Operations Management Chapter 5-Strategic Capacity Planning – Flashcards
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the maximum amount of work that a business or organization is capable of doing aka upper limit or ceiling on its load - determined by availability of resources
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Capacity
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facilities employees equipment supply chains
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Four resources that determine the capacity of a business
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What kind of capacity is needed? How much is needed? When is it needed?
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What are the three key questions in capacity planning?
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Meet future market demand Long term commitment of scarce resources Becoming and remaining competitive Initial and operating costs Successfully managing a business
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Why are capacity decisions strategic?
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Develop detailed forecasts of demand for long and short term planning
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Step 1 in the capacity planning process
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Estimate future capacity requirements
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Step 2 in the capacity planning process
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Evaluate existing capacity & facilities & identify gaps
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Step 3 in the capacity planning process
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Identify alternatives for meeting requirements
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Step 4 in the capacity planning process
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Conduct financial analyses of each alternative
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Step 5 in the capacity planning process
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Assess key qualitative issues for each alt.
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Step 6 in the capacity planning process
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Select the alternative
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Step 7 in the capacity planning process
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Implement alternative
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Step 8 in the capacity planning process
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Monitor results
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Step 9 in the capacity planning process
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plan to add capacity in *anticipation of future* demand increases
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Leading Strategy
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plan to add capacity when *demand exceeds current capacity*
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Following Strategy
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plan to *incrementally add capacity* to keep pace with increasing demand
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Tracking Strategy
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increasing the output beyond the optimal level of output...increasing this output rate increases the average cost per unit
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Diseconomies of scale
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available capacity required expertise impact on quality nature of demand total cost additional risks
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Factors to consider when deciding whether or not to outsource an operation
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to estimate the income of an organization under different operating conditions.....useful for comparing capacity alternatives.
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Purpose of Cost-Volume analysis (break-even point) in capacity planning
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VC per unit is the same regardless of volume FC do not change with volume changes Revenue per unit is the same regardless of volume Revenue per unit exceeds VC per unit Only one product is involved Everything produced can be sold
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Assumptions of a simple Cost-Volume Analysis
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maximum output rate of an operation, process or facility based on its design
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Design Capacity
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design capacity output rate minus allowances for factors or determinants that negatively impact output rate
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Effective Capacity
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Facility factors Product/service factors Process factors Human factors Policy factors Operational factors Supply chain factors External factors
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Primary determinants of effective capacity
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issues associated with design, location, layout, and work environment
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Facility factors
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issues associated with standardized versus customized products/services
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Product/service factors
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issues associated with quantity of output versus quality of output
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Process factors
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issues of job design and employee training, experience and motivation
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Human factors
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upper management decisions regarding operating policies
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Policy factors
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scheduling, materials inventory, equipment, quality control
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Operational factors
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issues with suppliers, distributors, warehousing, and transportation
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Supply chain factors
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government regulations and environmental standards
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External factors
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Utilization and efficiency
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Two measures of how well a system is using its current capacity
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(actual output/design capacity) x 100%
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Utilization equation
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(actual output/effective capacity) x 100%
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Efficiency equation
