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Chapter 5: Strategic Capacity ManagementWhat is Capacity and how do you measure it?Definition: the ability to hold, receive, store, or accommodateMost frequently viewed as the amount of output that a system is capable of achieving over a specific period of timeCapacity utilization Rate  how close a firm is to its best operating levelCapacity utilization rate= capacity used / best operating levelEconomies/Diseconomy of scaleEconomies of scale:Definition: as a plant gets larger and volume increases, the average cost per unit of output dropsPartially due to lower operating and capital costA piece of equipment with twice the capacity of another piece of equipment generally does not cost twice as muchDiseconomies of Scale:Definition: When the size of a plant becomes too large, and the cost per unit begins to increaseMaintaining the demand required to keep the large facility busy may require significant discounting of the productMinimizing equipment downtime is essential in US automobile manufacturers to stay away from creating diseconomies of scaleWhat is Utilization?Definition: the primary method by which asset performance is measured and business success determinedMeasure of actually revenue earned by assets against the potential revenue they could have earnedUtilization = actual usage time / best operating levelHow to estimate capacity requirements/strategies?1) Use forecasting techniques to predict sales for individual products within each product line2) Calculate equipment and labor requirements to meet product line forecasts3) Project labor and equipment availabilities over the planning horizonHow do you plan for Capacity?Time:Long Range  greater than one year, where productive resources take a long time to acquire or dispose of, long range capacity planning require top management participation and approvalIntermediate Range Monthly or quarterly plans for the next 6 to 18 months. Capacity may be varied by hiring, layoffs. New tools, minor equipment purchases and subcontractingShort range  less than one month. Tied into the daily or weekly scheduling processLocation:Capacity to deliver the service must first be distributed to the customer, then the service can be produced.Volatility of Demand:Higher on a service delivery system than on a manufacturing production system for three reasons1) services cannot be stored2) customers interact indirectly with the production system3) directly affect by consumer behaviorCapacity Cushion:Capacity in excess of expected demandChapter 4: Project ManagementWhat is a Project?Definition: An individual or collaborative enterprise that is carefully planned and designed to achieve a particular goalCharacteristics:1) Objective: each has a specific goal to reach2) Schedule: point in time in which they must be accomplished3) Complexity: does the technology exist to achieve the project objectives?4) Size and nature of task: step by step plan of action5) Resources: labor, personnel, equipment, materials, facilities6) Organizational structure: the meshing of project requirements into the existing organizations7) Information and control systems: these must be structured to handle problems through typical lines of authorityTools used in project management1) Identify the specific activities and milestones2) Determine the proper sequence of activities3) Construct a network diagram using the activity sequence information4) Estimate the time required for each activity5) Determine the critical path6) Update the PERT chart as the project progresses7) Gantt chart  shows in a graphic manner the amount of time involved and the sequence in which activities can be performed, often referred to as a bar chartWhat is CPM? (page 80 in text)Definition: Critical Path Method, the sequence of activities that form the longest chain in terms of their time to completeIf anyone of the activities in the critical path is delayed, then the entire project is delayed1) Identify the activity to be done in the project and estimate how long it will take to complete each activity2) Determine the required sequence of activities and construct a network reflecting the precedence relationships3) Determine the critical path4) Determine the early start/finish and late start/finish scheduleSlack time  the time that an activity can be delayed without delaying the entire project, the difference between the late and early start times of an activityWhat is meant by crashing a project, and how do we do it?Definition: the compression or shortening of the time to complete the projectIt cost money to expedite an activity, on the other hand it costs money to sustain or lengthen the projectCosts associated with sustaining a project:OverheadFacilitiesResource opportunity costsPenalty costsLost incentive paymentsHow to do this?1) Start with your normal schedule2) then find the critical path3) reduce the path by one day using the lowest-cost activity4) recomputed and find the new critical path5) Reduce it by one days also6) Repeats until the time of completion is satisfactoryDifferent types of project organization structuresPure Project - a self contained team works full time on the projectProsThe project manager has full authority over the projectTeam member report to one bossLines of communication are shortenedTeam pride, motivation, and commitment are highConsDuplication of resources. Equipment and people are not sharedOrganizational goals and policies are ignoredThe organization falls behind in it knowledge of new technology due to weakened functional divisionsMembers worry about life after project, and project termination is delayedFunctional Project – Housing the project within a functional divisionProsA team member can work on several projectsTechnical expertise is maintained within the functional are even if individuals leave the project or organizationThe functional area is a home after the project is completedA critical mass of specialized functional are experts create synergistic solutions to projects technical problemsConsAspects of the project that are not directly related to the functional are get shortchangedMotivation of team members is often weakNeeds of the client are secondary and are responded to slowlyMatrix Project – attempts to blend properties of functional and pure projectsProsCommunication between functional division is enhancedAn project manger is held responsible for successful completion of the projectDuplication of resources is minimizedTeam members have a


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OSU BUSMGT 3130 - Final Review

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