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Chapter 5: STRATEGIC CAPACITY MANAGEMENT (LO5-1 CAPACITY MANAGEMENT IN…
Chapter 5: STRATEGIC CAPACITY MANAGEMENT
LO5-2 CAPACITY ANALYSIS
Determining capacity requirements: 3 steps :
Calculate equipment and labour requirements to meet predictions
Use forecasting technique to predict
Project labour and equipment over the plan
Considerations in Changing Capacity: Must consider 3 important issues
Maintaining system balance: 3 ways to deal with
Using buffer inventory in front of bottleneck stages
Increasing the facility of the department that others depend on
Add more capacity to the bottlenecks
External sources of operation and capacity
Outsourcing capacity
Sharing capacity
Frequency of capacity additions: 2 types of cost
Upgrading too infrequently
Upgrading too frequently
Decreasing capacity
Decreasing capacity when demand is lower can solve firms’ problem
LO5-1 CAPACITY MANAGEMENT IN OPERATIONS AND SUPPLY CHAIN MANAGEMENT
Capacity focus
Plant within a plant (PWP)
Focused factory
Capacity Flexibility
Flexible Workers
Flexible Plants
Flexible Processes
Capacity Utilization
Capacity utilization rate = Capacity used/Best operating level
Economies and Diseconomies of Scale
Economies of Scale
Volume increases
Plant gets larger
Cost per unit of output drops
Diseconomies of Scale
LO5-3 USING DECISION TREES TO EVALUATE CAPACITY ALTERNATIVES
The decision trees include:
Branches: from squares nodes are the availability or unavailability of a decision, from circle one are the ability of the occurrences of an event.
Decision nodes: squares for decision points and circle for chance events
How to work with decision trees:
Eliminate branches that cant reach the highest payoff until the first decision
Work from the end back to the start of the tree for solving problems
Calculate expected value and time value of money at each step of decisions
The decision trees are used to:
Help in understanding the problems
Lay out the steps of capacity problems, including conditions and consequences
Help in finding solution
LO5-4 PLANNING SERVICE CAPACITY
Capacity Planning in Services versus Manufacturing
Location
Considered as one of the supplies
Time
Available when needed
Considered as one of the supplies
Cannot be stored
Volatility of demand: Higher for three reasons
Greater variability in the processing time required for each customer
Consumer behavior and behavioral effect
Services cannot be stored so there is no inventory to smooth the demand
Capacity utilization and service quality
Low rates are appropriate when both the degree of uncertainty and the stakes are high
Relatively predictable services can plan to operate much nearer to 100% utilization
