Chapter 6 - Planning Capacity
chapter 6: Planning capacity
Capacity the maximum rate of output of a process or a system. Acquisition of new capacity requires extensive planning, and often involves significant expenditure of resources and time.
Capacity decisions must be made in light of several long-term issues such as the firm’s economies and diseconomies of scale, capacity cushions, timing and sizing strategies, and trade-offs between customer service and capacity utilization.
Planning capacity across the organization
Accounting provide cost information needed to evaluate capacity expansion
Finance financial analysis of proposed capacity expansion investments and raises funds
Marketing demand forecasts needed to identify capacity gaps.
Operations selection of capacity strategies that can be implemented to effectively meet future demand.
Human Resources hiring and training employees needed to support internal capacity plans. planning long-term capacity
When choosing a capacity strategy: How much of a cushion is needed to handle variable or uncertain demand? Should we expand capacity ahead of demand, or wait until demand is more certain? measures of capacity and utilization
Output Measures Are best utilized when applied to individual processes within the firm, or when the firm provides a relatively small number of standardized services and products. For example, a car manufacturing plant may measure capacity in terms of the number of cars produced per day.
Inputs Measures Are used for low-volume, flexible processes (custom products). For example a custom furniture maker might measure capacity in terms of inputs such as number of workstations or number of workers. The problem of input measures is that demand is expressed as an output rate. If the furniture maker wants to keep up with demand, he must convert the business’s annual demand for furniture into labor hours and number of employees required to fulfill those hours.
Utilization Degree to which a resource
Capacity the maximum rate of output of a process or a system. Acquisition of new capacity requires extensive planning, and often involves significant expenditure of resources and time.
Capacity decisions must be made in light of several long-term issues such as the firm’s economies and diseconomies of scale, capacity cushions, timing and sizing strategies, and trade-offs between customer service and capacity utilization.
Planning capacity across the organization
Accounting provide cost information needed to evaluate capacity expansion
Finance financial analysis of proposed capacity expansion investments and raises funds
Marketing demand forecasts needed to identify capacity gaps.
Operations selection of capacity strategies that can be implemented to effectively meet future demand.
Human Resources hiring and training employees needed to support internal capacity plans. planning long-term capacity
When choosing a capacity strategy: How much of a cushion is needed to handle variable or uncertain demand? Should we expand capacity ahead of demand, or wait until demand is more certain? measures of capacity and utilization
Output Measures Are best utilized when applied to individual processes within the firm, or when the firm provides a relatively small number of standardized services and products. For example, a car manufacturing plant may measure capacity in terms of the number of cars produced per day.
Inputs Measures Are used for low-volume, flexible processes (custom products). For example a custom furniture maker might measure capacity in terms of inputs such as number of workstations or number of workers. The problem of input measures is that demand is expressed as an output rate. If the furniture maker wants to keep up with demand, he must convert the business’s annual demand for furniture into labor hours and number of employees required to fulfill those hours.
Utilization Degree to which a resource