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Doctor Essay

1207 words - 5 pages

CAPACITY PLANNING

Prof. Shiv K. Tripathi

CAPACITY PLANNING

Capacity

The upper limit or ceiling on the load that an operating unit can handle Capacity needs include
Equipment  Space  Employee skills

STRATEGIC CAPACITY PLANNING

Goal

To achieve a match between the long-term supply capabilities of an organization and the predicted level of long-run demand
Overcapacity operating costs that are too high  Undercapacity strained resources and possible loss of customers

CAPACITY PLANNING QUESTIONS
 Key

Questions:

What kind of capacity is needed?  How much capacity is needed to match demand?  When is it needed?  Related Questions:
...view middle of the document...

2. 3. 4. 5. 6. 7. 8.

Estimate future capacity requirements

Evaluate existing capacity and facilities; identify gaps
Identify alternatives for meeting requirements Conduct financial analyses Assess key qualitative issues Select the best alternative for the long term Implement alternative chosen Monitor results

FORECASTING CAPACITY REQUIREMENTS
 Long-term

considerations relate to overall level of capacity requirements  Short-term considerations relate to probable variations in capacity requirements

SERVICE CAPACITY PLANNING

Service capacity planning can present a number of challenges related to:
  

The need to be near customers

Convenience Cannot store services for consumption later

The inability to store services

The degree of demand volatility
Volume and timing of demand  Time required to service individual customers

IN-HOUSE OR OUTSOURCE?
 Once

capacity requirements are determined, the organization must decide whether to produce a good or service itself or outsource  Factors to consider:


   

Available capacity Expertise Quality considerations The nature of demand Cost Risks

DEVELOPING CAPACITY ALTERNATIVES
 Things
  

that can be done to enhance capacity management
Design flexibility Take stage of life cycle into account Take a “big-picture” approach to capacity changes Prepare to deal with capacity “chunks” Attempt to smooth capacity requirements Identify the optimal operating level Choose a strategy if expansion is involved


  

OPTIMAL OPERATING LEVEL
Average cost per unit Minimum cost

Optimal Output Rate

Rate of output

ECONOMIES OF SCALE

Economies of Scale

If output rate is less than the optimal level, increasing the output rate results in decreasing average per unit costs Reasons for economies of scale:  Fixed costs are spread over a larger number of units  Construction costs increase at a decreasing rate as facility size increases  Processing costs decrease due to standardization

DISECONOMIES OF SCALE
 Diseconomies

of Scale

If the output rate is more than the optimal level, increasing the output rate results in increasing average per unit costs  Reasons for diseconomies of scale  Distribution costs increase due to traffic congestion and shipping from a centralized facility rather than multiple smaller facilities  Complexity increases costs  Inflexibility can be an issue  Additional levels of bureaucracy

FACILITY SIZE AND OPTIMAL OPERATING LEVEL
Minimum cost & optimal operating rate are functions of size of production unit.
Average cost per unit

Small
plant

Medium...

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