Strategic Capacity Planning
Several factors are taken into consideration for strategic capacity planning. Because Riordan Manufacturing produces plastic injection molding to create innovative plastic designs capacity planning is viewed in three time durations. First is long range, which means greater than one year and include buildings, equipment or facilities. Second, is intermediate range, which involves monthly or quarterly plans for the next 6 to 18 months. On this level capacity can vary such as hiring, layoffs, new tools, minor equipment purchases, and subcontracting. Third, is short range and is less than one month, this includes daily and weekly scheduling process and adjustments to eliminate variance between planned and actual output. Some alternatives include overtime, personal transfers, and alternate production routings (Chapter 11 pg 431). The main objective of capacity planning is to provide an approach to determine the capacity level of resources, facilities, equipment, and labor force size. The factors mentioned will show if capacity is adequate or not. If capacity is excessive the company has to reduce prices to stimulate demand, change the workforce, carry excess inventory or seek additional less profitable products to stay in business.
To address the first factor Riordan recently moved the manufacturing process to China to reduce their labor costs. The only manufacturing plant in the United States is in Pontiac, Michigan and produces custom plastic parts only. Due to positive economic conditions, low interest rates, and oil prices falling Riordan has the opportunity to leverage low interest rates into new investments in new markets and increase productivity giving Riordan the upper hand on transportation and shipping costs from the plant in China. The labor market should strengthen and result in a larger payroll nationally causing higher labor costs for Riordan but will support consumer spending. Even though issues related to...
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