Operations--Capacity Planning

The long-term nature of many capacity decisions and the risks inherent in long-term forecasts suggest potential benefits from designing ______systems.

flexible

For instance, if an organization has many different products or services, it may not be practical to list all of the relevant capacities. This is especially true if there are _____________, because this would necessitate a frequently changing composite index of capacity.

frequent changes in the mix of output

When trends are identified, the fundamental issues are

(1) how long the trend might persist, because few things last forever, and (2) the slope of the trend

Three very important factors in planning service capacity

(1) there may be a need to be near customers, (2) the inability to store services, and (3) the degree of volatility of demand.

If cycles are identified,

interest focuses on (1) the approximate length of the cycles and (2) the amplitude of the cycles (i.e., deviation from average).

A tracking strategy

is similar to a following strategy, but it adds capacity in relatively small increments to keep pace with increasing demand.

economies of scale

factors that cause a producer's average cost per unit to fall as output rises

The three primary strategies are

leading, following, and tracking

Effective capacity is always _______than design capacity owing to realities of changing product mix, the need for periodic maintenance of equipment, lunch breaks, coffee breaks, problems in scheduling and balancing operations, and similar circumstances.

less

Short-term capacity needs are ________concerned with cycles or trends than with seasonal variations and other variations from average. These deviations are particularly important because they can place a severe strain on a system's ability to satisfy demand at some times and yet result in idle capacity at other times.

less

Constraint

limitation or restriction

Substantial _______can occur when there are misjudgments on capacity needs. One key reason for those misjudgments can be ______ _______projections of demand and growth.

losses overly optimistic

difficulties in actually measuring capacity arise because _________

of different interpretations of the term capacity and problems with identifying suitable measures for a specific situation.

Once capacity requirements have been determined, the organization must decide whether to produce a good or provide a service itself, or to _______from another organization.

outsource

Long-term capacity needs require forecasting demand over a ________ and then converting those forecasts into capacity requirements.

time horizon

A common approach is to use financial analysis to rank investment proposals, taking into account the _______.

time value of money.

Capacity also must be matched with the ________of demand.

timing

In selecting a measure of capacity, it is important to choose one that does not require _______

updateing

Capacity often refers to an _____limit on the rate of output

upper

Two important terms in financial analysis are _____&_______.

cash flow present value

_________for customers is often an important aspect of service. Generally, a service must be located near customers. Thus, capacity and location are closely tied.

convenience

Cost-volume analysis focuses on relationships between ________.

cost, revenue, and volume of output.

cash flow

the difference between cash coming in and cash going out of a business

_____ ________ cannot exceed effective capacity and is often less because of machine breakdowns, absenteeism, shortages of materials, and quality problems, as well as factors that are outside the control of the operations managers.

Actual output

Life cycle phases and capacity planning

- introduction: organizations should be cautious in making large and/or inflexible capacity investments - growth: increased demand and capacity -maturity : Organizations may still be able to increase profitability by reducing costs and making full use of capacity. However, some organizations may still try to increase profitability by increasing capacity if they believe this stage will be fairly long, or the cost to increase capacity is relatively small. -decline: faced with underutilization of capacity due to declining demand

Constraint issues can be resolved by using the following five steps

1- Identify most pressing constraint 2- Change the operation to achieve the max benefit 3-Make sure that other processes are supportive of the constraint 4-Explore and evaluate ways to overcome the constraint 5- Repeat the process until the level of constraints is acceptable

Steps in the Capacity Planning Process

1. Estimate future capacity requirements. 2. Evaluate existing capacity and facilities and identify gaps. 3. Identify alternatives for meeting requirements. 4. Conduct financial analyses of each alternative. 5. Assess key qualitative issues for each alternative. 6. Select the alternative to pursue that will be best in the long term. 7. Implement the selected alternative. 8. Monitor results.

Cost-volume analysis can be a valuable tool for comparing capacity alternatives if certain assumptions are satisfied:

1. One product is involved 2. everything produced can be sold 3. The variable cost per unit is the same regardless of the volume. 4. Fixed costs do not change with volume changes, or they are step changes. 5.The revenue per unit is the same regardless of volume. 6. Revenue per unit exceeds variable cost per unit.

_______management can be a way to increase effective capacity, by scheduling non-bottleneck operations to achieve maximum utilization of bottleneck operations.

Bottleneck

__________are key inputs used to answer the questions of how much _________is needed and when is it needed.

Forecasts Capacity

7 categories of constraints

Market - insufficient demand Resource - Too little of one or more resources Material - too little of one or more materials Financial - insufficient funds Supplier - unreliable, long lead time, substandard quality Knowledge or competency - needed knowledge or skills missing or incomplete Policy - laws or regulations interfere

Capacity requirements are often closely linked to the __________ that a product or service is in

Stage of the life cycle

Capacity planning decisions involve both ________and __________ considerations.

Short term long term

Generally speaking, the more ________the output, the more opportunities there are for standardization of methods and materials, which leads to greater capacity.

Uniform

The key questions in capacity planning are the following:

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

The purpose of cost-volume analysis is to

estimate the income of an organization under different operating conditions. It is particularly useful as a tool for comparing capacity alternatives.

The preferred alternative in such cases is to use a measure of capacity that refers to _________

availability of inputs

A leading capacity strategy

builds capacity in anticipation of future demand increases.

A following strategy

builds capacity when demand exceeds current capacity

Efficiency improvements and utilization improvements can provide _______.

capacity increases

Long-term considerations relate to _________, such as facility size; short-term considerations relate to probable variations in capacity requirements created by such things as seasonal, random, and irregular fluctuations in demand.

overall level of capacity

The three most commonly used methods of financial analysis are _________

payback, present value, and internal rate of return.

. From an operations management standpoint, capacity decisions establish a ______

set of conditions within which operations will be required to function.

________ or ________, becomes a major concern in service capacity planning.

speed of delivery, or customer waiting time,

Where only one product or service is involved, the capacity of the productive unit may be expressed in _______. However, when multiple products or services are involved, as is often the case, using a simple measure of capacity based on units of output can be misleading.

terms of that item

Present Value

the amount of money you would need to deposit now in order to have a desired amount in the future