Chapter 5: Strategic Capacity Planning for Products and Services Flashcards
Capacity
The upper limit or ceiling on the load that an operating unit can handle
Design Capacity
The maximum designed service capacity or output rate
Effective Capacity
Design capacity minus personal and other allowance
Efficiency Formula
(Actual Output / Effective Capacity) x 100%
Utilization Formula
(Actual Output / Design Capacity) x 100%
Factors that Determine Effective Capacity
Facilities Product/Service Process Human Factors Compensation Policy Operational Supply Chain External Factors
Capacity Cushion
Extra capacity used to offset demand uncertainty
Do it In-House or Outsource it
Available capacity Expertise Quality Considerations The Nature of Demand Cost Risks
Developing Capacity Strategies
- Design flexibility into systems
- Take stage of life cycle into account
- Take a “big-picture” approach to capacity changes
- Prepare to deal with capacity “chunks”
- Attempt to smooth out capacity requirements
- Identify the optimal operating level
- Choose a strategy if expansion is involved
Bottleneck Operation
An operation in a sequence of operations whose capacity is lower than that of the other operations
Economies of Scale
If the output rate is less than the optimal level, increasing the output rate results in decreasing average unit cost
Diseconomies of Scale
If the output rate is more than the optimal level, increasing the output rate results in increasing average unit costs
Constraint
Something that limits the performance of a process or system in achieving its goals
Break-even Point (BEP)
The volume of output at which total cost and total revenue are equal
Contribution Margin
The difference between revenue per unit and variable cost per unit
