Chapter 9 capacity planning and facility location Flashcards
Define Capacity
the maximum output rate of a facility.
Define capacity planning
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.
The importance of capacity planning to an organization
it’s important to do capacity planning correctly to meet the demands of the customers.
challenges of capacity planning in hospital settings
- 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.
Measuring capacity
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
Capacity: 2 types of information:
- Amount of available capacity.
• Understand how much capacity the facility has - Effectiveness of capacity use.
How effectively we are using the available capacity
To measure available capacity; Design capacity:
Maximum output rate under ideal conditions.
To measure available capacity; effective capacity:
Maximum output rate under normal (realistic) conditions;
usually lower than design capacity.
measuring effectiveness of capacity use; capacity utilization:
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.
Capacity considerations - best operating level
The volume of output that results in the lowest average unit cost.
capacity considerations - Economies scale:
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
capacity considerations - diseconomies scale:
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
capacity considerations - focused factories:
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.
capacity considerations - subcontractor networks:
Outsource non-core items to free up capacity for what you do well; fast-growing trend today.
making capacity planning decisions, 3 steps:
- Identify capacity requirements.
- Develop capacity alternatives.
- Evaluate capacity alternatives.
- Identify capacity requirements:
Forecasting capacity, capacity cushions, strategic implications
forecasting capacity:
- 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.
capacity cushions:
Plan for added capacity to provide flexibility.
strategic implications
o How much capacity a competitor might have.
o Potential for overcapacity in industry a possible hazard.
Step 2 : Develop Capacity alternatives
- Do nothing
- Expand large now
- Expand small now, with option to add later.
Step 3: Evaluating Capacity Alternatives
• Use decision support aids to evaluate decisions.
- A decision tree is the most popular.
• Managers need to use many different inputs and judgment.
Decision trees contain the following:
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.
Define decision tree:
- a diagram that models the alternatives being considered and the possible outcomes
Decision trees are developed by:
- 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
To solve a decision tree:
- 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.
what is expected value in decision trees?
A weighted average of chance events, where each chance event is given a probability of occurrence.
Location analysis/ facility location:
- is the process of identifying the best geographic location for a service or production facility.
- Long-term commitment.
- Sizable financial investment and impact.
What are some factors affecting location decisions?
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.
Other location factors, globalization: should the firm go global?
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.
3 step process for making location decision:
- Identify dominant location factors.
- Develop location alternatives.
- Evaluate location alternatives.
Decision support tools used in Location Analysis are:
- factor rating
- load-distance model
- break-even analysis
- transportation method
Decision support tools used in Location Analysis,
factor rating method:
The procedure that can be used to evaluate multiple
alternative locations based on a number of selected factors.
Decision support tools used in Location Analysis, load-distance model:
The procedure for evaluating location alternatives based on distance.
Decision support tools used in Location Analysis, center of gravity of approach:
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.
Decision support tools used in Location Analysis,
break-even analysis:
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.
Decision support tools used in Location Analysis,
transportation method:
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
