Capacity Planning for Production and Services

Flashcards covering key concepts from the lecture on capacity planning for production and services.

What is capacity in the context of capacity planning?

The upper limit or ceiling on the load that an operating unit can handle.

What are the key components of capacity needs?

Equipment, Space, and Employee skills.

What is the goal of strategic capacity planning?

To achieve a match between long-term supply capabilities and predicted long-term demand.

What can result from overcapacity?

Operating costs that are too high.

What is undercapacity?

Strained resources and possible loss of customers.

What are key questions in capacity planning?

What kind of capacity is needed? How much is needed to match demand? When is it needed?

What must be evaluated in capacity decisions?

Impact on future demands, operating costs, initial costs, and competitiveness.

What is 'design capacity'?

The maximum output rate that an operation, process, or facility is designed for.

What is 'effective capacity'?

Design capacity minus allowances such as personal time and maintenance.

What is 'actual output'?

The rate of output actually achieved.

What is efficiency in the context of capacity?

The measure of output relative to effective capacity.

What are the determinants of effective capacity?

Facilities, Product/service factors, Process factors, Human factors, Policy factors, Operational factors, Supply chain factors, External factors.

What role do facilities play in capacity planning?

Design, location, layout, and environment affect capacity.

What factors determine product/service capacity?

Product design and service mix.

What human factors influence capacity?

Job content, design, training, motivation, compensation, learning rates, absenteeism, and labor turnover.

What are the three primary capacity strategies?

Leading, Following, and Tracking.

What characterizes the leading capacity strategy?

Building capacity in anticipation of future demand increases.

What is a capacity cushion?

Extra capacity used to offset demand uncertainty.

How is capacity cushion calculated?

Capacity cushion = 100% - Utilization.

What are the steps in capacity planning?

Estimate needs, evaluate existing capacity, identify alternatives, conduct financial analyses, assess qualitative issues, select best alternative, implement, monitor results.

What challenges arise in service capacity?

Need to be near customers, inability to store services, variability of demand.

What factors should be considered when deciding to produce in-house or outsource?

Available capacity, expertise, quality, demand nature, cost, risks.

What is a bottleneck operation?

An operation whose capacity is lower than that of other operations in a sequence.

Define optimal operating level.

The output rate that minimizes costs.

What are economies of scale?

Decreasing average per unit costs when output is increased under optimal conditions.

What causes diseconomies of scale?

Increasing average per unit costs when output exceeds optimal levels.

What is constraint management?

Identifying and overcoming something that limits a process's performance.

What are the categories of constraints?

Market, Resource, Material, Financial, Knowledge, Policy.

What technique is used for evaluating capacity alternatives?

Cost-volume analysis, financial analysis, decision theory, waiting-line analysis, simulation.

Define cost-volume analysis.

Focuses on the relationship between cost, revenue, and volume of output.

What does break-even point (BEP) signify?

The volume of output where total cost equals total revenue.

What is total cost in cost-volume analysis?

Total Cost = Fixed Costs + Variable Costs.

What assumptions must be satisfied for cost-volume analysis?

One product is involved, everything produced can be sold, variable cost is consistent, fixed costs are steady.

What is cash flow?

The difference between cash received and cash outflow.

What is present value in financial analysis?

The current value of all future cash flows from an investment proposal.

What happens if output is less than the optimal level?

Increasing output leads to decreasing average per unit costs.

What happens if output exceeds the optimal level?

Increasing output leads to rising average per unit costs.

What are the financial aspects to consider when evaluating alternatives?

Economic feasibility, cost, operating and maintenance costs, useful life, compatibility with current operations.

Why is measuring capacity in dollars problematic?

Dollars do not accurately reflect the physical output or capabilities.

What does an organization need to manage when using demand management strategies?

Offsetting capacity limitations to match supply and demand.

What is an example of a demand management strategy?

Pricing, promotions, discounts, tactics to shift demand.

What is the role of sustainability issues in capacity planning?

Considering the environmental impact of capacity decisions.

How should capacity decisions be planned?

They need to be planned for in advance due to their consumption of resources.