CH5: Combined

ability to hold, receive, store, or accommodate

capacity

amount of output that a system is capable of achieving over a specified period of time

capacity

in service settings, the capacity can shift to focus on

inputs (patients entering the hospital for example)

an approach for determining the overall capacity level of capital intensive resources, including facilities, equipment, and overall labor force size

strategic capacity planning

focuses on the best ways for a company to leverage their long term competitive strategy

strategic capacity planning

Why do we plan for capacity? (6)

Involves LT commitment
Impacts ability to meet future demands
Major determinant of initial costs
Impacts operating costs
Impacts competitiveness
Impacts management style

What are the three levels of capacity planning

Long range decisions
Intermediate range
Short range

Level of capacity planning that deals with buildings, equipment, and facilities (aka decisions from top management); things that require large fixed cost investment

Long range decisions

Level of capacity planning that deals with hiring, layoffs, new tools, minor equipment purchases, and subcontracting; these impact fixed costs and variable costs

Intermediate range decisions

Level of capacity planning that deals with overtime, personnel transfers, and alternative production routings; these affect variable costs

Short range decisions

Capacity =

output /time

the output that the system is capable of achieving over some unit of time

capacity

an attainable rate of output

capacity

output level at which the average unit cost of producing something (good or service) is minimized; cost minimizing output

best operating level

simple measure of how close a firms current output rate is to the best operating level

capacity utilization

capacity utilization rate =

capacity used / best operating capacity

What does the bathtub curve describe?

the best operating level sloping into under and over utilization

What is the general rule for capacity utilization rate?

between 80 and 120% is good

concept of the focused factory holds that production facilitates work best when they focus on a fairly limited set of production objectives (relates more to economies of scale)

Focused factory

at the extreme of focused factories, some firms employ ___: extend focused factory concept to operating line level

Plants within Plants (PWP)

concept of flexible plants, flexible processes, and flexible workers synergizing to more quickly math customers demands with manufacturing outputs (relates more to economies of scope)

flexible manufacturing

economies of scope are popular in

US

ability to quickly adapt to change; zero changeover time (or at least minimal)

flexible plants

flexible manufacturing systems; simple, easily set up equipment; redundant processes that can be customized

flexible processes

Ability to switch from one kind of task to another quickly; multiple skills (cross training)

flexible workers

cross training needs to balance

efficiency and motivation

What are the two factors of capacity planning?

Frequency of Capacity Additions
External Sources of Capacity (outsourcing)

spending money to make variable costs more efficient

capacity additions

What are the three predictions and decisions that need to be made?

Forecast sales within each individual product line
Calc equipment and labor requirements to meet forecasts
Project equipment and labor availability over planning horizon

What are the decisions when changing capacity? (4)

Maintain system balance
Frequency of additions
External sources of capacity
Decreasing capacity

Decision for changing capacity where: similar capacities desired at each operation; manage bottleneck operations (this is the general goal)

maintaining system balance

Decision for changing capacity where: cost of upgrading too frequently (costly); cost of upgrading too in frequently (cant meet demand)

frequency of capacity additions

Decision for changing capacity where: outsourcing or sharing capacity

external sources of capacity

Decision for changing capacity where: temporary reductions and permanent reductions; think furloughs (hurts fixed costs but is sometimes necessary)

decreasing capacity

Changing capacity is graphed using:

regression demand forecast

projecting labor and equipment availability over the planning horizon

sensitivity analysis

What are the components (3) of manufacturing capacity (how are they different from service capacity)

Goods can be stored for later use
Goods can be shipped to other locations
Volatility of demand is relatively low

What are the components (3) of service capacity (how are they different from manufacturing capacity)

Capacity must be available when service is needed (not stored)
Service must be available at customer demand point
Much higher volatility is typical

What are the three factors of capacity?

Inventory
Location of Demand
Volatility of Demand (time or capacity)

How do you store a service?

wait time for customers

What is meant by location of demand for services?

service goods must be at the customer demand point and capacity must be located near the customer

With services, we can only buffer ___ (not inventory) or ___ (how many employees)

time or capacity

When capacity is below 70%; little to no wait time, happy customers

Zone of Service

When capacity is between 70 and 100%; wait time increases; customer satisfaction starts to drop

Critical Zone

When capacity is beyond 100%; low customer satisfaction due to high wait times

Zone of Non Service

The best operating point is near:

70% of capacity

The ability to hold, receive, store, or accommodate

capacity

This type of capacity planning requires top management participation and approval.

long range

Finding the overall capacity level of capital-intensive resources to best support the firm’s long-term strategy.

strategic capacity planning

The volume of output at which average unit cost is minimized.

best operating level

The capacity utilization rate is calculated as X/Y. What are X and Y respectively.

Capacity used and Best operating level

Firms whose product mix is very uncertain often express capacity in terms of

inputs

The output level where average unit cost is minimized is known as what?

best operating level

The idea that as a plant volume increases, the average cost per unit drops is known as what?

economies of scale

What are the impacts of having excess capacity? (3)

Lower profits
Lower price
Utilization of workers

The term capacity implies an ___ rate of output.

attainable

The capacity utilization rate is expressed as what?

percent

Which of the following can be used to operationalize the focused factory concept?

plant within a plant

When multiple products can be combined and produced at one facility at a lower cost than they can be produced separately is known as what?

economies of scope

the level of capacity for which the process was designed.

best operating level

Two common strategies used by organizations to add external capacity are ___ and___ capacity

outsourcing and sharing

At some point, the size of a plant becomes too large and diseconomies of scale become a problem. These diseconomies may surface in many different ways. Which of the following are ways diseconomies of scale might service.

Maintenance required to keep a few large-capacity pieces of equipment operating
Maintaining the demand required may require significant discounting
The cost of internal transportation of raw materials and finished goods

List the steps, from first to last, required to determine capacity requirement. (3)

Forecast to predict sales
Calculate equipment and labor requirements
Project labor and equipment availability

How many PWPs might a focused factory have?

several

The ultimate in plant flexibility is...

the zero changeover time plant

The two types of costs to consider when adding capacity are

Cost of upgrading to frequently or infrequently

Capacity in excess of expected demand is known as a what.

capacity cushion

means having the ability to rapidly increase or decrease production levels.

capacity flexibility