Executive Summary
The core business activity of Holy Farm was production and sale of milk and cereals. However, the revenues generated from these activities have since declined. In order to increase revenue, the farm was opened to the public. Members of the public were allowed to visit the farm at a fee. The main attraction at the farm includes the milking parlor where the visitors watch the milking process. The farm has a capacity of 250 visitors per day.
However, the owners of the farm have not been able to receive the required 250 visitors per day. Thus, their main concern is to increase the number of visitors to the farm. This objective can be achieved in the following ways. First, the farm can be opened for a longer period. In particular, it can be opened in all months instead of closing it from November to March.
The farm can also be opened during Christmas and Easter holidays. Second, the number of visitors can be increased by organizing educational trips and special events such as dance and coach parties. Finally, more revenue can be generated by opening a souvenirs shop and a restaurant. These can be opened through outsourcing.
Managing Processes
Introduction
Holy Farm initially focused on the production and sale of milk and cereals. Following a decline in profits from their core business activities, Holy Farm was opened up to the public in order to generate more revenue. Consequently, the owners of the farm constructed car parks. They also constructed a safe viewing area where the visitors can watch the milking process. Currently, the farm targets schools and the local community with its new services.
The farm has a capacity of 250 visitors per day. However, the owners of Holy Farm are yet to realize the expected returns on their new venture (opening the farm to the public). In general, the number of people visiting the farm has been fluctuating. The demand for visits to the farm is high from April to October, and remains very low in other months. Consequently, the farm is often closed from November to March.
The number of visitors is also very low during the week days. As a result, the farm is usually opened from Friday to Monday. The number of visitors received on Sundays and Saturdays is usually double the number of visitors who tour the farm on Monday and Friday. In light of these fluctuations, the owners of the farm intend to increase the number of visitors by 50%.
However, the farm faces financial constraints and, thus, cannot depend on capital investment to increase its capacity. Consequently, the owners intend to increase the number of visitors through sales promotions and advertisements. In this paper, the current capacity of Holy Farm will be analyzed. The optimal ways of achieving the targeted capacity will then be discussed.
Current Capacity
The productive capacity of a firm is the total amount of output in terms of goods and services it can produce within a given time period (Nigel, Alistair and Robert, 2011, p. 299). Potential capacity is the maximum amount of output that can be produced by the firm’s installed equipment and human resources (Clark and Robert, 2008, p. 45).
Actual capacity is the actual amount of goods and services produced by the firm within a certain period. Thus, capacity utilization “is the percentage of the firm’s total possible production capacity that is actually being used”.
Holy Farm’s owners invested in a milking parlor in which 150 cows can be milked using a slow-moving turntable. They also constructed a gallery to enable visitors to watch the milking process. 80 people per hour visited the gallery from 4.30pm to 7.00pm. This means that the milking parlor was open for two and half hours per day.
Thus, the capacity can be calculated by multiplying 80 (visitors per hour) by two and half hours. The result which is 200 is divided by 80% to get 250 as the capacity or the maximum number of visitors who can tour the farm in a day. Thus, the farm’s monthly capacity can be illustrated in the graph below.
The figures for each month are obtained as follows. In April, the total number of visitors is 1,200. By dividing 1,200 by 4, we get the number of visitors per week to be 300. In order to get the number of visitors per day, we divide 300 by 6 and get 50. Thus, the number of visitors on Monday and Friday is 50, while the number of visitors on Sundays and Saturday is 100. This is because the number of visitors on Sundays and Saturdays is double the number on Mondays and Fridays.
In May, the total number of visitors is 1,800. Dividing 1,800 by 4 we get the weekly number of visitors to be 450. The number of visitors per day is obtained by dividing 450 by 6 to get 75. Thus, the number of visitors on Monday and Friday is 75, while the number of visitors on Sunday and Saturday is 150.
In the month of June, the total number of visitors is 2,800. The number of visitors per week is obtained by dividing 2,800 by 4 to get 700. The number of visitors per week is obtained by dividing 700 by 6 to get 116.6. Since we can not get a fraction of a visitor we round off 116.6 to get 117. Thus, the number of visitors on Monday and Friday is 117, while the number of visitors on Sunday and Saturday is 234.
The total number of visitors in the month of July is 3,200. By dividing 3,200 by 4 we get the number of visitors per week to be 800. By dividing 800 by 6 we get the daily number of visitors to be 133.3. This can be rounded so that we get 134 visitors per day. Thus, the number of visitors on Monday and Friday is 134 and the number of visitors on Sunday and Saturday is 268. In August, the total number of visitors is 3,400.
By dividing 3,400 by 4 we get the weekly number of visitors to be 850. The daily number of visitors is obtained by dividing 850 by 6 to get 141.6. By rounding off 141.6 we get 142. Therefore, 142 visitors are received on Monday and Friday and 284 visitors are received on Sunday and Saturday. In September, the total number of visitors is 1,800. The weekly number of visitors is obtained by dividing 1,800 by 4 to get 450.
The number of visitors per day is obtained by dividing 450 by 6 to get 75. Hence, the number of visitors on Monday and Friday is 75. However, on Sunday and Saturday, the number of visitors rises to 150 since the number of visitors for Sunday and Saturday is double the number of visitors for Monday and Friday. Finally, 600 visitors were received in October.
The weekly number of visitors is obtained by dividing 600 by 4 to get 150. The daily number of visitors is obtained by dividing 150 by 6 to get 25. Hence, 25 visitors are received on Monday and Friday, while 50 visitors are received on Sunday and Saturday.
The rate of capacity utilization has a direct bearing on the firm’s revenue and costs. In particular, the capacity utilization rate determines the amount of fixed costs per unit of a product or service (Betts, Meadws and Walley, 2000, pp. 185-196). The fixed costs per unit reduce as the firm increases the rate at which it uses its capacity.
Thus, Holy Farm is likely to have the lowest cost of hosting visitors in August when demand is very high. Since the fixed costs are low and the revenue is high due to the increase in the number of visitors, the firm is likely to make high profits. From November to March when demand is very low, the fixed costs per unit are likely to be very high. Thus, the Farm is likely to make low profits or even loses since the fixed costs remain constant while the revenue reduces as the number of visitors reduces. The result of the capacity assessment shows that the farm has not been able to receive 250 visitors per day. Consequently, the owners of the farm must use available resources to increase the number of visitors to 250 per day.
If the number of visitors is increased by 50%, the number of visitors touring the farm on monthly basis will increase as illustrated in graph 2 below. The number of people visiting the farm on a daily basis is calculated as follows. We multiply the daily number of visitors (current capacity) with 150 and then divide the result by 100. Thus, in April, 75 people will visit the farm on Monday and Friday. The number of visitors will increase to 150 on Sundays and Saturdays.
Graph 2
In May, 112.5 visitors will be received on Friday and Monday while on Sunday and Saturday, the number of visitors will increase to 225. In the month of June, 175 people will visit the farm on Monday and Friday. However, on Sunday and Saturday, the number of visitors will increase to 350. In July, 200 people will visit the farm on Monday and Friday. On Sunday and Friday, the number of visitors will increase to 400.
In August, the number of visitors received on Monday and Friday will be 212.5. However, on Sunday and Saturday, the number of visitors will increase to 425. In September, the number of visitors will be 112.5 and 225 on Monday and Friday, as well as, Sunday and Saturday respectively.
Finally, in October, the number of visitors will be 37.5 and 75 on Monday and Friday, as well as, Sunday and Friday respectively. The number of visitors can be increased through demand management since actual capacity is a direct function of the level of demand (Clark and Robert, 2008, p. 143).
Demand Management
Demand management involves influencing the level of demand for a given product or service in order to meet the sales target or the desired capacity utilization (Armistead and Clark, 1994, pp. 5-22). In the context of Holy Farm, demand management will involve increasing the demand for visits to the farm in order to meet the desired capacity utilization.
Demand can be influenced through advertising and sales promotions (Croxton, Lambert and Rogers, 2002, pp. 51-66). Currently, the owners of Holy Farm intend to intensify their marketing initiatives. However, they face difficulties in identifying the customers to target with their advertising initiatives. The farm can focus on a specific market such as schools and reach them using the adverts and sales promotions.
Capacity Management
Capacity management involves planning for and controlling the existing capacity in order to achieve the desired level of operation (Coughlan and Coughlan, 2002, pp. 220-240). Planning and controlling capacity is the process through which effective capacity is set so that the firm’s operations can respond to changes in demand (Taylor, 2006, pp. 163-186). Planning, as well as, controlling capacity occurs both in the long-run and in the short-run (Diaz, Torre and Garcia, 2002, pp. 286-302).
The full capacity utilization can be achieved in the following ways. First, the farm can be opened to the public for a longer period in order to increase revenue. For example, the farm can be opened from November to March instead of closing it during this period. Second, the farm owners should strengthen their relationships with schools. This can be achieved by organizing educational trips in the farm during the school days.
The educational trips are likely to attract more customers since they are not only for entertainment, but also for learning among the school students. Additionally, the educational trips can help in increasing the midweek capacity utilization since the trips can always be organized on week days.
Third, the firm can also increase sales to coach firms by organizing coach parties in the farm. Special events such as wedding parties can also be organized to attract more visitors. Fourth, the farm should be opened during special occasions and holidays. For example, the farm can be opened during Christmas and Easter holidays. Special events such as dance parties can also be offered during the holidays in order to attract more customers.
Many people are likely to visit the farm during the holiday seasons since they have more time. Additionally, many people prefer to spend on leisure activities during the holidays (Taylor and Fearne, 2009, pp. 379-392). Finally, the farm can generate more revenue by opening a souvenirs shop and a restaurant. Since the farm has no resources for capital investment, the souvenirs shop and restaurant services can be outsourced.
Queuing
Queuing theory involves using quantitative techniques to analyze waiting lines and arrival at queues (Voss, Tsikriktsi and Frohlich, 2002, pp. 195-219). It enables mangers to analyze the efficiency of serving customers in a queue (Klassen and Rohleder, 2006, pp. 527-548). The rate of capacity utilization has a bearing on the waiting time or the time required to deliver services. In general, the waiting time increases as the rate of capacity utilization tends towards 100%.
In the context of Holy Farm, queues are used to access services at the milking parlor. The milking parlor is often opened at 4.30 pm. However, the visitors normally arrive at the gallery before 4.30 pm to watch the milking process. Consequently, queues usually build up at the gallery. The queues can be reduced or eliminated by opening the milking parlor earlier. The queues can also be reduced by reducing the waiting time. This can be achieved by reducing the time spend by each visitor to watch the milking process in the gallery.
Conclusion
Holy Farm was opened to the public after the revenue from milk and cereal production declined. The objective was to allow members of the public to tour the farm at a fee. This would enable the owners of the farm to generate more revenue. The farm has a capacity of 250 visitors per day. However, the farm has not been able to operate at the full capacity of 250 visits per day. Additionally, the farm is only opened to the public from April to October.
Thus, the farm’s facilities are not used from September to March. In order to achieve the objective of generating more revenue, the owners of the farm intend to increase the number of visitors to the farm. This objective can be achieved by opening the farm for a longer period.
For instance, the farm should be opened from September to March instead of closing it. Additionally, the farm should be opened during Christmas and Easter holidays. More revenue can be generated by opening a souvenirs shop and a restaurant. However, these services should be outsourced since the farm lacks resources for capital investment.
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