Session 5:

Capacity Decisions
Asset Sizing & Timing: Tesla
 Asset
Location:
Tesla
GM reducing capacity is a good
pre-emptive decision
 Capacity Strategy models
Lead Policy

Predicted demand
Volume

Lag Policy

Time
 When to Lead?
• Commodity products with little differentiation
• Pricing competitive
• Service levels are critical
• No loyalty, lack of capacity leads to lost sale
• Huge after market sales (ex razors, printers)
 When can afford to lag?
• Compete on IPRs

• Strong brand equity

• Early in the life cycle

• High degree of market uncertainty

 Capacity Planning Hierarchy
Our Focus

Executional Tactical Strategic

Capacity Planning Capacity Planning Capacity Planning

Time
0-30 days 1-18 months 1-5+ years
Horizon

Planning
Hours or days Weeks or months Quarters or years
Buckets

Capacity expansion
Optimal allocation
(contraction) of hard-
of existing capacity
to-flex resources
Schedule for
Decisions
existing resources Capacity levels of
Capacity technology
easy-to-flex
resources
Capacity location
 An Example

3 min 4 min 6 min

RM I I II III Inspect ship

reject
2 min IV

RM II
Question

The Shop is in steady state. How long will it

take to complete an order of 500 units?
What is the cycle time?
A: Bottleneck rate = 10 units /hour = Throughput
Time taken to complete the order = 500 units/10 units per hour = 50
hours

Cycle time = Bottleneck rate

Bottleneck drives the capacity

3 min 4 min 6 min

RM I
I II III Inspect ship

RM II reject
IV 2 min
 Performance Measures
• Cycle time
– time between 2 successive units on the line
– Same as the time of the slowest workstation (bottleneck)
– Bottleneck controls the speed of the process

• Production rate or flow rate or Throughput

– 1/cycle time
Question

How often should we release RM1 and RM2 in

the line?
A: 1 unit every 6 minutes of RM1 at t = 0
1 unit every 6 minute of RM2 at t = 1

3 min 4 min 6 min

RM I
I II III Inspect ship

RM II reject
IV 2 min
Question

What is the size of work-in-process (WIP)

inventory before each of the four stations
(i.e., I, II, II, IV) by the end of an 8 hour shift
if we release 100 units each of RM1 & RM2
at the beginning of each hour?
A: WIP
before I: 80 units/hour * 8hours = 640 units
before II: (5*8) + (15*8) = 160 units
before III: 5*8 = 40 units
before IV: 70*8 = 560 units

3 min (20units/hr)
4 min (15units/hr) 6 min (10units/hr)
RM I
I II III Inspect ship

RM II reject
IV 2 min (30units/hr)