In current economics three names stand out as the revolutionary minds that have both armed the public with knowledge to gain a foundation of comprehension of the way economy functions as well as a practical understanding of the factors that contribute to diagnosing the fickle field of fiscal theory.

In the bestselling book ‘Freakonomics’ by Steven D Levitt and Stephen J. Dubner they pull back the curtain to expose the realities of statistics gathering and an ‘in the trenches’ observation of the inner workings of alternative markets that influence mainstream economics. The correlations made in the book on topics such as the influence of Roe v Wade and the downturn of crime are considered by some to be controversial but legitimately arguable nonetheless. This book gives the reader facts to investigate to broaden their knowledge of all things economics with a fun and interesting read that flows nicely to maintain reader interest.

The next step to this public education initiative is the rapidly growing Zeitgeist movement, more specifically ‘Zeitgeist Economics’. This is the combination of philosophy, economic theory, applicable processes and sociological concepts that cater to regional stimulus without governmental intervention. This alluring yet ultra-complicated field of economics has been placed on the shoulders of globalization strategist James Scott, founder of Princeton Corporate Solutions.

‘Z.E’ takes followers down the twist and turns of the rabbit hole to discover the aspects of subliminal public policy introduction using PSYOPS strategies to grease the wheels of implementation, all-encompassing globalization and trade activation formulas and the actual application of legislative and entrepreneurial unification for actual stabilization of regional and global economies without traditional ‘debt based’ economic theory such as fractional reserve lending or other debt driven ideologies.

With the global crisis comes the public outrage and stemming from this outrage is an educational initiative that was never meant to be but evolved with the international demand for answers as the public is now engaging their political leaders armed with the knowledge provided by the likes of Levitt, Scott and Dubner.

Learn more about the economic Zeitgeist, explore MBA programs that make a difference MBA List

Supply and Demand

The task of managing businesses and ensuring a good balance between supply and demand is usually very much more complex for services than for goods, since goods manufacturers are able to separate production from consumption, they have the ability to hold stocks of goods that can be moved to even out regional imbalances in supply and demand. Stocks can also be built up to cater for any peaks in demand. Many of the strategies for managing supply and demand which are open to goods manufacturers are not available to services producers. Services cannot be stored which indicates an inability to match supply and demand consistently as an excess capacity in one time period cannot be transferred to another period when there is a shortage, nor can excess demand in one area normally be met be excess supply located in another.

This does not generally cause a problem where demand levels are stable and predictable. However, most services experience demand which shows significant variation:

• Daily variation (commuter train services in the morning and evening peaks, leisure centres during evenings)

• Weekly variation (night clubs on Saturday nights, InterCity trains on Friday evenings)

• Seasonal variation (air services to the Mediterranean in summer, department stores in the run-up to Christmas)

• Cyclical variation (the demand for mortgages an architectural services Unpredictable variation (the demand for building repairs following storm damage)

Success for organisations in competitive markets facing uneven demand comes from being able to match supply with demand at a cost that is lower than that of its competitors, with a standard of service which is higher, or both. Quality of service may suffer when a service organisation expands its output beyond optimal levels. For example, a bank offering a stockbroking service may suffer harm if it stimulates demand for its service at a time of peak demand, such as a flotation of a nationalised industry.

Demand is frequently stimulated during the off-peak periods using all elements of the marketing mix. Prices are often reduced during slack periods in a number of tactical forms (for example, “off-peak” train tickets, the “happy hour” in pubs and money-off vouchers) valid only during slack periods. Similarly, demand is suppressed during peak periods using a reformulation of the marketing mix. prices are often increased tactically, either directly (for example, surcharges for rail ravel on Friday evenings, higher package holiday prices in August) or indirectly (removing discounting during peak periods.

Controlling supply and demand within manufacturing means keeping production under close watch by watching output, within the timeframe and economic zone under consideration and matching supply to demand in terms of quantity and quality. The latter should be understood as the price/quality ratio and adequate technological response making it possible to answer the needs, attitudes and expectations of the consumer. There are many more elements of a manufacturing operation, other than workstation ability, impacting the ability to meet demand. These include:

• Material availability

• Tool, fixture and NC tape availability

• Waiting for a busy workstation

• Routings, especially alternatives

• Processing time standards

• Efficiency

• Waiting for transfer lot to complete

• Waiting for a process batch to complete (heat treat, autoclave, etc.)

• Maintenance

• Product mix

• Variability in set up time based on sequence material handling

• Cleanup time

• Double set up due to expediting

• Waiting for physical space

All these elements will have impact on the achievable output of a manufacturing organisation, and hence will dictate supply.

Factors Influencing Supply include the availability of raw materials and resources, efficient  management and effective production processes, competitive pressure in the market to meet consumer demands, the time-frame for changing production schedule between products and reacting to changing demands and current technology or physical capacity level of the producer.

Ways to modify the supply:

• Hiring/ firing workers: entails certain costs, both tangible and intangible.

• Overtime/Slack time: It is much less severe than hiring/ firing and is quicker and easier to implement.

• Part-time/Temporary labour: Is attractive because of flexibility it affords, and because companies can pay part-time or temporary workers less and not provide them with fringe benefits.

• Subcontracting: can have disadvantages, including higher costs and lack of control of product quality.

• Co-operative arrangements: many companies have arrangements to share facilities.

• Inventories: companies can use inventories as a buffer between supply and demand during the time period. Inventories are more useful in manufacturing than in service organisations.

Demand planning involves aggregate and item-level forecasts, inventory plans, and replenishment requirements for each node in the supply chain. Forecasting, inventory, and replenishment planning is carried out for each “demand unit”- item level units analysed by service territory or, increasingly, by customer or even individual customer facilities. Manufacturing planning and scheduling involves translating replenishment requirements into a manufacturing plan and a daily schedule for each manufacturing line or piece of equipment. Factors Influencing Demand include whether the good/service a necessity or a luxury, the availability of substitutes and the time frame for making the decisions regarding demand.

Ways to modify the demand

• Price incentives: are useful for reducing peak demand and stimulating off-peak demand.

• Reservations: requiring customers to reserve capacity in advance can influence demand

• Backlogs: companies can modify demand asking customers to wait for orders. • Complementary products or services: companies that have highly seasonal demand use complementary products and services to smooth out their demand. • Advertising/ promotion: can stimulate demand from peak periods to slack periods.

Forecasting

Forecasts help a company anticipate changes in customer demand so the company can be responsive to the needs and benefits of the customer. The are linked to plans and budgets, having a “look into the future” to show the logical consequence of the continuation with the existing plans – trends, fashions, peaks and troughs must all be taken into consideration. The identification of problem areas and then pursuing a different route or preventative measures are excellent planning tools. Forecasts provide an estimate of future levels of demand so that companies can have the necessary capacity and materials available to quickly and reliably respond to customers. In manufacturing the forecast helps prevent underproduction that would cause poor customer service, it also helps estimate periods of over-production that would lead to excessive costs and stock which could cause financial problems for the company. Businesses may use forecasts in several areas including:

Technological forecasts

- to estimate the rate of technological progress. Technological change will provide businesses with new products and materials to offer for sale, creating new competition and markets. This also includes the introduction of new processes for making regular products to reduce costs using the economies of scale.

Economic forecasts

- government agencies publish economic forecasts or a statement of expected future business conditions. These are of interest in regard to taxes, levels of employment and the needs of the economy for money (borrowing and lending). Businesses can obtain ideas about long and medium term growth from these forecasts.

Demand forecasts

- This gives the expected level of demand for the company’s goods or services throughout some future period and is usually an instrument in the company’s planning and control decisions. The portion of total demand that actually flows to a particular company is a result of many forces in the market.

In the management of service operations the aim is to maintain the same level of service at all times and this can provide difficulties for the operations manager when there are widely varying demands on the service. The more accurate a forecast can be made of demand patterns the more there exists the opportunity to arrange the resources of the operation to meet the demand. In the majority of service operations the capacity cannot be changed very greatly in the short term and there will be periods when there is the risk of losing customers because of their unwillingness to wait for the service.

In the current climate there is a need for effective, automated and computerised procedures where statistical forecasting techniques are particularly useful. These include time series data (showing product demands for past few weeks, average demand, trends etc) in order to produce a forecast of such details for future predictions. Error checking systems must be implemented however and the forecasts updated frequently to take into account new information. Forecasting models can be used to help with predictions and an example of such is shown below:

The general other 2 types of forecasting techniques used for demand forecasting are: time series analysis which are useful if the trend shows and fairly consistent pattern which is expected to continue, causal methods which use independent variables in addition to time in order to show a consistent relationship in the past and quantitative techniques.

The following table shows types and characteristics of forecasts:

Capacity

Capacity is the Ability to Meet Demand. If bottlenecks in the system can be eliminated it increased the opportunity to deal with peak demands. The provision of extra capacity must be linked to a costing exercise and the best arrangement of the two main capacity management strategies for a particular service operation selected with this in mind.

Capacity within a Service Context

The extent to which an organisation is able to adjust its output to meet changes in demand is a reflection of the elasticity of these factor inputs. Capacity is said to be inelastic over the short term when is it impossible to produce additional capacity but is elastic where supply can be adjusted in response to demand. The output of a service organisation is determined by the productive capacity of their equipment and its personnel. It is measured in units of output per time period. Some examples would include, patients treated per month or customers served per day. The variability of the demand for the service may be large over relatively short periods of time, this is typically experienced in retail outlets and restaurants in the course of a day. The time taken to perform the service may itself vary from customer to customer.

In some cases the use of a service is characterised by the random arrivals of the customers, when the determination of capacity may be dealt with by the application of queuing theory. If the demand for the service follows a pattern, or is expected to follow a pattern, historical data or marketing research may be used in mathematical models to establish an estimate for demand in the future. The resulting trends in demand will be either constant, rising or falling. Choices relating to capacity may be thought of as managing the gap between the required and the available capacity.

Capacity within a Manufacturing Context

Capacity is a measure of a manufacturing enterprise’s ability to provide products to its customers when needed, or a manufacturer’s ability to meet demand and is a major expense in most manufacturing companies. It is the highest sustainable output rate of a unit, given a particular product mix, a specified level of equipment, labour, and a normal work schedule. If too much capacity is available, the company has heavy capital and operating expenses. If too little productive capacity is available, or if the proper amount is available but poorly utilised, a company cannot meet the level of demand that could be possible and in either case profitability will suffer. Capacity is a Manufacturer’s Primary Asset – the facilities, equipment and people used to make product and the ways those facilities, equipment and people are used. Effectively managing manufacturing capacity can make the difference between loss and profit.

The availability of the individual capacities is entered into calendars. This allows the company to use multiple work shifts, calculating transport time during the production. Breaks, holidays and vacations can also be entered into the calendars either on a standard profile level or individually for each capacity. The capacity workload can be settled on single capacities, groups or departments for any period (days, weeks, months, and so on). This is used to see which capacities have the heaviest workload and to determine the most optimal use of capacities on all levels.

Very important in production capacity planning is the acknowledgement of constraints. Productions capacity can be constrained by number of machines or number of workers and the manufacturer must focus on managing all the limiting elements of the production capacity, not just a few- exposing the interactions and variability of materials, tools, operating strategy, product mix and other elements which determine their “ability to meet demand.” Then everyone in the organisation who makes decisions which impact capacity must have this new, more accurate information. The increasing or decreasing of production capacity costs money.

Capacity Management

Capacity management is concerned with the matching of the capacity of the operating systems and the demand placed on that system. In manufacturing it is a commitment to base all manufacturing planning on the real productive capabilities of the plant by those making the decisions based on the present and future ability to meet demand, including production planning, material planning, engineering, customer service, production support and business management, should have access to information about production capabilities and forecast operational performance.

Achieved through six capacity-specific functions, each of these functions is performed to support a distinct set of decisions in a manufacturing enterprise. The capacity-specific functions are shown below:

• Capacity Design is used to design new, expanded or modified manufacturing facilities to ensure that the production strategy, the capital equipment specifications, and the labour strategy meet long-range production objectives.

• Continuous Capacity Improvement is performed to enhance the processes and methods of an existing operation. “Should equipment be upgraded?” and “Should job sequencing methods be changed?” are addressed with this capacity function.

• Capacity Scheduling is used to plan capacity availability and loading to meet current demand and near-term expected demand. “How much overtime, if any, should be worked, and when?” and “Can an order be accepted without making other orders late?” are points addressed.

• Logistics Scheduling determines the dates at which materials, tools, fixtures and other production support are required. “When are the tools needed for this order’s broach operation?” and “When is the best time to do preventative maintenance on these workstations?” are answered during Logistics Scheduling.

• Production Scheduling is performed to develop accurate, achievable work plans for the short term by assigning jobs to workstations in a specific sequence. “Which grinder should be used to run this job in order to minimise set-up?” and “Should this order be given priority because its due date is approaching?” are addressed by Production Scheduling.

• Schedule Adjustment is used to make modifications to the near-term production schedule to reflect updates based on the most recent information available. “How should today’s jobs be reassigned since one mill went down?” are shown on the production schedule using Schedule Adjustment.

Adopting a Capacity Management orientation gives a manufacturer the opportunity to use their understanding of production capacity as a competitive advantage. Exposing elements, including both value-adding and non-value-adding components, which impact a manufacturer’s ability to produce provides insight used to make cost-effective decisions.

Capacity Management allows manufacturing management to achieve these business objectives:

• Meet customer delivery requirements and more confidently set expectations.

• Shorten production cycle time by identifying and reducing non-value-added time.

• Improve the quality of product by reducing disruptions caused by overly reactive planning and reducing the time product spends on the shop floor.

• Reduce cost by better managing inventories and the use of premium-priced production methods (overtime, expediters, premium freight).

• Provide a better quality of life for employees by reducing the frustration levels caused by constant interruptions and lack of visibility into the plan.

Accurate and achievable plans introduced through better capacity management result in increased confidence. Capacity is the principal asset of a manufacturing enterprise.

There are two basic capacity management strategies for service operations which can be used independently or in combination: Varying capacity in which the capacity is changed to follow changes in demand (referred to as the “chase” strategy by Sasser, Olsen and Wyckoff, 1978), which may be accomplished by:

• changing the number of service people

• changing the hours worked

• using subcontractors

• utilising the customers

• sharing capacity with other service operations

• transferring resources from one part of the operation to another

Manage demand by influencing demand to minimise the need to make changes in capacity. This may be accomplished by:

• price changes

• advertising and promotion

• developing non-peak demand

• developing complimentary services

• using reservation or appointment systems

• making the customer wait or queue

Aggregate Planning

Aggregate Planning is  a medium-term capacity planning that typically encompasses a time period of two to eighteen months. It involves determining the best quantity to produce and selecting the lowest-cost  method that will provide flexibility in capacity while meeting production requirements.  Aggregation is done according to:

• Products:  a product family is a group of products that are manufactured similar and have common labour and materials requirements

• Labour:  a company can aggregate work force  by product family

• Time:  the time period is usually about 1 year.

Aggregate production planning involves managing work force levels – the number of workers required for production, production rate – the number of units produced per time period and inventory levels – the balance of unused units carried forward from the previous period. It takes place in a complex environment that has a number of external and internal factors. Among the common objectives are:

1. Minimise costs

2. Maximise profits

3. Minimise inventory levels

4. Minimise changes in work force levels

5. Minimise use of overtime

6. Minimise use of subcontracting

7. Minimise changes in production rates

8. Minimise number of machine set-ups

9. Minimise idle time for plant and personnel

10. Maximise customer service

Most of the time organisations that sell products or services estimate the demand to this product time-unit (day, week, month). All these demands per time-unit are added together to get an aggregate demand for all products per time-unit. When this amount is calculated, the production capacity must be upgraded, or downgraded to meet this demand. When these organisations sell several product or services, this calculation becomes more difficult because it is not likely that two different products require the same amount of labour and raw material. Here the production is not per month (time-unit), but per unit. The amount of labour necessary to produce one unit can then be the standard to make the aggregate planning for these products.

Service industry sectors suffer similar problems to the manufacturing environment and use similar techniques. The service sector can be perceived as simpler since issues of stock are avoided (except in retail), but even then, replenishment stock is expected to be sent generally within 2 – 3 working days with stock either being ordered through the fixed quantity procedure or the fixed interval procedure.