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Resource Usage. Issues include:. Quality. Capacity levels Number of sites Size of sites Location. Speed. Performance objectives. Dependability. Market Competitiveness. Flexibility. Cost. Development and Organization. Capacity (configuration). Process Technology.

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Resource Usage

Issues include:

Quality

  • Capacity levels

  • Number of sites

  • Size of sites

  • Location

Speed

Performance objectives

Dependability

Market Competitiveness

Flexibility

Cost

Development

and Organization

Capacity (configuration)

Process Technology

Supply Networks

Decision areas

Issues covered in this chapter


Capacity Strategy

Managing Capacity Change

Configuring Capacity

Magnitude

of

Change

Overall Level of Capacity

Location of Capacity

Timing of Change

Location of changed capacity

Type of Capacity

Issues in capacity strategy


Ice Cream Division

Canned Food Division

Actual output

Effective capacity

Actual output

Effective capacity

Efficiency

Efficiency

=

=

3724

4134

4622

5437

=

=

90.08%

85.01%

=

=

Avoidable Loss

Planned Loss

Planned Loss

Avoidable Loss

Total Capacity

Total Capacity

2459 hrs

410 hrs

815 hrs

3762 hrs

7896 hrs

7896 hrs

Effective Capacity

Effective Capacity

Actual Output

Actual Output

5437 hrs

4134 hrs

3724 hrs

3724 hrs

Actual output

Total capacity

Actual output

Total capacity

Utilization

Utilization

=

=

3724

7896

4622

7896

=

47.16%

=

58.54%

=

=

Utilization and efficiency measures for two divisions of a food processing company


Forecast level of demand

Availability of capital

Cost structure of capacity increment

Changes in future demand

Overall level of capacity

OPERATIONS RESOURCES

MARKET REQUIREMENTS

Uncertainty of future demand

Economies of scale

Flexibility of capacity provisions

Consequences of over/under supply

Some factors influencing the overall level of capacity


Issues include…..

NUMBER OF SITES

CAPACITY OF EACH SITE

LOCATION OF EACH SITE

a

LONG-TERM CAPACITY CHANGE STRATEGY

ALLOCATION

OF TASKS

TO EACH SITE


Many small sites?

NUMBER OF SITES and CAPACITY OF SITES

Few larger sites?

Supply side dominated?

LOCATION

OF SITES

Demand side dominated?

All sites make all products/services?

ALLOCATION OF TASKS

TO SITES

Each site focuses on a few products/

services?

Capacity leads demand?

LONG-TERM CAPACITY CHANGE STRATEGY

Capacity lags demand?

Questions:

“Who should be involved in these decisions?”

“How does the company make this type of decision?”

Questions

Options


Why is capacity strategy important?

Without an appropriate capacity strategy operations will always be struggling to supply markets in a competitive manner

Getting capacity strategy right is the starting point for developing competitive operations


How should one judge a capacity strategy ?

NUMBER OF SITES

What performance measures will all these decisions have a major impact on ?

CAPACITY OF EACH SITE

LOCATION OF EACH SITE

?

LONG-TERM CAPACITY CHANGE STRATEGY

ALLOCATION

OF TASKS

TO SITES


Capacity

Capacity

Should capacity lead or lag demand ?

Capacity leads demand

Capacity lags demand

Demand

Demand

Volume

Volume

Time

Time

  • What competitive objectives will be affected?


The three options …..

Demand

Capacity Leading Strategy

Capacity

Volume

Time

Time

Demand

Capacity Lagging Strategy

Capacity

Volume

Time

Demand

Capacity Smoothing Strategy

Capacity

Volume

Time


12

10

8

Cost

Forecast demand = 9000 units

Costs / Revenue ($)

6

4

Revenue

2

0

0

2

4

6

8

10

12

Volume in thousands of units

Cost, volume, profit illustration


8

8

6

6

Diseconomies of scale kick in

Unit cost (total cost / volume)

Unit cost (total cost / volume)

Nominal capacity limit

4

4

2

2

0

0

0

1

2

4

5

6

0

1

2

3

4

5

6

3

Volume in thousands of units

Volume in thousands of units

(a)

(b)

Unit cost curve


Cash flow with extended physical capacity

Cash flow with two identical capacity increments

Physical capacity of facilities

Demand

Cumulative cash flow

Volume

Time

Effective Capacity

Time

Expanding physical capacity in advance of effective capacity can bring greater returns in the longer term


Economies of scale

Required service level

Size and number of sites

OPERATIONS RESOURCES

MARKET REQUIREMENTS

Geographical distribution of demand

Supply costs

Some factors influencing the number and size of sites


Required service level

Resource costs

Land and facilities investment

Suitability of site

Location of sites

OPERATIONS RESOURCES

MARKET REQUIREMENTS

Resource availability

Image of location

Community factors

Some factors influencing the location of sites


London (city)

Hong Kong

New York (midtown)

Singapore

Stockholm

Amsterdam

Madrid

0.4

0.6

0.8

1.0

1.2

Office rents in various cities ($’000 per square metre, January 1999)

Source: Richard Ellis, The Economist


Denmark

Britain

Japan

France

Germany

Sweden

Netherlands

Spain

United States = 100

160

140

60

80

100

120

Unit labour costs in various countries (1998) (includes effects of currency exchange rates and productivity)

Source: OECD, The Economist


Electronics manufacturer

Fast food restaurant

Revenue

Revenue

Costs / Revenue

Costs / Revenue

Costs

Costs

Location A

Location B

Location A

Location of operation

Location of operation

(a)

(b)

(a)Location concerned with profit maximization;

(b)Location concerned with cost minimization


$US

4m

Revenue

3m

3 Brayford facilities

2m

1 Bi-line 8 facility & 1 Brayford facility

1m

150000

Current volume

1000

2000

3000

4000

Monthly volume (kg)

Cost-volume-profit curves for two alternative capacity strategies


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