Chapter 4 Strategic Capacity Management

McGraw-Hill/Irwin

Copyright 2011 The McGraw-Hill Companies, All Rights Reserved

Learning Objectives
1. Recognize the concept of capacity and how important it is to manage capacity. 2. Explain the impact of economies of scale on the capacity of a firm. 3. Understand how to use decision trees to analyze alternatives when faced with the problem of adding capacity. 4. Describe the differences in planning capacity between manufacturing firms and service firms.
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Capacity Management in Operations

Capacity can be defined as the ability to hold, receive, store, or accommodate Strategic capacity planning is an approach for determining the overall capacity level of capital intensive resources, including facilities, equipment, and overall labor force size

LO 1
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Capacity Planning Time Durations

Long range: greater than one year Intermediate range: Monthly or quarterly plans for the next six to 18 months Short range: less than one month

LO 1
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Capacity Planning Concepts

Capacity: an attainable rate of output Best operating level: capacity for which the process was designed Capacity utilization rate reveals how close a firm is to its best operating level

Capacity used Capacity utilizatio n rate Best operating level

LO 1
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Economies and Diseconomies of Scale

Economies of scale: as a plant gets larger, the average cost per unit drops
Lower operating and capital costs Per unit cost of equipment drops More specialization of labor

At some point, the plant becomes too large

Diseconomies of scale becomes a problem

LO 2
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TC = FC + VC TC/Q = FC/Q + VC/Q Average unit cost = average fixed cost + variable cost/unit (dapet diskon,dll)

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Other Factors That Affect Plant Size

Internal equipment Labor Capital expenditures Transportation costs Advantages of being close to markets(shipping+logistic+kirim barang jadi ke konsumen)

LO 2
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Capacity Focus

The concept of the focused factory holds that production facilities work best when they focus on a fairly limited set of production objectives Plants within plants (PWP)
Extend focus concept to operating level Can have multiple PWPs under same roof

LO 2
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Capacity Flexibility

Capacity flexibility: the ability to rapidly increase or decrease production levels or to shift production capacity quickly from one product or service to another
Flexible plants: low changeover times Flexible processes: easily set up equipment Flexible workers: workers have multiple skills
LO 2
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Focused FactoriesPlant-WithinPlant

LO 2
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B (contoh : PT telkom, memproduksi barang yang lebih berkualitas, perpindahan dari kabel tembaga ke fiber serat optik) Jepang(the number of product varians or dis-economies scale) bagus pada produc line B, kalau amerika A (economies scale)

LO 2
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Considerations in Changing Capacity

1. Maintaining system balance (dipelajari lagi di chapter 5)

Want similar capacities at each operation Deal with bottlenecks

2. Frequency of capacity additions

Cost of upgrading too frequently Cost of upgrading too infrequently (less CAPEX)

3. External sources of capacity

LO 2

1. Outsourcing (alih daya) 2. Sharing capacity

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Frequent Versus Infrequent Capacity Expansions

LO 2
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Determining Capacity Requirements

1. Use forecasting techniques to predict sales for individual products 2. Calculate equipment and labor requirements to meet forecasts 3. Project labor and equipment availability over the planning horizon

LO 2
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Example: Determining Capacity Requirements

Steward Company produces two flavors of salad dressing

1. Pauls 2. Newmans

LO 2

Each is available in bottles and singleserving plastic bags (masing2 rasa diproduksi 2 ukurang) Management would like to determine equipment and labor requirements for the next five years
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Example Step 1: Forecasting to Predict Sales for Individual Products

LO 2
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Example Step 2: Calculate Equipment and Labor Requirements

LO 2
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Calculate Equipment and Labor Requirements

LO 2

Bottle 3 mesin dgn kapasitas 150.000 unit/tahun (total kapasitas = 450.000) Setiap mesin dioperasikan oleh 2 operator, punya 6 operator siap kerja Plastic 5 mesin dgn kapasitas 250.000 unit/tahun (total kapasitas = 1.250.000) Setiap mesin dioperasikan oleh 3 operator, punya 20 operator siap kerja4-19

utilization

Bottle Tahun 1 : 135/450 Tahun 2 : 185/450, dst sampai 5 tahun Hitung! Jadiin % Plastic Tahun 1 : 300/1.250, dst sampai 5 tahun Hitung! Jadiin % Machine req : 300/250=1,2, labor = 3,6 (hasilnya ada di slide 22 LO 2
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Example: Equipment and Labor Requirements

450,000 bottling capacity Six operators available 1,250,000 bagging capacity 20 operators available Year 1
135 / 450 = 0.3 300 / 1,250 = 0.24 0.9 x 2 = 1.8 1.2 x 3 = 3.6
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LO 2

Example Step 3: Project Equipment and Labor Availabilities

LO 2
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Using Decision Trees to Evaluate Capacity Alternatives

Decision tree: a schematic model of the sequence of steps in a problem and the conditions and consequences of each step Decision tree helps understand problem and helps find solution Decision trees are composed of decision nodes with branches
Squares represent decision points Circles represent chance events
LO 3
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Example: Decision Trees

1. Strong growth, 55 percent probability 2. New site and strong growth=$195,000, weak=$115,000 3. Expansion and strong growth=$190,000, weak=$100,000 4. Exist and no change strong=$170,000, weak=$100,000 5. Expansion costs $87,000 6. Move costs $210,000 7. Expansion in second year costs $87,000 8. Operating costs equal
LO 3
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Calculating Values

LO 3
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Diagramming Problem

Decision Chance Decision

LO 3
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Decision Tree Analysis

Value of this decision Value of this decision Value of this branch

Expected value

LO 3
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Decision Analysis with Net Present Value

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Planning Service Capacity

Time: goods can not be stored for later use and capacity must be available to provide a service when it is needed Location: service goods must be at the customer demand point and capacity must be located near the customer Volatility of demand: much greater than in manufacturing

LO 4
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Capacity Utilization and Service Quality

Must consider the day-to-day relationship between service utilization and service quality Optimal utilization rate is very context specific
Low rates are appropriate when both the degree of uncertainty and stakes are high Relatively predictable services or service facilities without customer contact can operate much nearer 100 percent utilization
LO 4
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Relationship Between the Rate of Service Utilization and Service Quality

LO 4
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