Strategic Capacity Management
Operations Management
Capacity Management in OSCM
Capacity
The ability to hold, receive, store or accommodate.
Capacity Management | |
General business | The amount of output that a system is capable of achieving over a specific period of time. |
Service | The number of customers that can be handled between noon and 1:00 pm. |
Manufacturing | The number of automobiles that can be produced in a single shift. |
Capacity Management in OSCM
While many industries measure and report their capacity in terms of outputs, those whose product mix is very uncertain often express capacity in terms of inputs.
An Operations and Supply Chain Management view also emphasizes the time dimension of capacity:
Capacity Management in OSCM
The objective of strategic capacity planning is to provide and approach for determining the overall capacity level of capital-intensive resources - facilities, equipment, and overall labor force size - that best supports the company’s long term competitive strategy.
Capacity Planning Concepts
The term capacity implies an attainable rate of output, for example, 480 cars per day, but says nothing about how long that rate can be sustained.
The concept of best operating level is used.
The level of capacity for which the process was designed and thus is the volume of output at which average unit cost is minimized.
Capacity Planning Concepts
An important measure is the capacity utilization rate, which reveals how close a firm is to its best operating level.
�Requires to be measured in the same units and time periods �(such as machine hours / day, barrels of oil / day, or dollars of output / day)
Capacity utilization rate =
Capacity used
Best operating level
480
500
=
= 0.96 or 96%
Economies and Diseconomies of Scale
The basic notion of economies of scale is that as a plant gets larger and volume increases, the average cost per unit of output drops.
This is partially due to lower operating and capital cost, because a piece of equipment with twice the capacity of another piece typically does not cost twice as much to purchase or operate.
Economies and Diseconomies of Scale
If economies of scale talk about how the increase in quantity produced reduces the average cost per product, now we will see how economies of scope have, as a determining factor, the variety of products or services.
Capacity Focus
The concept of a focused factory holds that a production facility works best when it focuses on a fairly limited set of production objectives.
The capacity focus concept can be operationalized through the mechanism of plant within a plant PWP.
Capacity Flexibility
Means having the ability to rapidly increase or decrease production levels, or to shift production capacity quickly from one product or service to another.
| Flexible Plants | The ultimate in plant flexibility is the zero-changeover-time plant. |
| Flexible Processes | Flexible processes are epitomized by flexible manufacturing systems on the one hand and simple, easily set up equipment on the other. (Economies of scope) |
| Flexible workers | Flexible workers have multiple skills and the ability to switch easily from one kind of task to another. |
Such flexibility is achieved through:
Capacity Planning
Considerations in Changing Capacity
When adding or decreasing capacity it is important to consider:
| In a perfectly balanced plant with three productions stages, the output of stage 1 provides the exact input requirement for stage 2. Stage 2’s output provides the exact input requirement for stage 3, and so on. |
| There are two types of costs to consider when adding capacity:
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| In some cases, it may be cheaper not to add capacity at all, but rather to use some existing external source of capacity. Two common strategies used by organizations are:
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Determining Capacity Requirements
In determining capacity requirements, we must address the demands for individual product lines, individual plant capabilities, and allocation of production throughout the plant network.
Typically, this is done according to the following steps:
Determining Capacity Requirements
Often, the firm then decides on some capacity cushion that will be maintained between the projected requirements and the actual capacity measured as a percentage in excess of the expected demand.
A capacity cushion is an amount of capacity in excess of expected demand.
It can apply also as a negative capacity cushion.
Planning Service Capacity
Capacity planning in services is subject to many of the same issues as manufacturing capacity planning, but with differences:
Time | Unlike goods, services cannot be stored for later use. As such, in service, managers must consider time as one of their supplies. The capacity must be available to produce a service when it is needed. |
Location | In face-to-face settings, the service capacity must be located near the customer. The capacity to deliver the service must first be distributed to the customer, then the service can be produced. |
Volatility of Demand | The volatility of demand on a service delivery system is much higher than that on a manufacturing production system:
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Capacity Utilization and Service Quality
Planning capacity levels for services must consider the day-to-day relationship between service utilization and service quality.
The term arrival rate refers to the average number of customers that come to a facility during a specific period of time.
The service rate is the average number of customer that can be processed over the same period of time when the facility is operating at maximum capacity.