Capacity
the ability to hold, receive, store, or accommodate
T/F: Capacity management needs to consider both inputs and outputs
True
Capacity Planning Time Durations
1. Short range (daily, weekly)
2. Intermediate range (monthly, quarterly)
3. Long range (annually)
Strategic Capacity Planning
Determining the overall level of capacity-intensive resources that best supports the company's long-range competitive strategy
T/F: Capacity level selected has a critical impact on response rate, cost structure, inventory policies, and management and staff support requirements
True
Capacity utilization rate
a measure of how close the firm is to its best possible operating level
Capacity utilization rate equation
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Economies of scale
the idea that as a planet gets larger and volume increases, the average cost per unit tends to drop
Diseconomies of scale
at some point, the plant becomes too large and average cost per unit begins to increase
In general, the best operating point for services is ________% of capacity
near 70
Capacity focus
the idea that a production facility works best when it is concentrated on a limited set of production objectives
(Ex: Focused factory or plant within a plant (PWP) concept)
Capacity flexibility
the ability to rapidly increase or decrease product levels or the ability to shift rapidly from one product or service to another
(ex: Comes from the plant, processes, and workers or from strategies that use the capacity of other organizations)
Capacity Flexibility
1. Flexible Plants
2. Flexible Processes
3. Flexible Workers
Flexible Plants
~ Ability to quickly adapt to change
~ Zero-changeover time
Flexible Processes
~ Flexible manufacturing systems
~ Simple, easily set up equipment
Flexible Workers
~ Ability to switch from one kind of task to another quickly
~Multiple skills (cross training)
Capacity Bottlenecks
Bottleneck operation when demand is greater that what can be produce
Frequent versus Infrequent Capacity Expansions
pp on pg 19
Determining Capacity Requirements
1. Use forecasting to predict sales for individual products --->
2. Calculate labor and equipment requirements to meet forecasts -->
3. Project labor and equipment availability over the planning horizon
Planning Service Capacity vs. Manufacturing Capacity
1. Time
2. Location
3. Volatility of Demand
Planning Service Capacity vs. Manufacturing Capacity: Time
Service goods can not be stored for later use and capacity must be available to provide a service when it is needed
Planning Service Capacity vs. Manufacturing Capacity: Location
Service goods must be at the customer demand point and capacity must be located near the customer
Planning Service Capacity vs. Manufacturing Capacity: Volatility of Demand
Much greater than in manufacturing
Capacity Cushion
Level of capacity in excess of the average utilization rate or level of capacity in excess of the expected demand .
Large Capacity Cushion
~ Required to handle uncertainty in demand
~ Service industries
~ High level of uncertainty in demand (in terms of both volume and product-mix)
~ To permit allowances for vacations, holidays, supply of materials delays, equipment breakdowns, etc.
~ If sub
Small Capacity Cushion
~ Unused capacity still incurs the fixed costs
~ highly capital intensive businesses
~ time perishable capacity
Using Decision Trees to Evaluate Capacity Alternatives
a schematic model of the sequence of steps in a problem - including the conditions and consequences of each step
T/F: Decision trees do NOT help analysts understand the problem and assist in identifying the best solution
False
Decision tree components
Decision nodes - represented with squares
Chance nodes - represented with circles
Paths - links between nodes
T/F: For a Decision Tree you must work from the end of the tree backwards to the start of the tree
True
Manufacturing Capacity
~ Goods can be stored for later use
~ Goods can be shipped to other locations
~ Volatility of demand is relatively low
Service Capacity
~ Capacity must be available when service is needed - cannot be stored
~ Service must be available at customer demand point
~ Much higher volatility is typical
Arrival rate
the average number of customers that come to a facility during a specific period of time
Service rate
the average number of customers that can be processed over the same period of time
Optimal levels of utilization are context specific
~Low rates are appropriate when the degree of uncertainty (in demand) is high and/or the stakes are high (e.g., emergency rooms, fire departments)
~Higher rates are possible for predictable services or those without extensive customer contact (e.g., commu