Operations Strategy 3 - Capacity

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What decisions define the capacity strategy of a business?

Configuring the capacity and Changing the capacity Configuring - Overall level of capacity - based upon forecasting or Category Killers, Economies of Scale. The location of capacity - the number of sites, image , customer service levels, capital requirements, govt grants, education and skills, need to be close to or far away from customer, energy costs, other similar compnaies in the area - silicon valley.

Changing the capcity - is how the capcity should be changed - large or small steps, how fast or slow, lagging or leading demand

Utilization = Actual capacity/total capacity Efficiency = Actual o/p / effective capacity

Capacity at three levels

...................................................................................................................................Starting pt for dec Strategic = years/mths........................Buildings...............all parts of business...................mkts to serve.................how much cap to we need M-term = mths/wks.............................Employees............site...........................................cap constraints..............should we change staff nos s-term = wks/hrs.................................Employee..............dept.........................................current cap....................resources to allocate

Level of Capacity is determined by EoS, K, Flexibility and Forecast, changes on future demand, uncertainty and consequnces of over / under supply

How do capacity decisions differ for different time scales?

the need for resources, where demand fluctuates monthly weekly, scale of investment - buildings

How much capacity should a company have?

Ability to increase or reduce capacity quickly, ration of fixed to VC

How does the timing of capacity change influence performance of the operation?

Capacity can lead or lag demand, or be a combination. Lead demand on a new product, using inventory smooting when plateauing and lag demand when mature. Issues - Lead demand - future demand may not be forthcoming - higher cost producer. Smoothing - Higher Working Capital, doesnt work in a service industry . Lag demand - potential loss of sales -

How does operation choose between large and small increments of capacity?

• • Can be significant lags between deamdnand supply when large increments are planned.
  • Using small increments is less costly but leads to more disruption
  • Building new capacity in an laready well served area can reduce prices. Over capacity happens becuase the compnay adding the new capcity can do it for cheaper and wont be affected. Also decisions were made when demand was high - microprocessors
  • Balancing capacity change - decision may be right for the manufacturing plant - but how will it affect the capacity of downstream or up stream activities - can suppliers cope with new demand, can distributors store products - what additional costs are involved?
  • Building facility for large capacity but only bringing it on stream when needed

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Changing locations - different types of factories - outsourcing, server, output, source, off-shore -

what are the characteristics of the factory?

• • - low skills v high skills,
  • proximity to market,
  • access to low costs - labor / materials
  • Community factors - decision is multivariate

What are the market factors?

• • Image of location - Hotel - prestige area, hosting center - cheap area
  • Service level - where to site hospital

Porter's Diamond of National Advantage

Game Theory

Managing capacity changes

• • Lagging and leading and smoothing with inventory
  • Issues of over capacity in the industry and how that is managed
  • Disruptive Technologies that redefine the market
  • Balancing capacity change with upstream and downstream operations
  • Changing loacation
    • configuration and coordination - unions-cost-political factors- legal- market requirements and operational resources

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