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IPPTChap005 (1)

The document discusses strategic capacity management, focusing on the importance of capacity in operations and its relationship to economies of scale. It outlines different time durations for capacity planning, concepts such as capacity utilization and flexibility, and considerations for changing capacity. Additionally, it highlights the differences between manufacturing and service capacity, emphasizing the critical link between service capacity utilization and service quality.

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14 views15 pages

IPPTChap005 (1)

The document discusses strategic capacity management, focusing on the importance of capacity in operations and its relationship to economies of scale. It outlines different time durations for capacity planning, concepts such as capacity utilization and flexibility, and considerations for changing capacity. Additionally, it highlights the differences between manufacturing and service capacity, emphasizing the critical link between service capacity utilization and service quality.

Uploaded by

sushi.ndc
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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You are on page 1/ 15

STRATEGIC

CAPACITY
MANAGEMENT

Chapter Five
McGraw-Hill/Irwin Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved.
Economies of Scale Made of Steel

 The Economics of Very Big Ships


 Economy of Container Ships
 Allows a T-shirt made in China to be sent to the Netherlands for
just 2.5 cents.
 The Eleonora Maersk and the other seven ships in her class are
among the largest ever built:
 Almost 400 m long, or the length of four soccer fields, and
another half-field across.
 The ships can carry 7,500 or so 40-foot containers, each of which
can hold 70,000 T-shirts.
 On this voyage, the Eleonora was carrying supplies for
Europe’s New Year celebrations: 1,850 tons of fireworks,
including 30 tons of gunpowder.

5-2
Capacity Management in Operations

 Capacity – the ability to hold, receive, store, or


accommodate
 In business, viewed as the amount of output that a
system is capable of achieving over a specific
period of time
 Capacity management needs to consider both
inputs and outputs

5-3
Capacity Planning Time Durations

Long range

• Greater than one year

Intermediate range

• Monthly or quarterly plans covering the next 6 to 18


months

Short range

• Less than one month

5-4
Strategic Capacity Planning
 Determining the overall level of capacity-intensive
resources that best supports the company’s long-
range competitive strategy
 Facilities

 Equipment

 Labor force size

5-5
Capacity Planning Concepts
 Capacity utilization rate – a measure of how close
the firm is to its best possible operating level

 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

5-6
Operations and Supply Chain
Processes

1-7
Capacity Planning Concepts
 Capacity focus – the idea that a production facility
works best when it is concentrated on a limited set
of production objectives
 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
 Comes from the plant, processes, and workers or from
strategies that use the capacity of other organizations

5-8
Capacity Flexibility

Flexible • Ability to quickly adapt to change


Plants • Zero-changeover time

Flexible • Flexible manufacturing systems


Processes • Simple, easily set up equipment

Flexible • Ability to switch from one kind of task


to another quickly
Workers • Multiple skills (cross training)

5-9
Considerations in Changing Capacity
Maintaining System Balance

• Similar capacities desired at each operation


• Manage bottleneck operations

Frequency of Capacity Additions

• Cost of upgrading too frequently


• Cost of upgrading too infrequently

External Sources of Capacity

• Outsourcing
• Sharing capacity

Decreasing Capacity

• Temporary reductions
• Permanent reductions

5-10
Frequent versus Infrequent Capacity
Expansions

5-11
Determining Capacity Requirements

Use forecasting to Calculate labor Project labor and


predict sales for and equipment equipment
individual requirements to availability over
products meet forecasts the planning
horizon

5-12
Planning Service Capacity

Manufacturing Service Capacity


Capacity
Goods can be stored for Capacity must be available
later use. when service is needed –
cannot be stored.

Goods can be shipped to Service must be available at


other locations. customer demand point.

Volatility of demand is Much higher volatility is


relatively low. typical.

5-13
Capacity Utilization and Service
Quality
 The relationship between service capacity utilization
and service quality is critical.
 Utilization is measured by the portion of time servers
are busy.
 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., commuter
trains, postal sorting).

5-14
Service Quality
 Rate of service utilization and service quality are
directly linked. Service quality declines –
disruptions or high arrival
Arrivals exceed services – levels lead to long wait
many customers are never times
served

Sufficient capacity to
provide quality service

5-26

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