Chapter 5: Strategic Capacity Planning

Management 420 with Evans at Kansas State University

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By: Elizabeth Kaifes
Created: 2011-03-10
Size: 29 flashcards
Views: 13

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Capacity

the upper limit or ceiling on the load that an operating unit can handle

Design Capacity

The maximum output rate or service capacity an operation, process, or facility is designed for.

Effective Capacity

Design Capacity minus allowances such as personal time, and maintenance (usually less than design capacity)

Efficiency

the ratio of actual output to effective capacity.

Capacity Utilization

The ratio of actual output to design capacity.

It is not unusual for managers to focus exclusively on efficiency, but what is wrong with this?

in many instances this emphasis can be misleading. This happens when effective capacity is low compared to design capacity. In those cases, high efficiency would seem to indicate effective use of resources when it does not.

Strategic Capacity Planning Goal

to achieve a match between the long term supply capabilities of an organization and the predicted level of long run demand.

overcapacity: operating costs that are too high

undercapacity: strained resources and possible loss of customers

Determinants of Effective Capacity

Facilities, product and service factors, process factors, human factors, policy factors, supply chain factors, external factors (these are things that can keep us from our maximum output)

Capacity Strategies

The three primary strategies are leading, following, and tracking.

Leading (capacity Strategy)

builds capacity in anticipation of future demand increases. (if capacity increases involve a long lead time, this strategy may be the best option.)

Following (capacity strategy)

Builds capacity when demand exceeds current capacity.

Tracking (capacity strategy)

similar to a following strategy, but it adds capacity in relatively small increments to keep pace with increasing demand.

Strategies are typically based on assumptions and predictions about?

long term demand patterns, technological changes, and the behavior of its competitors. these typically involve 1. the growth rate and variability of demand, 2. the costs of building and operating facilities of various sizes, 3 the rate and directions of technological innovation, 4. the likely behavior of competitors, and 5. availability of capital and other inputs.

Capacity Cushion

an amount of capacity in excess of expected demand when there is some uncertainty about demand. it is expressed as a percentage. Capacity Cusion= 100%- Utilization.

Typically, the greater the degree of demand uncertainty, the greater the amount of cushion needed.

Organizations that have standard products or services generally have what size of capacity cushions?

smaller.

The service industry would need what size of capacity cushion?

capacity cushions are particularly important in the service industry because of the greater demand uncertainty,they have a lot of variation so they need a higher amount of capacity cushion.

Long term capacity considerations relate to what

LEVEL of capacity. such as facility size.

require forecasting demand over a time horizon and then converting those forecasts into capacity requirements.

Short term capacity considerations relate to what

PROBABLE VARIATIONS in capacity requirements created by such things as seasonal, random, and irregular fluctuations in demand.

needs are less concerned with cycles or trends than with seasonal variations and other variations from average. These deviations are particularly important because they can place a severe strain on a systems ability to satisfy demand at some times and yet result in idle capacity at other times.

true or false: there is a way to calculate for capacity decisions.

TRUE.

What are some additional challenges of planning service capacity?

1. The need to be near customers (convenience)

2. the inability to store services (cant store them for consumption later)

3. The degree of volatility of demand, (volume and timing of demand, time required to service individual customers.)

Demand Volatility tends to be higher for what?

tends to be higher for SERVICES than for goods, not only in timing of demand, but also in the amount of time required to service individual customers.

Demand Management Strategies can be used to?

offset capacity limitations. Pricing, promotions, discounts, and similar tactics can help to shift some demand away from peak periods and into slow periods, allowing organizations to achieve a closer math in supply and demand. (example is happy hour used to bring people in during slow time)

What factors do you consider when deciding whether to outsource

Available Capacity (if you have available equipment, skills, and time, it makes sense to produce it yourself)

Expertise (if a firm lacks the expertise it might be cheaper to buy)

Quality Considerations (firms that specialize can usually offer higher quality than an organization can attain itself.)

The nature of demand (when demand for an item is high and steady, the organization is often better off doing the work itself.)

Cost (any cost savings achieved from buying or making must be weighed

Risks

What things can enhance capacity management?

1. Designing flexibility into systems.

2. Take stage of life cycle into account (capacity requirements often linked)

3. Take a "big picture" (i.e. systems) approach to capacity changes

4. Prepare to deal with capacity "chunks"

5. Attempt to smooth out capacity requirements

6. Identify the optimal operating level

7. 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 will result in decreasing average unit costs

reasons for it: fixed costs are spread over a larger number of units, construction costs increase at a decreasing rate as facility size increases, processing costs decrease due to standardization

Diseconomies of Scale

If output is increased beyond the optimal level, average unit costs would become increasingly larger.

reasons for it: distribution costs increase due to traffic congestion and shipping from a centralized facility rather than multiple smaller facilities, complexity increases costs, inflexibility can be an issue, additional levels of bureaucracy.

Constraint

Something that limits the performance of a process or system in achieving its goal (we want to identify bottleneck in order to increase capacity)

The seven categories of constraints are?

1. market: insufficient demand

2. resource: too little of one or more resources

3. material: too little of one or more materials

4. financial: insufficient funds

5. supplier: unreliable, long lead time, substandard quality

6. knowledge or competency: needed knowledge or skills missing or incomplete

7. policy: laws or regulations interfere.

About this deck

By: Elizabeth Kaifes
Created: 2011-03-10
Size: 29 flashcards
Views: 13

About StudyBlue

“I have been getting MUCH better grades on all my tests for school. Flash cards, notes, and quizzes are great on here. Thanks!”
Kathy