Chapter 4 - Capacity Planning

expansionist strategy

industry leaders that make big announcements about capacity, future, and the large investments they're going to make into capacity Taking huge risks

setup times

may be required if multiple products are produced

diseconomies of scale

occurs when the average cost per unit increases as the facility's size increases

constraint management

theory of constraints identification of management of bottlenecks product mix decisions using bottlenecks managing constraints in a line process

capacity requirements

what a processes' capacity should be for some future time period to meet the demand of customers, given the firm's desired capacity cushion Can be expressed in two ways With an output measure With an input measure

setup time

the time required to change a process or an operation from making one service or product to making another

economies of scale

concept that states that the average unit cost of a service or good can be reduced by increasing its output rate

utilization

the degree to which equipment, space, or the workforce is currently being used, and is measured as the ratio of average output rate to maximum capacity

cash flow

the difference between the flows of funds into and out of an organization over a period of time, including revenues, costs, and changes in assets in liabilities

true

A larger capacity cushion may be required due to variation in demand, changing product mix, or supply uncertainty. True or False

c

A measure of the reserve capacity a process has to handle in unexpected increases in demand is the capacity bottleneck capacity utilization rate capacity cushion capacity constraint limit

output measures of capacity

Best utilized when applied to individual processes within the firm or when the firm provides a relatively small number of standardized services and products High-volume processes

service industries

Capacity cushions are greater in ________________ _____________ They rely heavily on employees Being so dependent on labor and service involves uncertainty Therefore, capacity cushions need to be bigger

true

Capacity is the maximum rate of output of a process. True False

capacity planning and constraint management

Capacity management consists of....

demand forecasts

Capacity planning requires what for an extended period of time.

diseconomies of scale

Complexity • Loss of focus • Inefficiencies

long term capacity

Deals with investments in new facilities and equipment at the organizational level and require top management participation and approval because they are not easily reserved

capacity planning (long term)

Economies and diseconomies of scale Capacity timing and sizing strategies Systematic approach to capacity decisions

fixed, construction, purchased, advantages

Economies of Scale - concept that states that the average unit cost of a service or good can be reduced by increasing its output rate Spreading ________ costs Reducing _____________ costs Cutting costs of ___________ materials Finding process ________________

decision trees

Evaluates different capacity expansion alternatives when demand is uncertain and sequential decisions are involved

simulations

It can identify the process's bottlenecks and appropriate capacity cushions Even for complex processes with random demand patterns and predictable surges in demand during a typical day

input measures of capacity

Generally used for low-volume, flexibility processes, such as those associated with a custom furniture maker

wait-and-see strategy

Is to expand in small increments, such as by renovating existing facilities rather than building new ones Lags behind demand Relies on short-term options

d

Large, infrequent jumps in capacity are characteristic of companies that: have a wait-and-see strategy have high utilization have low utilization have an expansionist strategy

a

Long−term capacity plans deal with: investments in new facilities workforce size inventories overtime budgets

simulations

More complex waiting lines must be analyzed with

wait and see and follow the leader strategies

More risk adverse They are going to wait and follow the industry leaders Wait for demand Incremental capacity

Sizing capacity cushions, Timing and sizing expansion, Linking process capacity and other operating decisions

Operation managers must examine three dimensions of capacity strategy before making capacity decisions:

true

T or F One reason economies of scale drive down cost is the spreading of fixed costs. Group of answer choices

Identify, Exploit, Subordinate, Elevate, Repeat

The Theory of Constraints Key Principles More short term 5 Steps

a

The degree to which equipment, space, or labor is being used is commonly referred to as: utilization output capacity cushion

expansionist strategy

The timing and sizing of expansion are related If demand is increasing and the time between increments increases, the size of the increments must also increase Stays ahead of demand, minimizes the chance of sales lost to insufficient capacity Can result in economies of scale and a faster rate of learning Thus helping a firm reduce its costs and compete on price

waiting line models

Useful for selecting an appropriate capacity cushion for a higher customer-contact process Tend to develop in front of a work center Airport ticket counter A machine center Central computer Use probability distributions to provide estimates of average customer wait time, average length of waiting lines, and utilization of the work center

Through longest processing time Having a utilization greater than 100% Work in Process inventory buildup

What three ways can you identify a bottleneck?

capacity cushions

When managers made decisions about designing processes, determining degree of resource flexibility and inventory, they must consider its impact on

a

Which one of the following factors usually calls for a larger capacity cushion? uncertain demand more reliable equipment high capital intensity high worker flexibility

a

Which one of the following statements about capacity cushions is best? companies that have considerable customization tend to have larger capacity cushions companies with high capital costs tend to have large capacity cushions companies with flexible flow processes tend to have small capacity cushions constant demand rates require larger capacity cushions

higher

_________ costs can reduce the cost of purchased materials and services

capacity

the maximum rate of output of a process or a system Managers are responsible for ensuring that the firm has the capacity to meet current and future demand

capacity cushion

are greater in service industries They rely heavily on employees Being so dependent on labor and service involves uncertainty

capacity gap

positive or negative difference between projected demand and current capacity

base case

the act of doing nothing and losing orders from any demand that exceeds current capacity, or incur costs because capacity is too large

capacity cushion

the amount of reserve capacity a process uses to handle sudden increases in demand or temporary losses of production capacity It measures the amount by which the average utilization falls below 100%

planning horizon

the set of consecutive time periods considered for planning purposes