Capacity Planning Capacity maximum rate of output of a process or a system Measurements Output measures when firm produces small amount standardized products like car manufacturer Input measures Utilization Capacity cushions the amount of reserve capacity a process uses to handle sudden changes Capacity Management long and short term Capacity planning long term economies diseconomies of scale capacity timing and sizing strategies systematic approach to capacity decisions Constraint management short term theory of constraints identification and management bottlenecks product mix decisions using bottlenecks and managing constraints in a line process Capacity management is related to operations which is involved in selection of capacity strategies that can be implemented to effectively meet future demands 3 key decisions Sizing of capacity cushion timing and sizing of expansion and linking process capacity and other operating decisions Informed by principles of economies of scale consideration for efficiency of operations that more units produced drives down costs though fixed costs spread over more units construction costs reduced costs purchased materials cut and process advantages found Vs Diseconomies when costs go up as units increase can inform where to make business more efficient Capacity Cushion large for when demand varies amount varies by industry capital intensity industry low cushion unused capacity costs money Measures the amount by which average utilization falls below 100 percent Utilization degree which resource like equipment space work force is currently being used measured as ration average output to max capacity It indicates the need for adding extra capacity or eliminating unneeded capacity Approach to long term decisions 1 Estimate future capacity requirements 2 Identify gaps by comparing requirements with available capacity projected capacity requirement to current capacity 3 Develop alternative plans for reducing the gaps Base case do nothing and suffer consequences many different alternatives are possible 4 Evaluate each alternative both qualitatively and quantitatively and make a final choice Qualitative include strategic fit and uncertainties Quantitative include cash flows Expansionist Strategy large infrequent jumps in capacity stays ahead of demand minimizes chances sales lost from low capacity Can result in economies of scale and fast rate of learning reduce cost and compete on price and act as form of preempts marketing Terms of capacity cushion Wait and See expand smaller increments like renovating existing facilities instead of re building Follows demand reduces risk overexpansion from bad forecasts absorbs technology and inaccurate assumptions of competition Disadvantage if unable to respond to demand and loose customer to competitor Follow the Leader expanding when others do right and wrong when competition is so nobody gains competitive advantage Constraint Management Theory of Constraints actively managing constraints that impede firm progress towards goal of max profit an efficiently using resources Identify bottleneck for batch process Calculate aggregate workload per station largest one is bottleneck Identified in 2 ways bottleneck if workstation has highest total time per unit processed or has the highest average utilization and total workload Goal TOC maximize profit and effectively using resources TOC Operational Measures Inventory Decease in Inventory leads to increase net profit ROI and Cash flow All invested in system to purchase things intended to sell Throughput Increase T leads increases net profit ROI cash flow Rate at which system generates money Operating Expenses OE Decrease OE leads increase net profit ROI Cash Flow Utilization U Increase U at bottleneck leads increase net profit ROI cash flow Degree which equipment space workforce currently used measured as ration average output rate to maximum capacity as a not all constraints are bottlenecks Constraint can be procedure quantity materials Bottleneck limits capacity Line flow or service process high utilization Batch process look more at utilization rate Using Operations to Compete Operations Management systematic design direction and control of processes that transform inputs into services and products for internal as well as external customers Supply Chain Management synchronization of a firm s processes with those of its suppliers and customers to match the flow of materials services and information with customer demand Role of Operations in Org Coordination with Operations Marketing and Finance to develop a common strategy Core competencies Unique resources and strengths org management considers when formulating strategy 1 Workforce important in service 2 Facilities consider lead time 3 Market and Financial Know How easily attract capital from stock sales market and distribute service or differentiate them from similar services 4 Systems and Technology data intensive industries like banking Operations Strategy means by which operations implements corporate strategy and helps build customer driven firm Corporate Strategy Environmental scanning core competencies core processes global strategies Competitive Priorities Cost quality time flexibility process or supply chain must possess to satisfy its internal or external customers both now and in the future Competitive Capabilities cost quality time and flexibility dimensions that a process or supply chain actually possesses and is able to deliver Order Winners criterion customers use to differentiate the services or products of one firm from those of another Order Qualifiers minimum level required from a set of criteria for a firm to do business in a particular market segment Multifactor productivity is the ratio of the value of output to the value of input resources Labor productivity is the ratio of the value of output to labor hours Core processes deliver value to external customers 1 Supplier Relationship Process 2 New Service Product Development Process 3 Order Fulfillment Process 4 Customer Relationship Process Vocab from Sample Test Assembly to Order wide variety products competitive priorities and fast delivery times Involves line process for assembly and batch process for fabrication Mass customization a variety of customized products at low costs Make to Stock hold items for immediate delivery min customer delivery times Make to Order customized orders in low volumes uses job or small batch process Ex specialized