8.3. Strategies for Coping with Demand Fluctuations

Now, I have to come up with this strategy to cope with this varying demand, in order to make sure that I lose the least amount of money, because of this coping demand fluctuation. So, one possibility is that whenever I have extra demand I take overtime, so if I pay overtime I get workers to work longer hours and make more carpets.

This chunk discusses the need for strategies to manage changes in demand for carpets. Since demand varies throughout the year, the company must adopt methods to minimize losses. One option is to utilize overtime, where workers can produce additional carpets by working extra hours to meet the increased demand.

Imagine a bakery that experiences high demand for pastries during holidays. To cope, the bakery owner might ask employees to work extra hours during this busy period, allowing them to bake more goods and satisfy customer demand.

But, there are 2 costs to this, the working wage per hour for overtime is typically higher than the regular wage, let us assume it is 80 percent extra. So, if you remember originally we paid 1000 rupees per carpet as our labor cost, so if I make it in overtime, it is going to cost me instead rupees 1800 per carpet.

While overtime allows for increased production, it also comes at a higher cost. The payment for overtime is 80% more than the standard wage, making the cost of carpets produced during overtime significantly higher. This introduces a financial consideration that must be factored into pricing and profitability.

Consider a photographer who usually charges $100 for a session but offers to do extra sessions at$180 if clients want them on short notice. While this allows more clients to be served, the increased cost might lead some clients to seek cheaper options if they are aware of the higher price.

There is a limit saying that a worker cannot make more than 30 percent overtime. So, if they make 20 carpets per month normally, then at most they can go plus 6, a single worker can make at most now including overtime 26 per month.

Each employee has a limit on how much more they can produce via overtime, capped at 30% of their usual output. This means, from a standard of 20 carpets, workers can only create 6 additional carpets using overtime. This limitation ensures workers are not overworked, but it also caps the maximum production potential.

Think about a university professor who typically teaches 20 hours a week. If they can only add 30% more hours, they could teach an extra 6 hours at most, bringing their maximum to 26 hours. This system helps keep workloads manageable while still offering flexibility.

The other option for me is to add or subtract employees. I might want to add new workers, in case I have a higher demand projected a month or I might need to terminate some employees in case my demand drops below 600.

Another strategy for coping with demand fluctuations is adjusting the workforce size. Depending on demand forecasts, the company can hire more workers during peak times or let some employees go during periods of lower demand. However, this comes with additional costs such as hiring and firing associated with the onboarding process and potential severance.

Imagine a seasonal landscaping company that hires extra workers in spring and summer when demand for services is high. Conversely, they may reduce staff in the winter months when fewer customers need lawn care services, requiring them to manage costs and employee transitions carefully.

Finally, I can store carpets when I made excess and sell them later when I have a demand, but storage also cost something. So, let us assume that storing a carpet costs rupees 80 per month.

Storing excess carpets can also be a viable strategy. By producing more carpets than currently needed, the company can sell them later when demand increases. However, this incurs storage costs, which must be considered when estimating overall profitability and efficiency.

Think of a grocery store that buys extra stock of popular snacks. While they can sale these items later when demand rises, they must also consider the cost of storing those items, which could include storage space and potential spoilage if the items have a limited shelf life.

So, now given these strategies, what we want to do is minimize the total amount of cost that we are going to put up. The total salary cost, additional hiring, firing, storage, and overtime need to be considered.

The ultimate goal is to minimize total costs associated with the strategies used to cope with demand fluctuations. This includes direct costs like salaries and overtime, as well as indirect costs like hiring, firing, and storage. By carefully balancing these factors, the company can maintain profitability while responding to market needs.

Imagine a restaurant trying to decide how many staff to schedule for a busy weekend. They have to weigh the cost of extra hours against potential profits from many customers. By scheduling just right, they minimize costs while maximizing profit, ensuring the business stays profitable.

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