In the context of production and operations management, a chase strategy refers to a strategy where production is adjusted in response to demand. In other words, it tries to “chase” the demand. The firm hires more employees or schedules more shifts during periods of high demand while reducing staff and shifts during periods of lower demand.
This strategy is most common in service industries where inventory cannot be stored. Examples include hospitality, health care, and other services where the product is consumed immediately.
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Advantages of the chase strategy include:
- Reduced Inventory Costs: By producing goods based on the current demand, the chase strategy minimizes the company’s inventory to maintain. This leads to reduced storage, insurance, and inventory handling costs. It also minimizes the risk of inventory obsolescence.
- Improved Cash Flow: Less money tied up in inventory means better cash flow, which can be used for other operational or investment activities.
- High Service Levels: By meeting demand as it occurs, companies can achieve high service levels. This approach helps avoid stock-outs, ensuring customers can purchase the product when they want, which leads to higher customer satisfaction.
- Reduced Risk of Unsold Goods: Since production matches demand, there’s a lower risk of ending up with large quantities of unsold goods, which is particularly beneficial for industries dealing with perishable goods or trends/fashions that change rapidly.
- Greater Flexibility: The chase strategy provides businesses with the flexibility to respond to fluctuations in demand, which can be particularly useful in industries where demand is seasonal or unpredictable
Disadvantages of the chase strategy include:
- High Operational Costs: Frequently adjusting production levels to meet fluctuating demand can lead to higher operational costs. This includes costs associated with ramping up or scaling down production, such as overtime pay or costs related to underutilized capacity.
- Workforce Management: Hiring and laying off workers in response to demand fluctuations can be costly and time-consuming. It also poses challenges related to training new staff and potential severance costs for letting employees go.
- Employee Morale: Constant fluctuations in employment levels can hurt employee morale. This could lead to higher turnover rates, reduced productivity, and potential damage to the company’s reputation.
- Quality Control: Rapid changes in production levels can sometimes lead to quality issues, particularly if new, less experienced workers are frequently brought in or if machinery is overused or not used to optimal capacity.
- Supply Chain Disruptions: Sudden changes in production levels can lead to instability in the supply chain, causing supplier issues and potentially leading to higher costs and delays.
- Limitations in Rapid Scaling: While the chase strategy relies on quickly increasing production when demand rises, practical constraints (e.g., limited availability of skilled workers, limitations in machinery and raw materials, etc.) can limit how quickly and efficiently production can be increased
Types of chase strategy
The term “chase strategy” is generally associated with a singular approach to production planning: adjusting the production level to match the demand. However, how a company implements a chase strategy can vary, and these variations could be viewed as “types” of chase strategy. Here are a few ways the chase strategy might be implemented:
- Hiring and Firing: When demand fluctuates, companies adjust their workforce size. They hire more workers during high-demand periods and lay off workers during low-demand periods. However, this can lead to high recruitment, training, and severance costs, negatively impacting employee morale.
- Overtime and Idle Time: Companies might use existing staff more flexibly instead of hiring or firing workers. During peak periods, employees work overtime; during slow periods, they might have idle time or take time off.
- Part-Time or Temporary Workers: Companies could hire part-time or temporary workers to adjust to the fluctuating demand. This approach can be less disruptive than firing and hiring full-time employees, but it may result in a less experienced workforce.
- Subcontracting: Some companies may choose to outsource or subcontract work during high-demand periods. This approach can be flexible and less disruptive to the core workforce, but the company may have less control over the quality of the subcontracted work.
- Backordering: In some cases, companies might not fulfill orders immediately during high-demand periods. Instead, they take orders and deliver the products when they can. This approach requires customers to be willing to wait for their orders, which may not always be the case.
- Combination of Strategies: Many companies use these methods to manage fluctuating demand. The exact approach depends on the nature of the industry, the company’s capabilities, and customer expectations.
Remember, the chase strategy is just one of the demand management strategies a company can use, no matter how it is implemented. Other strategies include level production strategy, where production remains constant irrespective of demand, and hybrid strategy, a blend of the chase and level strategies. Each approach has its own advantages and disadvantages, and the best choice depends on a company’s specific circumstances.
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Examples of chase strategy
The chase strategy is typically used in industries where demand is unpredictable, and the product or service cannot be stored, such as in the service industry or when products have a very short life cycle. Here are some examples of industries or companies that may use the chase strategy:
- Restaurants: Restaurants often use the chase strategy to meet the fluctuating demand. During peak hours or seasons, they may hire more temporary staff, extend working hours, or increase shifts to meet higher demand. In contrast, during off-peak hours or seasons, they may reduce working hours or shifts, thereby controlling costs.
- Retail Stores: Retailers, especially those in the fashion industry, often chase the demand. They increase production when a particular style or trend is in demand and reduce it when the trend fades.
- Call Centers: Call centers often employ a chase strategy. They may hire more employees or schedule more shifts during expected peak times, such as during product launches or promotional periods, and reduce shifts or use part-time employees during off-peak times.
- Airlines: Airlines often adjust their number of flights based on demand. During peak travel seasons, airlines add more flights to their schedule, while during slower times, they reduce the number of flights.
- Tax Preparation Firms: Companies that offer tax preparation services experience a significant increase in demand during tax season. They often hire temporary workers to meet this demand and then reduce staff after the tax season ends.
- Event Management Companies: These companies see a variable demand based on seasons and specific event dates. They scale up their resources (like part-time staff, outsourced services, etc.) to match the high demand during peak times and scale down during off-peak times.
- Florists: Demand for flowers is high during certain times of the year, such as Valentine’s Day or Mother’s Day. Florists may increase their inventory, hire temporary workers during these peak periods, and then reduce them afterward.
