Chapter 9 capacity planning and facility location Flashcards

1
Q

Define Capacity

A

the maximum output rate of a facility.

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2
Q

Define capacity planning

A

the process of establishing the output rate that can be achieved at a facility.

  • Capacity is usually purchased in “chunks”.
  • Strategic issues: how much capital and when to spend it for additional facilities and equipment.
  • Tactical issues: workforce and inventory levels; day-to-day use of equipment.
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3
Q

The importance of capacity planning to an organization

A

it’s important to do capacity planning correctly to meet the demands of the customers.

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4
Q

challenges of capacity planning in hospital settings

A
  • Number of beds, if not enough then patients are waiting
  • Capacity of the number of nurses and doctors per shift. If there’s too many, paying a lot for them to sit around, but if you don’t have enough then patients are waiting.
  • The demand at the ER fluctuates so it’s not predictable.
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5
Q

Measuring capacity

A

There is no one best way to measure capacity.

  • Output measures like kegs per day are easier to understand.
  • With multiple products, input measures work better.
    i. e Industry: hospital, input measures of capacity: available beds per month, output measures of capacity: Number of patients per month
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6
Q

Capacity: 2 types of information:

A
  1. Amount of available capacity.
    • Understand how much capacity the facility has
  2. Effectiveness of capacity use.
    How effectively we are using the available capacity
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7
Q

To measure available capacity; Design capacity:

A

Maximum output rate under ideal conditions.

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8
Q

To measure available capacity; effective capacity:

A

Maximum output rate under normal (realistic) conditions;

usually lower than design capacity.

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9
Q

measuring effectiveness of capacity use; capacity utilization:

A

Measures how much of the available capacity (%) is actually being
used.
Percentage measure of how well available capacity is being used.
Measures effectiveness.
Use either effective or design capacity in denominator.

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10
Q

Capacity considerations - best operating level

A

The volume of output that results in the lowest average unit cost.

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11
Q

capacity considerations - Economies scale:

A

the more units produced, the larger the number of units over costs can be spread
- spread the fixed costs of buildings and equipment over multiple units; allow bulk purchasing and handling of material

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12
Q

capacity considerations - diseconomies scale:

A

A condition in which the cost of each additional unit made increases.
- often caused by congestion (overwhelming the process with too much work-in-process) and scheduling complexity

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13
Q

capacity considerations - focused factories:

A

Facilities that are small, specialized, and focused on a narrow set of objectives.
- Plant within a plant (PWP): segmenting larger operations into smaller operating units with focused objectives.

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14
Q

capacity considerations - subcontractor networks:

A

Outsource non-core items to free up capacity for what you do well; fast-growing trend today.

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15
Q

making capacity planning decisions, 3 steps:

A
  1. Identify capacity requirements.
  2. Develop capacity alternatives.
  3. Evaluate capacity alternatives.
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16
Q
  1. Identify capacity requirements:
A

Forecasting capacity, capacity cushions, strategic implications

17
Q

forecasting capacity:

A
  • Long-term capacity requirements based on future demand.
  • Identifying future demand based on forecasting.
  • Forecasting, at this level, relies on qualitative forecast models (executive opinion and Delphi method).
  • Forecast and capacity decision includes strategic implications.
18
Q

capacity cushions:

A

Plan for added capacity to provide flexibility.

19
Q

strategic implications

A

o How much capacity a competitor might have.

o Potential for overcapacity in industry a possible hazard.

20
Q

Step 2 : Develop Capacity alternatives

A
  • Do nothing
  • Expand large now
  • Expand small now, with option to add later.
21
Q

Step 3: Evaluating Capacity Alternatives

A

• Use decision support aids to evaluate decisions.
- A decision tree is the most popular.
• Managers need to use many different inputs and judgment.

22
Q

Decision trees contain the following:

A

o Decision points – points in time when decisions are made, represented by squares called “nodes”.
o Decision alternatives – branches or arrows leaving a decision point (node).
o Chance events – events that could affect a decision, represented by branches or arrows leaving circular chance nodes.
o Outcomes – each possible alternative listed.

23
Q

Define decision tree:

A
  • a diagram that models the alternatives being considered and the possible outcomes
24
Q

Decision trees are developed by:

A
  • drawing from left to right
    o using squares to indicate decision points
    o using circles to indicate chance events
    o writing the probability of each chance beside the chance (sum of associated chances = 100%)
    o writing each alternative outcome in the right margin
25
Q

To solve a decision tree:

A
  • Work from right to left, at each chance event computer the expected value (EV)
  • Write the EV below each circle
  • Select the alternative /w the highest EV.
26
Q

what is expected value in decision trees?

A

A weighted average of chance events, where each chance event is given a probability of occurrence.

27
Q

Location analysis/ facility location:

A
  • is the process of identifying the best geographic location for a service or production facility.
  • Long-term commitment.
  • Sizable financial investment and impact.
28
Q

What are some factors affecting location decisions?

A

Proximity to source of supply:
- reduce transportation costs of perishable or bulky raw
materials
Proximity to customers:
- high population areas, close to JIT partners
Proximity to labor:
- local wage rates, attitude toward unions, availability of special skills (e.g., Silicon Valley)
Community considerations:
- local community’s attitude toward the facility (prisons, utility
plants, etc.)
Site considerations:
- local zoning and taxes, access to utilities, etc.
Quality-of-life issues:
- climate, cultural attractions, commuting time, etc.
Other considerations:
- options for future expansion, local competition, transportation access and congestion, etc.

29
Q

Other location factors, globalization: should the firm go global?

A

Potential advantages
- Inside track to foreign markets, avoiding trade barriers, gaining access to cheaper labor; closer to suppliers and manufacturers.
Potential disadvantages
- Political risks may increase, loss of control of proprietary technology, local infrastructure (roads and utilities) may be inadequate, high inflation.
Other issues to consider
- Language barriers, different laws and regulations, different business cultures.

30
Q

3 step process for making location decision:

A
  1. Identify dominant location factors.
  2. Develop location alternatives.
  3. Evaluate location alternatives.
31
Q

Decision support tools used in Location Analysis are:

A
  • factor rating
  • load-distance model
  • break-even analysis
  • transportation method
32
Q

Decision support tools used in Location Analysis,

factor rating method:

A

The procedure that can be used to evaluate multiple

alternative locations based on a number of selected factors.

33
Q

Decision support tools used in Location Analysis, load-distance model:

A

The procedure for evaluating location alternatives based on distance.

34
Q

Decision support tools used in Location Analysis, center of gravity of approach:

A

The way to find other locations that may give lower load-distance score by testing the locations at the center of gravity of the target area.
- Requires the analyst to find the center of gravity of the geographic area being considered for an alternative site.

35
Q

Decision support tools used in Location Analysis,

break-even analysis:

A

The technique used to compute the amount of goods that must be sold just to cover costs.
- Break-even analysis includes fixed and variable costs.
- Break-even analysis can be used for location analysis, especially when the costs of each location are known.
Step 1: For each location, determine the fixed and variable costs.
Step 2: Plot the total costs for each location on one graph.
Step 3: Identify ranges of output for which each location has the lowest total cost.
Step 4: Solve algebraically for the break-even points over the identified ranges.

36
Q

Decision support tools used in Location Analysis,

transportation method:

A

The method relies on a specific algorithm to evaluate the cost impact of adding potential location sites to the network of existing facilities.
The transportation method can be used to:
- solve specific location problems
- evaluate the cost impact of adding potential location sites to the network of existing facilities
- evaluate adding multiple new sites or completely redesigning the network