Chapter 5: Strategic Capacity Planning for Products And Services Flashcards
refers to an upper limit or ceiling on the load that an operating unit can handle
Capacity
GOAL of strategic capacity planning
is to achieve a match between long-term supply capabilities of an organization and the predicted level of demand
Organizations become involved in capacity planning for various reasons
- Changes in demand
- Changes in Technology
- Changes in Environment
- Perceived threats and opportunities
causes operating cost that are too high
Overcapacity
causes strained resources and possible loss of customers.
Under-capacity
the maximum output rate or service capacity an operation, process or facility is designed for
Design Capacity
It is the maximum theoretical output of a system in a given period under ideal conditions.
Design Capacity
design capacity minus allowances such as personal time, maintenance, and scrap
Effective Capacity
It is the capacity a firm expects to achieve given the current operating constraints
Effective Capacity
Determinants of Effective Capacity
- Facilities
- Products and Services
- Process Factors
- Human Factors
- Operational Factors
- Supply Chain Factors
- External Factors
including size and provision for expansion
Facilities
ability of the system to produce those items is generally much greater than when successive items differ
Products and Services
quantity capability of a process is an obvious determinant of capacity
Process Factors
Management policy can affect capacity by allowing or not allowing capacity options such as overtime or second or third shifts.
Human Factors
Scheduling problems may occur when organization has differences in equipment capabilities among alternative pieces of equipment or differences in job requirements.
Operational Factors
must be taken into account in capacity planning if substantial capacity changes are involved
Supply Chain Factors
Product standards, especially minimum quality and performance standards, can restrict management options for increasing and using capacity.
External Factors
Convenience for customers is often an important aspects of services. Generally, a service must be located near customer.
The need to be near customers.
Speed of the delivery, or customers waiting time become a major concern in a service capacity planning.
The inability to store service.
Demand volatility presents problem for capacity planners. Demand volatility tend to be higher for services than goods, not only in timing of demand, But also in amount of time required to the service individual customers.
The degree of volatility.
Once capacity requirements have been determined, the organization must decide whether to produce a good or provide a service itself, or outsource or buy from another organization.
Make or Buy
Make or Buy Factors
- Available Capacity
- Expertise
- Quality Considerations
- The Nature of Demand
- Cost
- Risk
If an organization has available the equipment, necessary skills, and time, if often makes sense to produce an item of perform a service in-house, the additional cost would be relatively small compared with those required to buy items or subcontract services
Available Capacity
If a firm lacks the expertise to do the job satisfactory buying might be reasonable alternative.
Expertise
Firm that specialize can usually offer higher quality than an organization can attain itself. Conversely unique quality requirements or the desire to closely monitor quality may cause an organization to perform a job itself.
Quality Considerations
savings achieved from buying of making must weighed against the preceding factors
Cost
Outsourcing may involve this. One is loss of control over operations. Another is the need to disclosed proprietary information.
Risk
Provisions for Future Expansion in the original Design.
Design Flexibility into system.
Capacity requirements are often closely linked to the stage of the life cycle that a product or service is in.
Take Stage of life cycle into account.
When developing capacity alternatives, it is important to consider how parts of the system interrelate.
Take a “Big Picture” approach to capacity changes.
Of the output rate is less than the optimal level, increasing the output rate results in decreasing average unit costs.
Economies of Scale
If the output rate is more than the optimal level, increasing the output rate results in increasing average unit costs.
Diseconomies of Scale
Consider whether incremental expansion or single step is more appropriate
Choose a strategy if expansion is involved
The difference between cash received from sales and other sources, and cash outflow for labor, material, overhead, and taxes
Cash flow
The sum, in current value, of all future cash flow of an investment proposal
Present value
represents a general approach to decision making which is suitable for a wide range of operations management decisions
Decision Theory
