Lecture operations and supply chain management chapter 4: strategic capacity management

All rights reserved.Strategic Capacity Management Chapter 04... Understand the concept of capacity and how important it is to “manage” capacity.. Understand how to use decision trees t

McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc All rights reserved.

Strategic Capacity Management

Chapter 04

Learning Objectives

1. Understand the concept of capacity and

how important it is to “manage” capacity.

2. Explain the impact of economies of scale of

a firm.

3. Understand how to use decision trees to

analyze alternatives when faced with the

problem of adding capacity.

4. Describe the differences in planning

capacity between manufacturing firms and service firms.

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

Capacity Planning Time

Durations

Capacity Planning Concepts

Capacity Planning Concepts

 Capacity Focus – the idea that a production facility works best when it is concentrated on

a limited set of production objectives

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

workers or from strategies that use the capacity

of other organizations

Capacity Flexibility

Considerations in Changing

Capacity

Determining Capacity

Requirements

Excel: Capacity Requirements

Determining Capacity

Requirements

Step 3: Project equipment

and labor availabilities

Year

Plastic

Bag

Operatio

n

Percentage

Machine requirement

Bottle

Operatio

n

Percentage

Machine

Decision Trees for Capacity

Analysis

sequence of steps in a problem – including the conditions and consequences of each step

problem and assist in identifying the best

solution

 Decision nodes – represented with squares

 Chance nodes – represented with circles

 Paths– links between nodes

Planning Service Capacity

Capacity Utilization and

Service Quality

 The relationship between service capacity

utilization and service quality is critical

servers are busy

 Optimal levels of utilization are context specific

uncertainty (in demand) is high and/or the stakes are high (e.g emergency rooms, fire departments)

or those without extensive customer contact (e.g commuter trains, postal sorting)

Service Quality

 Rate of service utilization and service

quality are directly linked

Arrivals exceed

services – many

customers are

never served

Sufficient capacity

to provide quality

Service quality declines –

disruptions or high arrival levels lead

to long wait times