at the right time (Barnes, 2008). The stages for measuring capacity are:
Stage 1. Measure the demand
The levels involved in measuring demand are demand forecast, marketing strategy, business planning, production planning, master production schedule and scheduling. There should be an interaction between the various levels since scheduling decisions, which are short-term, are drawn from long-term strategies (Brown, 2005).
Stage 2. Measure the Capacity
Capacity is a variable that is dependent on many factors some of which are product mix and machine set-up requirements.
Stage3. Reconcile the capacity and the demand
This activity entails that the right amount of quantities are employed to meet the customers’ needs. For example in a bank, the right numbers of employees are needed to ensure that no customer is waiting. Another example could be in the registration point of sale if there are less cashiers making the queues long, the company can look into the possibility of increasing personnel and buying more computers (Barnes, 2008).
Stage 4. Evaluate the available alternatives and make a choice
In this stage, the company evaluates the options that they have to meet for a certain customer’s needs and chooses the best option. The best option should be the one that is most profitable and yet provides satisfaction to customers.
Capacity planning goal is to reduce inefficiency, which is the difference between the company’s supply and the customer’s demand. Increasing the number of shifts, new techniques, increasing the number of employees or machines, buying new equipment and materials or getting more production facilities are some of the ways to reduce discrepancy (Brown, 2005).
Capacity = number of machines or workers*number of shifts*utilization*efficiency
Capacity planning has the following processes: lead strategy then lag strategy and finally match strategy. In the lead strategy, the company adds quantity because it anticipates an increase in demand. This is an aggressive strategy, which is aimed at making customers shift from their current supplier and buy from the company. This strategy is ambitious but has a disadvantage of wastefulness. The lag strategy is a conservative strategy, which entails adding quantities only after the ones in store have been fully utilized and yet there is more demand. Although the strategy reduces possibility of losses, there is the risk of losing potential customers whose needs are not met. The match strategy is a moderate strategy that involves adding quantities with the variability having demand.
In capacity planning, questions like “should we choose the lead or the lag strategy?” or “should we have one big company or many branches?” are common. In answering these questions the company should know its capacity. With the example of Lockheed Martin, the company has determined its capacity and chosen the best strategy for each of its units. Since it has several segments namely aeronautics, space, information systems and global services among others, the company has looked at customer needs in each segment and determined the discrepancies present. With that information, it has gone ahead to determine the strategy to use (Blanchard, 2007). Strategies used are different for each segment because the aim is to meet the customers’ unique needs.
For example, in the aeronautics segment, the company has employed the lag strategy. This is because it is unprofitable for the company to make an aeroplane without demand. First, the cost of making aeroplanes is very high. If there is no immediate customer, it means that the money used will be tied-up in stock therefore reducing the company’s cash flows. The huge amounts of money are invested in profitable ventures like shares which are easily disposable. Secondly, most countries give specifications for the kind of plane they want. Since Lockheed Martin does not have prior information on the needs of every country, they produce on order. The same case applies to Lockheed Martin Space System (Finocchio, et al., 2008). Unless the company wants to produce missiles for personal use which is mainly testing a new technological advancement, it does not keep inventory.
In the Electronic Systems Unit, Lockheed Martin uses the lead strategy since most customers require the same type of electronics for example tactical systems, coast guard systems and radar systems. Since the business has many customers, they produce in large quantities to meet customers’ demand. There are also many competitors in this business, making efficiency a competitive edge. Lockheed Martin knows that if a customer is satisfied, he will tell his friends and with the news of the company’s good reputation spreading like fire, it is definite that the sales will drastically increase. The match strategy is appropriately used in service providence. In Lockheed Martin IS & GS-Security, provision of security at the right time is the key strength of the company. This is because customers get what they want at the right time, casualties are not only reduced but also the company earns a good reputation. Other companies want to have Lockheed Martin as their security providers and this expands Lockheed Martin’s business and profits. The same case applies to Lockheed Martin IS & GS Readiness & Stability Operations (Blanchard, 2007).
Decision of whether to employ more employees or buy more machines should depend on the company’s capacity. In Lockheed Martin’s case, it has at least 138,000 employees all over the world. That is a substantial number but it is small compared to the number of machines it has. The decision on whether to buy more machines or employ more people is based on many factors like, speed, accuracy, strength and cost effectiveness. For the aeronautic unit the company uses machines because they are more profitable and are strong. Also, the company has a sizable amount of capital; it is able to support the heavy capital expenditure. For the service industry, it employs more employees where there is need since unlike computers, people can have inter-personal communication. This kind of communication increases customers, through persuasion, tenderness and has the ability to make customers feel like the kings (Waters, 1999).
The effects of capacity decisions can be seen in the company’s decisions on lead time, operating cost and what the customer’s satisfaction is. If the wrong decisions are made, the company can lose profits and customers. If excess capacity is employed, the company has the risk of not investing in profitable projects. To make sure Lockheed Martin is profitable; it assesses its strengths and weaknesses and knows its customers’ needs. It engages in vigorous research to establish the most appropriate strategy in every situation. Apart from knowing the strategy, it carries out research to establish the exact quantities it should produce and the product mix. Lockheed Martin has established the terms of employment for the employees, that is whether part-time or full-time with an aim to provide employee satisfaction and in extension customer satisfaction. This is so because they have noted that a satisfied employee owns his work, which means he will be more productive (Waters, 1999). They also employ multi-skilled floating staffs because the company is diversified. To carry out the research, methods like the queuing theory and simulation modeling are used.
According to Lambert (2008), supply chain management is the “integration of key business processes across the supply chain for the purpose of creating value for customers and stakeholders.” Supply chain is a set of three or more companies that are directly linked by one or more upstream and downstream flow of services, products information and finances from a source to the customer. A supply chain can take various forms namely basic, ultimate or extended. In a basic supply chain a company, supplier and customer are directly connected to one or more upstream or downstream flows. An extended supply chain has suppliers of the immediate supplier and the customers of the immediate customer. This provides a bigger market and more networks. An ultimate supply chain includes all companies that are involved in the upstream and downstream flow of products, information, services and finances. It traces the first supplier to the ultimate consumer.
Supply chain management involves systematic and strategic coordination of all the traditional functions of a business and across businesses to make sure that long-term performance of the company and that of the other members of the supply chain is improved. To adopt this philosophy, firms must come-up with principles that support it. Bowersox and Closs in (Hugos, 2006), claim that for the success of the philosophy, the companies must first extend integrated behavior to suppliers and customers. Secondly, information should be shared among the members to facilitate monitoring and planning. Both tactical and strategic data should be made available to all members in the chain. Forecasts, marketing strategies and sales promotion strategies are some of the information that should be shared to reduce uncertainty in the partners. Thirdly, risk and rewards in the channels should be shared since it makes them focus on long-term matters and fosters cooperation. Fourthly, there should be cooperation among the members of the supply chain. Cooperation encompasses similar goals and working towards these goals. It could be quite difficult to make people work towards a common goal but with understanding among the members, it can happen. Cooperation can reduce supply chain expenses especially on inventory and research. As for research they should cooperate to develop a new product and design quality controls and delivery systems together (Lambert, 2008).
Fifth, the integration of processes should be emphasized starting from sourcing, to manufacturing and finally to distribution. To enhance these processes, third party service providers can be used together with cross-functional teams. There are three stages to this integration. First of all, the supply chain is a fragment of the functions of one company that has its specific controls. Secondly, there should be an internal integration emphasizing on cost reduction. An evaluation of the effects of trade-offs should be considered at this stage. Thirdly, there should be an internal corporate integration emphasizing on efficiency. Finally, partners should create and maintain long-term relationships. These relationships should be based on trust, cooperation, and commitment, compatibility among the companies, inter-dependence and a shared vision (Hugos, 2006).
Lockheed Martin has an excellent supply chain management. To satisfy its many customers, it ensures it has materials on time so that it makes the machines needed and delivers the order on time. Supplier relations are very vital in Lockheed Martin and are highly guarded. Since the company has branches all over the world, the company keeps close contact with all its suppliers by sharing vital information with them. Customers are not left out in information sharing. The company also makes sure that its members in the chain that include its many subsidiaries and sub-subsidiaries have vital information and share in the company’s goal. When it comes to cooperation, the company makes sure other members in the chain share its goal so that other companies do not lag it behind or worse still, one company to work against it.
Integration of processes is very vital so that the other members do not feel they are left out and start activities that put the company at risk. Risks and rewards are shared equally to prevent some companies or suppliers from feeling oppressed since such feeling can lead to the break-up of the merger Lockheed and Martin or it subsidiaries. Lockheed Martin upholds the values of trust and enduring relationships so that it can continue doing well and meeting its customers’ needs (Blanchard, 2007).
Capacity planning is the process of accessing what a company should produce to meet the customer’s demand while capacity is the ability to meet this demand on time. A company should measure demand, measure capacity, reconcile the two, look at available alternatives and finally make a decision. Capacity planning reduces inefficiency and Lockheed Martin follows these steps in its decision-making as explained and therefore improves its customers’ satisfaction and hence profits. Supply chain management involves the cooperation between all members in the supply chain. There is also exchange of information, integration of processes and creation of enduring relationships. Lockheed Martin maintains all the aspects of an effective supply chain and by doing so it improves its profitability.
Barnes, D. (2008). Operations Management: An International Perspective. London: Thomson. web.njit.edu/~jerry/OM/ch07.ppt
Blanchard, D. (2007). Supply Chain Management: Best Practices. Hoboken, N.J: John Wiley and Sons.
Brown, S. (2005). Strategic Operations Management. Amsterdam: Elsevier, Butterworth-Heinemann. www.gaebler.com/Capacity–Planning.htm
Finocchio, P., Prasad, R., & Ruggieri, M. (2008). Aerospace Technologies and Applications for Dual Use: A New World of Defense and Commercial in 21st Century Security. Aalborg, Denmark: River Publishers.
Hugos, M. (2006). Essentials of Supply Chain Management. Hoboken, NJ: Wiley. logistics.about.com/
Lambert, D. M. (2008). Supply Chain Management: Processes, Partnerships, Performance. Sarasota, Fla: Supply Chain Management Institute. books.google.co.ke/books?isbn=0761921117
Waters, D. (1999). Operations management. London: Kogan Page. www2.bc.edu/~xueme/MD021/…/capacity%20planning.doc
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