Forecasting the Impact of Production Interruption: Research Proposal
Business organizations constantly face the risk of production interruption as a consequence of various factors that are beyond their control. Some of them include natural calamities such as earthquakes and floods, war, and unrest among employees. Natural calamities affect the supply chain, making it hard for business organizations to access raw materials for the production process. They can also affect factors of production such as electricity supply, making it hard for companies to operate. Wars have a similar effect on the operation of business organizations as natural calamities because they disrupt the supply chain, preventing firms from accessing raw materials and other factors of production which make production possible. Employee unrest is also an important factor that interrupts production, considering the role critical played by the human resource in the production process. The occurrence of events which interrupt production has attracted the attention of researchers, particularly on the effect of production interruption. However, while the subject of production interruption has received significant attention from researchers, most of the studies available focus on the individual elements such electricity interruption on production or employee performance, with few researchers looking at the overall impact of production interruption. In this study, a forecasting of the impact of the production interruption will be carried out.
A number of studies have been carried to examine the effect of interruptions on aspects such as human performance in companies, sales, and future business performance. Various theories have also been advanced to explain the effect of production and general business interruptions. This chapter will be an analysis of the theories that explain the effect production interruption and the empirical studies carried out on the subject.
Due to the limited research on the topic, there are a limited number of theories that have been developed on it. As such, there is only one prominent theory on the subject; the production theory, which categorizes inputs into fixed, variable, and random inputs. According to this theory, a production function involves the transformation of these inputs into outputs. During a business interruption, the production function is disturbed. Consequently, there is an economic loss because revenues are not generated.
A number of studies try to look at the subject, analyzing its effect on various aspects of a firm. For example, in their study, Alm and Söderström (2016) look at the effect of business disruptions on the dairy production and established that business disruptions cause losses in dairy production. Using simulations, Alm and Söderström (2016) also established that it would take at least two years in a new barn to regain production to the level before the business interruption. In terms of profitability, Alm and Söderström (2016) found that the profit margins are reduced significantly across a 25 years economic lifespan following a business interruption.
In a related study, Lee and Duffy (2015) look at the effect of task disruption on human performance, and found that task disruption increases the time needed to complete tasks. It also increases errors during tasks performance. Relating this to production, it can be deduced that task disruption causes production interruption, resulting in poor economic performance and reduced profitability (Alm and Söderström, 2016). On his part, Endris (2010) analyzed the effect of power interruption on capacity and established that power interruption increases the cost of production while reducing the level of profits. Power is one of the main factors that are used in production and its interruption causes production interruption. As such, business and specifically production interruption negatively affects the operation of a business.
As demonstrated by Lee and Duffy (2015), production interruption is not only a consequence of natural calamities and disruption in the supply chain, but also a result of task disruption within a company. According to Lee and Duffy (2015), task interruption can be divided into four main types: interruption, task switching, distraction, and task interleaving. Interruption is usually an externally generated discrete event that occurs randomly and which breaks continuity of focus on a task. Lee and Duffy (2015) assert that interruption in a task occurs when two types of information are transmitted through one sensory channel. Distractions, on the other hand, occur when two or more sensory channels receive different information at the same time.
Switching tasks, according to Lee and Duffy (2015), happen in the shift between an interrupting task and an ongoing task as a result of an interruption or distraction. Task interleaving, on the other hand, is a repeated form of task switching. The effects of task interruption are usually experienced in production, with the production process being forced to halt as a result of task interruption. Task interruption is likely to be experienced in a company that has not clearly defined the roles played by different individuals or has a shortage of employees (Lee & Duffy, 2015). In such a case, workers are compelled to constantly switch between tasks as they try to accomplish all the responsibilities available. Such a situation makes it hard for a firm to maintain production. In general, task disruption results in production interruption.
Endris (2010) highlights the importance of capacity in the production process and how it influences performance of a company in the market. He indicates that capacity is a concern for companies because it determines the quantity of output which determines the ability of a company to meet the demand in the market. In addition, the available capacity influences the efficiency of operations which include the ease with which a firm schedules output. According to Endris (2010), the production capacity of a firm determines the firm’s competitiveness in the market. Specifically, it determines the ability of a company to respond to the market and its inventory strategy. If a firm’s capacity is inadequate, there is likely to be loss of customers as the demand in the market will not be met. Alternatively, it allows competitors to enter the market (Endris, 2010). On the other hand, if the capacity of production is too high, a company may be compelled to lower its prices in order to stimulate demand for its products. Production interruption reduces the capacity of a company, lowering its ability to meet the demand in the market. In cases where the interruption is severe, a company cannot produce at all, making it hard to supply any product in the market. In such a case, the capacity of a firm reduces to zero (Endris, 2010). Due to the inability to produce enough products to the market as a result of the interruption, a company realizes losses.
Factors Affecting by Production Interruption Losses
There is a consensus among researchers that production interruption has negative effects on the performance. However, the question that arises is what factors influences the effects of production interruption. Alm and Söderström (2016) point out that factor such as the length of a business interruption, seasonality, future changes in performance, annual lost sales, demand in the market, and changes in the conditions of the market determine the effects of a business interruption.
The length of the interruption directly determines the time that an organization would take before resuming its operation. For example, in cases of natural calamities such as tsunamis and hurricanes, which are highly destructive, the interruption time is very long since it might involve building new structures before a firm can become operational again (Alm & Söderström, 2016). Seasonality is a feature of a time series where an event experiences regular and predictable changes which recur every year. Production interruption may also affect the seasonality of the activities of a company or even the market (Alm & Söderström, 2016). For instance, demand for gumboots is seasonal since it depends on the rain season. However, business interruption might affect the ability of a company to maximize sales during such a season, thereby affecting its seasonality.
Business or production interruption influences annual lost sales because it determines the level of supply in the market. Production interruption implies that a firm supplies a limited amount of products in the market. In some cases, depending on the severity of the interruption, a company may not be able to supply anything to the market. In such a case, the annual lost sales are huge (Alm & Söderström, 2016). Demand in the market is not influenced by the production interruption. However, in some cases, the factors which cause interruption in production also influence demand in the market. For instance, hurricanes may destroy homes, forcing people to move to other places (Alm & Söderström, 2016). In such cases, a firm may experience a reduction in demand for its products due to reduced market.
Summary of Literature Review
Production interruption has negative effect on the performance of accompany as it reduces the capacity of a firm to supply enough merchandise as well as meet the demand in the market. In some cases, the interruption immobilizes a company completely. In such a case, a firm is not able to supply the market at all; thus registering huge losses. Factors such as the length of a business interruption, seasonality, future changes in performance, annual lost sales, demand in the market, and changes in the conditions of the market determine the effects of a business interruption. For example, if the interruption is longer, a company makes more losses.
Factors that contribute to production interruption
|Production interruption||Factors that contribute to production interruption||Effects||Factors that determine the effects of production interruption|
|Production interruption is one of the factors that affect companiesCan be defined as short-term or long-term delay imposed on the work area or workforce that is severe enough to result in temporary halt to the production process||Natural calamities that affect the supply chainPower interruption which makes it hard for machines to operationTask disruption which makes it hard for employees to perform optimally||Reduced sales which lowers profitability Reduced output of workers Making of losses for companies.||Length of the interruptionSeasonality Annual lost sales,Future changes in the market Future changes in performance Demand in the market changes in the conditions of the market|
In this study, the qualitative method will be used to explore meanings and insights of the situation. There method will help in understanding the effects of production interruption beyond the financial performance. Furthermore, production interruption does not only affect the profitability of a company but also the performance of workers in companies through task interruption (Mohajan, 2018). The need to explore all facets of the impact of production makes the qualitative method ideal. Also, the method will help in understanding the reasons for the effects of production interruption. For example, if production interruption affects performance of employees in a company, qualitative technique will help establish the reasons behind the phenomenon. Also, this method is ideal due to the complexity of subject of study. The effects of production interruption are widespread because they do not only affect a company but also other players in the supply chain as well as consumers in the market (Mohajan, 2018). Also, qualitative method is suitable considering the context, explanation, and the need to explore issues that cannot be quantified. The qualitative method will be used to understand the context of production interruption to accurately forecast its effects. Qualitative method will also be used to explain the mechanisms or linkages between variables such as production interruption and firm performance.
A research design is the general strategy that is used to carry out a study and integrate various elements into a logical and coherent order to ensure that the research problem has been addressed significantly. For this study, the research design is the case study strategy. The study will focus on one company that has had its operations interrupted an analysis will be carried out on how this transpired (Crowe et al., 2011). The use of the case study design is aimed to carry out an in-depth contextual analysis of production interruption. However, while the research design will help to fully explore the subject, it will not be possible to generalize the results obtained because of the use of only one firm (Crowe et al., 2011). Besides, it is possible that the results will not be a reflection of the general situation in the market and the risk of bias in the interpretation of findings will be high. Lastly, the selected company may be missing some vital information, making it hard to interpret the data collected.
In this study, 10 individuals from the chosen company will be selected for interviewing to determine the effect of production interruption. The sampling method that will be used to select the participants is stratified whereby workers in the company will be separated into two groups, those involved with management and those that are not involved with management (Taherdoost, 2016). Then, 10 individuals will be randomly selected from the management. The study will focus on employees who hold senior positions in the business because they have better knowledge of the company’s performance.
The collected data will be analyzed using content analysis technique, which is used to encode texts and make inferences from the collected data. Through evaluation and inference of the data collected, the effect of production interpretation will be forecasted. For example, by looking at the financial records at the time of the interruption, the effect of production interruption on financial performance of companies will be forecasted.
The research on production interruption and its effects is important because it will provide insight into the subject and how it influences not only companies but players in the supply chain and the market in general. Also, the research will inform strategy formulation in companies. For example, the finding that production interruption negatively affects the performance of companies will make companies to develop strategies that would ensure they limit the effects.
As pointed out, one of the limitations of the study is inability to generalize the results because they will be focused on only one company. It is possible that an analysis of different companies will yield different results; thus it will not be possible to generalize the results obtained. There is also the risk of biasness. The information that will be used in the study will be obtained from individuals who may provide biased information due to the desire to provide a positive image of the company, and this will reduce the accuracy and reliability of the results obtained.
Alm, S., & Söderström, A. (2016). Business interruption. Retrieved from https://stud.epsilon.slu.se/9413/1/alm_s_soderstrom_a_160831.pdf
Endris, H. (2010). Impact of power interruption on capacity utilization: The case of Kality Food Share Company. School of Gr (Doctoral dissertation, Addis Ababa University). Retrieved from https://www.researchgate.net/profile/Habtamu_Endris/publication/267642533_Impact_of_Power_Interruption_on_Capacity_Utilization/links/54574e3b0cf2bccc490f767e/Impact-of-Power-Interruption-on-Capacity-Utilization.pdf
Lee, B. C., & Duffy, V. G. (2015). The effects of task interruption on human performance: A study of the systematic classification of human behavior and interruption frequency. Human Factors and Ergonomics in Manufacturing & Service Industries, 25(2), 137-152. Retrieved from https://interruptions.net/literature/Lee-HumFactorsErgonManufServIndust15.pdf
Taherdoost, H. (2016). Sampling methods in research methodology; How to choose a sampling technique for research. Retrieved from https://www.researchgate.net/publication/319998246_Sampling_Methods_in_Research_Methodology_How_to_Choose_a_Sampling_Technique_for_Research
Crowe, S., Cresswell, K., Robertson, A., Huby, G., Avery, A., & Sheikh, A. (2011). The case study approach. BMC medical research methodology, 11(1), 100. Retrieved from https://bmcmedresmethodol.biomedcentral.com/articles/10.1186/1471-2288-11-100
Mohajan, H. K. (2018). Qualitative research methodology in social sciences and related subjects. Journal of Economic Development, Environment and People, 7(1), 23-48. Retrieved from https://mpra.ub.uni-muenchen.de/85654/1/MPRA_paper_85654.pdf
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