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
