Ch.9

Question 1

What is capacity? What is capacity planning?

Answer 1

Capacity is the maximum output rate of a facility.

• Capacity planning is the process of establishing the output rate that can be achieved at a facility.
• Capacity is usually purchased in “chunks”.
• Strategic issues: how much and when to spend for additional facility and equipment. (Long-term questions)
• Tactical issues: workforce and inventory levels, day-to-day use of equipment. (Day-to-day use)

Question 2

Why capacity planning is important to a business? Is it difficult to modify capacity planning at the tactical level?

Answer 2

You need to make sure to plan and forecast the future demand of you clients.

-Difficult to modify at the tactical level (very hard) because everything is planned… At the strategic level you can add people/plants

Question 3

How do you measure capacity?

Answer 3

Depends of your business. What you are producing or the service you are offering.

Question 4

What are the 2 measures of capacity?

Answer 4

Output measures: # of pizzas per day, cars per shift - kegs per day are easier to understand
Input measures: multiple products (ex: 5 different types of cake, chocolate/vanilla..)

Question 5

What information is needed when you want to measure capacity?

Answer 5

1. Amount of available capacity (actual output rate)
2. Design capacity - maximum output rate under ideal conditions (ex: holiday season)
3. Effective capacity - usually lower than design capacity

Question 6

What are considerations for capacity planning (6)?

Answer 6

1. Best operating level: output that results in the lowest average unit cost.
2. Economies of scale (BOOK)
3. Diseconomies of scale (BOOK)
   * Each facility will have economies of scale
4. Focused factories: small & specialized products.
5. Plant within a plant: Segmenting larger operations into smaller operating units with focused objectives.
6. Subcontractor networks: Outsource non-core items to free up capacity for what you do well; a fast growing trend today. (Risks: quality control, costly, opening doors for competition, challenging to develop a relationship)

Question 7

What are the 3-steps for making capacity planning decisions?

Answer 7

1. Identify capacity requirements
2. Develop capacity alternatives
3. Evaluate capacity alternatives

Question 8

What are the planning capacity decisions (3)?

Answer 8

1. Forecasting capacity
2. Capacity cushions
3. Strategic implications

Question 9

What are the capacity alternatives? (3)

Answer 9

1. Do nothing
2. Expand large now
3. Expand small now with option to add later