Lecture 8 - Capacity Management Flashcards
(62 cards)
What is capacity management?
Capacity is ‘the maximum level of value-added activity over a period of time that the process can achieve under normal
operating conditions’
What is Heizer’s definition of capacity?
Capacity is ‘the “throughput,” or number of units a facility can hold, receive, store, or produce in a period of time
What kind of function is capacity?
It is a primary function of the operating system’s transforming resources (e.g. staff, facilities, plant, equipment)
What does capacity management involve?
Study of demand patterns, the capacity required to meet this demand, development strategies for deployment of resources and management of demand, particularly for accommodating variability in demand and resource availability
What is the impact of capacity management on cost?
- Excess capacity cam lead to underutilisation of resources and higher costs
- Too little capacity management may require costly coping strategies
What is the impact of capacity management on speed and dependability?
- Too little capacity may increase lead times and/or reduce dependability
What is the impact of capacity management on quality?
- Overloaded capacity may decrease customer experience/increase risk of errors
- Excess capacity may lead to an un-engaging customer experience in some services
What is the impact of capacity management on flexibilty?
- Too little capacity may reduce volume flexibility and ability to customise
What are the three levels of capacity management decision making?
Strategic capacity management, medium-term capacity planning, short-term capacity planning
3LCM: what is involved in strategic capacity planning?
- Horizontal time years and months
Concerns: - Baseline capacity
- Capacity location and distribution
- Long-term supply arrangements
3LCM: what is involved in medium-term capacity planning?
- Horizontal time quarters, months and weeks
Concerns: - Aggregate staffing levels
- Degree of subcontracted resources
3LCM: what is involved in short-term capacity planning?
- Horizontal time weeks, days, hours
Concerns: - loading activities on specific resources
- workforce scheduling
What is demand forecasting?
Are projections of demand for an organisation’s products for each time period in the planning horizon
What features do demand forecasts need for operations?
- Expressed in units useful for capacity and inventory planning
- Reflect the current capacity adjustment lead times
- As accurate as possible
- Give an indication of relative uncertainty
What organisational intentions should forecasts take into account?
- New product launches
- product withdrawals
- product promotions
What is long-term capacity management?
- Concerned with adding (or removing) major capacity increments, has an 18-month plus time frame
What are features of long-term capacity management?
- Design and implement new production processes
- Add (or selling) long lead-time equipment
- Aquire or sell facilities
- Acquire competitors
What are key decision areas of long-term capacity management?
Optimum level, Location and timing of capacity
What are advantages of capacity-leading strategies?
- Sufficient capacity to meet demand (revenue and customer satisfaction)
- Capacity cushion to absorb extra demand
- Start-up problems less likely to affect supply
- Gain market share
What are disadvantages of capacity-leading strategies?
- Relatively low plant utilisation = higher costs
- Risk of longer or permanent overcapacity if demand doesn’t materialise
- Early capital investment
- May encourage incentives and subsidies to soak up excess capacity
What are advantages of capacity-lagging strategies?
- Sufficient demand to keep plants at full capacity, therefore unit costs minimised
- Over-capacity problems minimised if demand doesn’t materialise
- Later capital investment
What are disadvantages of capacity-lagging strategies?
- Insufficient capacity to meet demand = potential reduced revenue, dissatisfied customers
- Can’t respond to short-term demand increases
- Under-supply worse if start-up problems occur
- Lose market share
What is medium-term capacity management?
Concerned with managing capacity to achieve required performance, time frame of 2-18 months
What are features of medium capacity management?
- Add or reduce personnel
- Add or reduce shifts
- Buy, lease or sell equipment
- More or improved training (improve productivity)
- Subcontracting