Chap004 Strategic Capacity Management

McGraw-Hill/Irwin

Copyright © 2011 The McGraw-Hill Companies, All Copyright © 2011 The McGraw-Hill Companies, All Rights ReservedRights Reserved

Chapter 4

Strategic Capacity Management

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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

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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

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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

level operatingBest

usedCapacity raten utilizatioCapacity

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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

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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)

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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 PWP’s under same roof

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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

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Focused Factories—Plant-Within-Plant

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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)

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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 capacity1. Outsourcing (alih daya)

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Frequent Versus Infrequent Capacity Expansions

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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

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Example: Determining Capacity Requirements

• Steward Company produces two flavors of salad dressing

1. Paul’s

2. Newman’s

• Each is available in bottles and single-serving 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

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Example Step 2: Calculate Equipment and Labor Requirements

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Calculate Equipment and Labor Requirements

• 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 kerja

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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 22LO 2LO 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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Example Step 3: Project Equipment and Labor Availabilities

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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

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Example: Decision Trees

1. Strong growth, 55 percent probability2. New site and strong growth=$195,000,

weak=$115,0003. Expansion and strong growth=$190,000,

weak=$100,0004. Exist and no change strong=$170,000,

weak=$100,0005. Expansion costs $87,0006. Move costs $210,0007. Expansion in second year costs $87,0008. Operating costs equal

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Calculating Values

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Diagramming Problem

DecisionDecision

ChanceChanceDecisionDecision

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Decision Tree Analysis

Value of this Value of this branchbranch

Value of this Value of this decisiondecision

Expected Expected valuevalue

Value of this Value of this decisiondecision

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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

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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

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Relationship Between the Rate of Service Utilization and Service Quality

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