Chapter 9: Capacity Planning

customer waiting time (speed of delivery)

you can't store services, so _________ _________ ___________ is a major concern in service capacity planing ex-deciding how many police to have on call affects speed of response and cost of maintaining that capacity

suppliers

you need to collaborate with ___________ on plans for capacity changes so they have to time to adjust their capacity

identify most pressing constraint, change operations to achieve max benefit given the constraint, make sure other portions of the process are supportive of the constraint, explore ways to overcome the constraint, repeat until level of constraint is acceptable

five steps to resolve constraint issues

agile, capacity cushion

flexibility allows an organization to be ______________ what is a main way that organization stay flexible

decision theory

helpful tool for financial comparison of alternatives under conditions of risk or uncertainty

demand

high utilization is only good when there is high ___________ for your product

layout of work area determines how smoothly work can be performed

how are facilities a determinant of effective capacity

product standards (like quality or performance), pollution standards, paper work can all affect your options for increasing capacity

how can external factors be a determinant of effective capacity

employee motivation, absenteeism, tasks, etc. can all affect effective capacity

how can human factors be a determinant of effective capacity

build up finished goods inventory

how can maunfacturing still benefit from having excess capacity during certain periods of the day

do you insufficient capacity in one area, do you have scheduling problems with equipment or jobs

how can operational factors be a determinant of effective capacity

do you allow overtime,

how can policy factors be a determinant of effective capacity

quantity capabilities of a process, productivity, output quality

how can process factors be a determinant of effective capacity

waiting line models, simulations

how can you analyze service systems with a lot of random variability

probability distributions

how can you describe variations in demand when time intervals are very short

standard forecasting techniques

how can you identity seasonal variations in demand

in terms of availability of inputs

how should you express capacity when you have a ton of products or resources ex-number of beds available in a hospital, number of machine hours available

if you have uniform output, you can standardize your materials and methods, which leads to higher capacity

explain how product and service factors can be a determinant of effective capacity

capacity cushion

extra capacity used to offset demand uncertainty

in terns of that item

how should you express capacity when you only produce 1 product or service

in terms of both products (produce either 80 fridges or 100 freezers a day)

how should you express capacity when you produce multiple products or services

decrease

if output rate is less than optimal level, increasing the rate will _________ avg unit cost

increasing

if the output rate is more than the optimal level, increasing the output rate results in ____________ average per unit costs

maturity

in what stage of lifecycle do you consider increasing profitability by reducing costs and making full use of capacity

growth

in what stage of lifecycle do you typically increase investment to increase output

introduction

in what stage of lifecycle should you avoid making large/inflexible investments in capacity

decline

in what stage of the life cycle do you tend to have underutilized capacity because of declining demand

quality, productivity

increasing __________ and _____________ can increase capacity

step costs

fcosts that increase stepwise as potential volume increases

service

it's difficult for ___________ businesses to make use of excess capacity

forecasting

long term capacity requires ________________ over a time horizon and then converting those __________ into capacity requirements

cycles, variations

long term considerations of capacity requirements are more focused on ___________ and short term are more focused on ___________

design capacity

max output rate or service capacity an operation, process, or facility is designed for the max rate under ideal conditions

bottleneck management

one way by which organizations can enhance their effective capacities

financial

operations personnel need to have the ability to do ____________ analysis

it limits your rate of output, it affects operating costs, require long term commitment of resources, can affect competitiveness, affects ease of management, globalization has made capacity decisions more important, often involve the use of a lot of resources (need to plan for them in advance), major determinant of initial cost

what are a few reasons why capacity decisions are strategic for your organization

may need to be near customers, you can't store services, demand is volatile

what are a few reasons why capacity planning is more difficult for services

overtime, subcontract work, increase size of operation

what are a few ways that you can respond to variability of demand

hire extra workers, outsource, use promotions or pricing to shift demand

what are a few ways to deal with demand volatility

expanding or contracting a facility, opening or closing a facility, relocating

what are some long term capacity alternatives

facility size, overall capacity level

what are some long term capacity planning decisions

machine breakdowns, absenteeism, quality problems, etc.

what are some reasons why actual output doesn't exceed effective capacity

lose direct control, lose knowledge sharing, risk liability

what are some risks of outsourcing

overly optimistic of demand and growth, focusing too hard on revenue and sales and not the product mix

what are two ways that you can experience substantial losses as a result of misjudging capacity needs

multiple breakeven quantities

what can result from having step costs

products and services of your business

what decides what kind of capacity you need

increase effective capacity (by correcting quality problems, maintaining equipment, training employees, etc.)

what is the key to improving capacity utilization

underutilization or overutilization of resources

what is the main problems that unevenness in capacity requirements can cause

find products that have complementary demand (ex water skis and snow skis)

what is the main way to deal with seasonal demand that causes resources to be under or over utilized during the year

chunks

when capacity planning, be prepared to deal with capacity ____________ capacity increases being increased in large __________ rather than small increments, making it hard to match desired capacity and feasible capacity

incremental, single step

when choosing a strategy to expand, consider whether _____________ or ___________ ________ expansion is better for your business

when demand fluctuates a lot

when should you probably outsource work for an item-related to nature of demand

available capacity, expertise, quality considerations, nature of demand, cost risks

things that can influence your decisions to outsource something or do it in house

leading, following, tracking

three main capacity strategies

payback, npv, irr

three most commonly used methods of financial analysis

linear

total revenue has a ___________ relationship with total output

complementary items

tow items that require similar resources but at different times of the year ex-jet skis, snow skis

false (prices can change, so it requires updating)

true/false $ amounts are a good measure of capacity

false

true/false a restaurant with a very wide menu and product meals more quickly than a restaurant with a much more limited menu

false

true/false a single measure of capacity can be appropriate in every situation

true

true/false actual output cannot exceed effective capacity

true

true/false bad output quality decreases effective capacity because you have to do more quality inspections

true

true/false capacity contraction is sometimes necessary

false (variable and fixed)

true/false cost volume analysis requires identifying just the variable costs associated with producing a product

true

true/false demand management strategies can also be used to offset capacity limitations

false

true/false design capacity is always less than effective capacity

false (higher)

true/false firms that specialize typically offer the same quality as if the firm were to product the item itself

false

true/false following competitors is risky, but have greater rewards than leading

true

true/false frequency of demand is influenced by stability of demand, rate of technological change, competitive factors may be made very infrequently or made regularly as part of an ongoing process

false

true/false high efficiency always indicates effective use of resources

true

true/false outsourcing can increase capacity and flexibility

false

true/false people with standard products are services need more capacity cushion than people with higher degrees of demand uncertainty

true

true/false you base your capacity strategy on assumptions and predictions about long term demand patterns, technological changes, and the behavior of competitors

true

true/false you should design flexibility into your capacity system because a provision for future expansion in the original design of a structure can frequently be done at a small price compared to what it would cost to remodel an existing structure without such a provisions

true

true/false you take systems approach to capacity changes need to consider how parts of system interrelate when developing capacity alternatives

true

true/false you want to select a measure of capacity that doesn't require updating

economic, possible negative public opinion

two perspectives from which you should evaluate alternatives for future capacity

expand early, wait and see

two strategies for capacity expansions

waiting line analysis

useful for helping service managers choose a capacity level that will be cost effective through balancing the cost of having customers wait with the cost of providing additional capacity

breakeven point

volume of output at which total cost = total revenue

forecasts

what answers how much capacity you need and when

life cycle

capacity requirements are closely linked to the stage of the ________ _________ that a product or service is in

long term demand patterns, technological change, competitor behavior

capacity strategies are typically based on assumptions and predictions about these 3 things

tracking

capacity strategy that adds capacity in small increments to keep up with increasing demand

leading

capacity strategy that builds capacity in anticipation of future demand increases it's good when capacity increases require a long lead time i

following

capacity strategy that builds capacity when demand exceeds current capacity

payback

crude but widely used method of financial analysis that focuses on the length of time it will take for an investment to return its original cost

effective capacity

design capacity minus allowances like personal time or maintenance, delays due to scheduling problems, and changing mix of products

what kind of capacity, how much capacity is needed to match demand, what is capacity needed

3 key questions in capacity planning

cost volume analysis, financial analysis, decision theory, waiting line analysis, simulation

5 techniques for evaluating capacity alternatives

design flexibility into system, take stage of life cycle into account, take a systems approach (big picture), prepare to deal with capacity chunks, smooth out capacity requirement, find the optimal operating level, choose a strategy to expand

7 things to consider when developing capacity strategies

external factors, supply chain factors, policy factors, operational factors, human factors, facility, process factors, product and service factors

8 determinants of capacity

certainty

NPV, IRR, and payback are appropriate when there is a high degree of _________________ associated with estimates of future cash flows

short

_________ term capacity decision relate to probable variations in capacity requirements created by seasonal and random fluctuations in demand

irregular

______________ variations are the worst because you can't predict them ex-freak storms, equipment breaks, etc .

cost volume analysis

estimates income of an organization under different operating conditions

lowest

at the optimal operating level, cost per unit is the _________ for the production unit

long, short

capacity planning decisions require _________ term and __________ term considerations

indifference point

quantity that would make two alternatives equivalent

utilization

ratio of actual output to design capacity (actual output/design capacity)*100%

efficiency

ratio of actual output to effective capacity (actual output/effective capacity)*100%

bottleneck

risk of not taking a systems approach to capacity planning is that the system will be unbalanced. what is evidence of an unbalanced system

capacity, location

services generally need to be located near customers, so _____________ and ___________ are closely tied

seasonal

short term capacity needs are more concerned with ___________ variations or other variations from the average

one product, everything produced is sold, variable cost per unit is the same, fixed cost don't change change, revenue per unit stays the same, revenue per unit > variable cost per unti

six assumptions of cost volume analysis

constraint

something that limits the performance of a process or system in achieving its goals