Chapter 10: Capacity Management

Capacity

the capability of a manufacturing or service system, such as a facility, process, workstation, or piece of equipment, to accomplish its purpose or to produce output in a period of time.

Capacity can be viewed in one of two ways

1. as the rate of production output per unit of time; or

2. as units of resource availability.

Examples of Short-Term Capacity Decisions

amount of overtime scheduled for the next week, number of emergency room nurses on call during a downtown festival weekend, and number of call center workers to staff during the holiday season.

Examples of Long-Term Capacity Decisions

construction of a new manufacturing plant, expanding the size and number of beds in a hospital, and number of branch banks to establish in a new market territory.

What are capacity decisions influenced by?

economies and diseconomies of scale

Economies of Scale

achieved when the average unit cost of a good or service decreases as the capacity and/or volume of throughput increases.

Diseconomies of scale

when the average unit cost of the good or service begins to increase as the capacity and/or volume of throughput increases.

Focused Factory

a way to achieve economies of scale, without extensive investments in facilities and capacity, by focusing on a narrow range of goods or services, target market segments, and/or dedicated processes to maximize efficiency and effectiveness.

What does a focused factory argue?

“divide and conquer” by adopting smaller, more focused facilities dedicated to (1) a few key products, (2) a specific technology, (3) a certain process design and capability, (4) a specific competitive priority objective such as next-day delivery, and (5) particular market segments or customers and associated volumes.

Theoretical Capacity

the maximum rate of output that can be produced in a period of time under ideal operating conditions.

Effective Capacity

the actual capacity that can reasonably be expected to be achieved in the long run under normal operating conditions.

Safety Capacity (Capacity Cushion)

is an amount of capacity reserved for unanticipated events such as demand surges, materials shortages, and equipment breakdowns.

Work Order

a specification of work to be performed for a customer or a client

Complementary goods and services

are goods and services that can be produced or delivered using the same resources available to the firm, but whose seasonal demand patterns are out of phase with each other

Short-Term Adjustments

add or share equipment, sell unused capacity, change labor capacity and schedules, change labor skill mix, and shift work to slack periods.

General approaches to influence customers to shift demand from periods without adequate capacity to periods with excess capacity, or to fill times with excess capacity

vary the price of goods and services, provide customers with information, advertising and promotion, add peripheral goods and/or services, provide reservations

Reservation

a promise to provide a good or service at some future time and place.

Revenue Management System

consists of dynamic methods to forecast demand, allocate perishable assets across market segments, decide when to overbook and by how much, and determine what price to charge different customer (price) classes.

The four components of RMS

forecasting, allocation, overbooking, and pricing

If you do not sell or use the ticket, the revenue-generating opportunity for that seat __ be recaptured

cannot

Learning Curve

concept is that direct labor unit cost decreases in a predictable manner as the experience in producing the unit increases.

Experience Curve

states that the cost of doing any repetitive task, work activity, or project decreases as the accumulated experience of doing the job increases.

P-percent learning curve

characterizes a process in which the time of the 2xth unit is p percent of the time of the xth unit.