The chase strategy refers to the notion that you are chasing the demand set by the market. Production is set to match demand and doesn’t carry any leftover products. This is a lean production strategy, saving on costs until the demand – the order – is placed. Inventory costs are low, and the cost of goods for products sold is kept to a minimum and for a shorter length of time.
The chase strategy is common in industries where perishables are an issue or with a company that doesn’t have a lot of extra cash on hand and doesn’t want the added risks of loss, theft or unsold products. The production schedule is based on orders and immediate demand.
This is also a common strategy for seasonal items. Demand for these types of items is known ahead of time. Manufacturing can be adjusted to fit into these demands. Chase strategy is based on the needs of the marketplace, making it essential to be flexible and ready to make alterations with the changing demands of the marketplace.
When we hear the word chase, it is easy to imagine the workings of this production strategy. A production line runs very fast with the items needed and employees are close at hands, ready to respond quickly to whispers of customer orders coming through.
There are two main reasons for the chase production strategy:
1) Product variations and niche markets. This is common when there are many product variations and niche markets. Customer orders have to be made and their specific order needs to be produced.
2) Exhaustible items. These items have a very small market. These types of items have a public that continuously wants something new. These types of products are vulnerable to new competition.
Chase Strategy Tool
A few tools are relatively necessary when using the chase strategy. The first tool is a production plan used to make sure that manufacturing follows the current production plan.
The second tool involves setting up the production schedule. The schedule sets out the production line and how much to produce. However, this schedule changes when a new order or order change comes in. The schedule is flexible enough to accommodate the change in production. The third tool is a standard order code. Standard order codes are used for all orders.
Goals of Chase Strategy
Like most business strategies, the chase strategy has specific goals:
1) Low cost in per unit inventory – The number of units loses completely is kept at a minimum. When inventory is at a minimum, it is easier to track the inventory cost and the miscalculations of cost that come with inventory.
2) Maximizing the effect of economies of scale – This refers to using all the manufacturing resources in the most efficient way. For example, if there are more workers, only the critical ones are used and if there are expensive factory machines, the use of them must be maximized in the most efficient way.
3) Minimizing capacity – This is the idea that the manufacturing capacity must never exceed the actual demand for goods. This is done by keeping inventory at a minimum and making sure that the production capacity is flexible enough to adjust for market demands.
4) Minimizing system failures – If there are delays in the production system, there will be a delay in the delivery of the product to the customer. This delays the payment and profit associated to the product.
Risks of Chase Strategy
Chase strategy has some risks:
1) Changes in the marketplace – Changes in the marketplace are to be expected. When demand is low, the chase strategy can be risky as manufacturing will be slowed down and prices will go down.
2) Unexpected changes in orders – When excess or unexpected amounts of orders come in, the chase strategy can be risky as production and delivery will be hindered by the quick changes. The producer will have to make more changes at short notice.
3) Underestimation of risk to inventory – Inventory risk can be underestimated and there is vulnerability when there is too much inventory or inventory for the wrong purpose.
4) Micromanagement of all the aspects of the business
5) Unexpected excess costs in production
6) Risk associated with over or underestimation of market demand
7) Risks associated with changing customer behavior
Chase Strategy in Practice
Chase strategy is a common strategy especially when there are other production strategies involved. These other strategies provide the flexibility in the production schedule allowing for changes in orders, price changes and changes in market demand.
Flexibility is a key factor in the chase strategy. From an academic perspective, a chase strategy is most successful when the production line is flexible to handle its own changes. An example of the chase strategy is one that produces swimming pool liners. The demand for pool liners changes depending on the season but the production must be very flexible to handle these changes. The production and sales must be able to know ahead of time for changes in the marketplace.
Advocates of the chase strategy argue that this production strategy is essential in producing high quality items. This is because the production process is kept short and efficient. There are no many steps to the process as possible and the items are sold at a lower price.
The chase strategy is dependent on close communication with the customer. The customer needs to know ahead of time for all orders as well as demand. It is important to have a clear idea of who the customer is and what their needs are.
The chase strategy is effective for seasonal items but less effective for other items. For seasonal items, the manufacturer can prepare ahead of time and have the production capacity ready to correspond with demand. However, demand doesn’t always correspond with the production. Production needs to be flexible and moving towards the demand.
There is a certain amount of complexity with the chase strategy. The production and sales people work together very closely and this comes with a number of complications.
The chase strategy isn’t suitable in many situations. However, when it is suitable, it is a very effective strategy. The chase strategy is commonly used in industries where the levels of production and sale are constantly changing. The ability to handle varying demands and changes in the marketplace is the best indicator of a “chase” strategy.
How to Adjust the Chase Strategy
The chase strategy can be adjusted in a number of ways including:
1) By adjusting the response to unexpected changes
2) By adjusting the number of sales and production agents in a firm
3) By adjusting the firm’s warehouses
4) By adjusting the mix of raw materials in the product
5) By adjusting the control over product characteristics
6) By adjusting the timing involved in both the manufacturing and sale of a good.
7) By adjusting the percentage of firms in an industry
8) By adjusting the risk of obsolescence
Advantages of Chase Strategy
There are a number of advantages done with chase strategy:
1) There is less excess inventory due to the high volume of production
2) There is an increased focus on demand which leads to excellent output
3) There are strong ties between sales and production producing better customer service
4) The production capacity and delays come into balance a better response to market
5) Changes in the process are minimized and thus easier to handle
6) There is less waste in the system as the focus is on producing to demand rather than producing for future need
7) The costs of maintaining maximum capacity are greatly reduced
Regulation of Chase Strategy
There isn’t any direct regulation of the chase strategy. However, there are some regulations of things that are tied to the chase strategy such as:
1) Product liability – Safety and quality concerns are directly related to the chase strategy. Inadequate quality control, lack of safety mitigation measures and minimization of safety measures can lead to product liability.
2) Price manipulation – Because the chase strategy is a pricing strategy, the marketplace can be severely distorted. Price fixing, market manipulation and other unfair pricing practices can be associated with the chase strategy.
3) Price fixing – The chase strategy, by its nature, is one of price fixing. This price fixing can distort the market place and thus regulators may need to step in.
4) Monopolization – Chase strategy, in practice, results in monopolization of the market because of the high levels of production and low levels of production.
5) Restricting the freedom of suppliers – Suppliers have very little freedom when it comes to chase strategies and they are often bound to a number of bad practices.
6) Consumption of resources – Due to the monopoly of chase strategies, this can lead to adverse effects on the planet such as pollution and the depletion of resources.
Summary of Chase Strategy
It is difficult to summarize the chase strategy. This is because chase strategy has many parts to it and each part can be summarized. However, it is important to summarize this strategy in some way.
In summary, the chase strategy is an effective strategy for profit. It is best used for seasonal or high unit cost items. It can be used effectively when there are other production strategies in place. The chase strategy places a lot of emphasis on a flexible manufacturing and sales teams. The chase strategy is typically used by smaller firms that can adjust and respond to the changing marketplace.