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Lecture Operations management for competitive advantage (11/e) - Chapter 11: Strategic capacity management

Capacity is the ability to hold, receive, store, or accommodate. In a business sense, it is viewed as the amount of output that a system is capable of achieving over a specific period of time. Strategic capacity planning has as its objective, to determine the overall capacity level of capital-intensive resources - facilities, equipment, and overall labor force size - that best supports the company's long-range competitive strategy. | Chapter 11 Strategic Capacity Management Strategic Capacity Planning Defined Capacity Utilization & Best Operating Level Economies & Diseconomies of Scale The Experience Curve Capacity Focus, Flexibility & Planning Determining Capacity Requirements Decision Trees Capacity Utilization & Service Quality OBJECTIVES 2 Strategic Capacity Planning Capacity can be defined as the ability to hold, receive, store, or accommodate Strategic capacity planning is an approach for determining the overall capacity level of capital intensive resources, including facilities, equipment, and overall labor force size 3 Capacity Utilization Where Capacity used rate of output actually achieved Best operating level capacity for which the process was designed 5 Best Operating Level Example: Engineers design engines and assembly lines to operate at an ideal or “best operating level” to maximize output and minimize ware Underutilization Best Operating Level Average unit cost of output Volume Overutilization . | Chapter 11 Strategic Capacity Management Strategic Capacity Planning Defined Capacity Utilization & Best Operating Level Economies & Diseconomies of Scale The Experience Curve Capacity Focus, Flexibility & Planning Determining Capacity Requirements Decision Trees Capacity Utilization & Service Quality OBJECTIVES 2 Strategic Capacity Planning Capacity can be defined as the ability to hold, receive, store, or accommodate Strategic capacity planning is an approach for determining the overall capacity level of capital intensive resources, including facilities, equipment, and overall labor force size 3 Capacity Utilization Where Capacity used rate of output actually achieved Best operating level capacity for which the process was designed 5 Best Operating Level Example: Engineers design engines and assembly lines to operate at an ideal or “best operating level” to maximize output and minimize ware Underutilization Best Operating Level Average unit cost of output Volume Overutilization Example of Capacity Utilization During one week of production, a plant produced 83 units of a product. Its historic highest or best utilization recorded was 120 units per week. What is this plant’s capacity utilization rate? Answer: Capacity utilization rate = Capacity used . Best operating level = 83/120 =0.69 or 69% 6 Economies & Diseconomies of Scale 100-unit plant 200-unit plant 300-unit plant 400-unit plant Volume Average unit cost of output Economies of Scale and the Experience Curve working Diseconomies of Scale start working The Experience Curve As plants produce more products, they gain experience in the best production methods and reduce their costs per unit Total accumulated production of units Cost or price per unit Yesterday Today Tomorrow Capacity Focus The concept of the focused factory holds that production facilities work best when they focus on a fairly limited set of production objectives Plants Within Plants (PWP) Extend focus concept to operating level 10 Capacity