Question

Capacity Planning

The high-end yachts could be personalized products. The current factory of Breeze Company in France could produce 600 yachts every year as maximum capacity. However, they produce only 30 yachts every month.

Explain the possible reasons why Breeze company is using large cushion in their production.

Answer 1

The possible reasons behind the extremely low utilisation are as given below.

(i) The most probable reason is the low demand. Since it is a high end item, the demand is bound to be low and the factory might be producing the item only on demand due to very high cost of holding, as it can not afford to build inventory and stock it, waiting to be sold.

(ii) The other reason is high degree of customisation of product. Since every owner wants to have it made according to his /her needs, and being a high end luxury product, want to make it as customised as possible. The process of customisation is different from regular run of the mill production process and takes more time, thus less capacity.

(iii) The demand for luxury yacht is erratic, and the company wants to have high capacity to meet the demand of other products also, in addition to the production of yacht, which is a specialised and customised item.