Question 32

Hiring and lay-off cost increases most rapidly when a pure chase strategy is adopted.

When a pure chase strategy is implemented, the organization adjusts its workforce to match production with demand. This leads to the most rapid increase in hiring and lay-off costs as companies frequently hire or terminate employees to align with fluctuating demand.

A) Inventory holding cost

Inventory holding costs tend to be stable or increase at a slower rate in a pure chase strategy since the goal is to minimize inventory levels by producing only what is needed. This strategy does not significantly accumulate holding costs compared to the volatility of labor costs.

B) Stock-out cost

While stock-out costs can increase in a chase strategy if demand suddenly spikes and production can't keep up, they do not increase as rapidly as hiring and lay-off costs. The focus of the chase strategy is to meet demand, which mitigates stock-outs by adjusting workforce levels.

C) Hiring and lay-off cost

This is the correct answer because a pure chase strategy necessitates frequent adjustments to the workforce size to match demand fluctuations. This results in significant hiring and lay-off costs, as the organization must compensate for the rapid changes in labor needs.

D) Overtime premium cost

Overtime premium costs may increase if there is a temporary spike in demand that cannot be met by the current workforce. However, in a pure chase strategy, the reliance on overtime is less favorable compared to adjusting workforce levels, making these costs less volatile than hiring and lay-off costs.

Conclusion

The adoption of a pure chase strategy leads to the most significant and rapid increase in hiring and lay-off costs due to the constant need to adjust the workforce based on demand. Other costs, such as inventory holding, stock-out, and overtime premium costs, do not increase at the same rate, making Option C the definitive correct answer.