In order to use the “level output/workforce strategy”, variations in demand are met by:
A. varying output during regular time without changing employment levels.
B. keeping output level by changing workforce levels.
C. relying on overtime to adjust capacity.
D. using some combination of inventories and back orders.
E. Subcontracting
The correct answer and explanation is :
The correct answer is:
D. Using some combination of inventories and back orders.
Explanation:
The level output/workforce strategy is an approach used in production planning where the output (production rate) remains constant over a period, regardless of fluctuations in demand. Instead of adjusting workforce levels or production rates frequently, businesses manage variations in demand through inventories and back orders.
- How It Works:
- The company maintains a stable workforce and produces goods at a constant rate.
- During periods of high demand, it meets excess demand using previously built-up inventories.
- During low demand periods, excess production is stored as inventory for future use.
- If demand exceeds available inventory, back orders (delayed deliveries) are used to fulfill orders later.
- Advantages of the Level Strategy:
- Workforce Stability: Employees have consistent work schedules, reducing costs associated with hiring, layoffs, and training.
- Predictable Costs: Since production levels remain constant, it is easier to forecast material and labor costs.
- Better Supplier Relationships: Companies can maintain steady raw material purchases, improving supplier negotiations and efficiency.
- Disadvantages of the Level Strategy:
- Inventory Costs: Holding large amounts of inventory can increase storage costs and risks such as obsolescence or damage.
- Customer Dissatisfaction: Back orders may lead to delayed deliveries, potentially reducing customer satisfaction.
- Mismatch with Demand: If demand fluctuates unpredictably, excess inventory can lead to inefficiencies, or stockouts can cause lost sales.
Why Other Options Are Incorrect:
- A (Varying output) contradicts the principle of keeping production stable.
- B (Changing workforce levels) describes the chase strategy, not the level strategy.
- C (Overtime adjustment) involves modifying working hours rather than maintaining a steady production level.
- E (Subcontracting) is more common in hybrid strategies, not strictly in level strategies.
Thus, the level output/workforce strategy relies on inventories and back orders to manage demand fluctuations effectively.