Mkt B370

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MKT B370

Unit 5
Strategic capacity planning and facility design

120

OUHK Course Team Developer: Prof. Lee Tien Sheng, CUHK Dr Zhao Xiande, City University of Hong Kong Designer: Coordinator: Member: Production ETPU Publishing Team Cliff Hall, OUHK Dr Matthew Yeung, OUHK Ken Chan, OUHK

Copyright © The Open University of Hong Kong, 1999, 2004, 2006, 2008, 2009, 2011. Revised 2012. All rights reserved. No part of this material may be reproduced in any form by any means without permission in writing from the President, The Open University of Hong Kong. Sale of this material is prohibited. The Open University of Hong Kong 30 Good Shepherd Street Ho Man Tin, Kowloon Hong Kong

Contents
Overview Section one — strategic capacity planning
Strategic importance of capacity planning Measuring capacity Economies and diseconomies of scale Determining capacity requirements Use of decision trees in capacity decisions Service capacity management

1 2
2 2 3 4 4 5

Section two — facility location
Competitive imperatives impacting on location decision Location decision and location factors Service versus industrial locations Location methods for industrial and service companies Factor rating methods Linear programming Transportation method Further explorations on transportation method Centroid method (Centre of gravity method)

7
7 7 10 10 11 13 16 22 23

Section three — operations facility strategies
Basic types of layout for manufacturing Some layout techniques Service layout and ‘servicescape’

28
29 31 35

Summary References Suggested answers to activities

37 38 39

Unit 5

1

Overview
In this unit, we discuss the topic of strategic capacity planning and facility design. The unit has three sections. In the first section, we discuss strategic capacity planning, which is concerned with how to determine the overall capacity level of capital intensive resources — facilities, equipment, and overall labour force size — that best supports the company’s long-range competitive strategy. In the second section, we turn to facility location decision, which is concerned with where a manufacturing plant or service facility should be located. In the third section, we discuss operations layout strategies, which are concerned with the decisions on the placement of departments, workgroups within the departments, workstations, machines, and stockholding points within a production or a service facility. More specifically, this unit: • discusses the strategic importance of capacity planning, capacity utilization and optimum operating level; analyses capacity requirements for a manufacturing or service company; considers decision trees as a tool to make capacity decisions; describes the competitive imperatives, key issues and factors that have an impact on location decisions; examines the methods for locating manufacturing and service facilities; describes basic types of layout, and the differences between manufacturing facility layouts and service layouts; and discusses ways to design service layout and ‘servicescapes’.



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2

MKT B370 Operations Management

Section one — strategic capacity planning
Strategic importance of capacity planning
Capacity refers to the rate of productive capability of a facility, which is usually expressed as volume of output per time period. Capacity planning is important to the operations of the firm for several reasons. First, sufficient capacity is required to meet customer demand in a timely manner. Second, capacity affects the efficiency of operations, the ease or difficulty of scheduling output, and the costs of maintaining the facility. Finally, capacity requires an investment. As a good return on investment represents the primary goal of business firms, both the costs and revenues of a capacity planning decision must be carefully evaluated. Capacity planning is the first step when a firm decides to produce more of an existing product or a new...
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