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Strategic Capacity Management

Strategic capacity management involves aligning production capacity with forecasted demand over the long term. It determines investment in fixed capacities and deals with decisions like capacity expansion, location, and type (e.g. direct labor, automated). Capacity can be planned over long, intermediate, and short time horizons using approaches like adding facilities, equipment, shifts, or personnel. The optimal capacity level balances economies and diseconomies of scale. Forecasting demand accurately is important for determining when and how much to expand to lead, lag, or average capacity with demand. Location factors like labor, materials, transport and policy should also be considered.

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Arun Kumar K
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190 views14 pages

Strategic Capacity Management

Strategic capacity management involves aligning production capacity with forecasted demand over the long term. It determines investment in fixed capacities and deals with decisions like capacity expansion, location, and type (e.g. direct labor, automated). Capacity can be planned over long, intermediate, and short time horizons using approaches like adding facilities, equipment, shifts, or personnel. The optimal capacity level balances economies and diseconomies of scale. Forecasting demand accurately is important for determining when and how much to expand to lead, lag, or average capacity with demand. Location factors like labor, materials, transport and policy should also be considered.

Uploaded by

Arun Kumar K
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Strategic Capacity Management

Capacity
The throughput, or the number of units a facility can hold, receive, store, or produce in a period of time Determines fixed costs Determines if demand will be satisfied Three time horizons

Planning Over a Time Horizon

Long-range planning Intermediaterange planning Short-range planning

Add facilities Add long lead time equipment Subcontract Add equipment Add shifts

*
Add personnel Build or use inventory Schedule jobs Schedule personnel Allocate machinery Use capacity

*
Modify capacity

* Limited options exist

Strategic Capacity Management Definition


Aligning the production capacity with the forecasted demand over a long time horizon Determining the investment strategy into fixed capacities Detail level: years, product groups

Strategic Capacity Decisions


What type of fixed capacity?
Direct human labour Semi-automated Automated

Capacity Expansion: When to increase fixed capacity and by how much? What is appropriate fixed capacity location?

Managing Demand
Demand exceeds capacity
Curtail demand by raising prices, scheduling longer lead time Long term solution is to increase capacity

Capacity exceeds demand


Stimulate market Product changes

Adjusting to seasonal demands


Produce products with complimentary demand patterns

Economies and Diseconomies of Scale

Average unit cost (dollars per room per night)

25 - Room Roadside Motel

50 - Room Roadside Motel

75 - Room Roadside Motel

Economies of scale

Diseconomies of scale

25

50 Number of Rooms

75

Capacity Considerations

Forecast demand accurately Understanding the technology and capacity increments Find the optimal operating level (volume) Build for change

Approaches to Capacity Expansion


(a) Leading demand with incremental expansion
Demand New capacity Expected demand

(b) Leading demand with one-step expansion


Demand New capacity Expected demand

(c) Capacity lags demand with incremental expansion


Demand New capacity Expected demand

(d) Attempts to have an average capacity with incremental expansion


Demand New capacity Expected demand

Approaches to Capacity Expansion


(a) Leading demand with incremental expansion
New capacity Expected demand

(b) Leading demand with one-step expansion


New capacity Demand Expected demand

Demand

(c) Capacity lags demand with incremental expansion


New capacity Demand Expected demand

(d) Attempts to have an average capacity with incremental expansion


Demand New capacity Expected demand

Approaches to Capacity Expansion When to expand?

Product-Process Matrix Capacity lead or lag?

Strategy and Issues During a Products Life

Capacity Location
Labour RM Market Transport Infrastructure Taxes Political risks Environment ..

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