Strategic Capacity Management - Operations Management Review Notes

Capacity is the ability to hold, receive, store, or accommodate. In a business sense, it is viewed as the amount of output that a system is capable of achieving over a specific period of time.

Strategic capacity planning has as its objective, to determine the overall capacity level of capital-intensive resources - facilities, equipment, and overall labor force size - that best supports the company's long-range competitive strategy.

Economies of scale, experience curve and capacity flexibility are important issues or concepts that are to be incorporated into capacity decision making.

Economies of scale
This concept signifies that as production volumes increase, the average cost per unit decreases.

The experience curve
As plants produce more units, they gain experience in their production methods, which in turn, results in reducing the per unit costs of production in a predictable manner.

Capacity flexibility

Capacity flexibility means having the ability to rapidly increase or decrease production levels or to shift production capacity quickly from one product or service to another. Such flexibility is achieved through flexible plants, processes, and workers, as well as through strategies that use the capacity of other operations.
Issues to be considered in adding capacity include maintaining system balance, frequency of capacity additions, and the use of external capacity. Capacity strategies can be proactive, neutral, and reactive. Reactive and neutral strategies are not responsive to anticipating future growth or building a facility for future demand.

Capacity planning decisions are based on forecasts for product demand, labor requirements, and equipment requirements.

Decisions include whether to add capacity, determining capacity requirements, and planning service capacity throughout the product life-cycle stages.

Chapter Outline of



Richard B. Chase, F. Robert Jacobs, Nicholas J. Aquilano, Operations Management for Competitive Advantage, 10/e, McGraw-Hill Higher Education, 2004

Capacity Management in Operations
Capacity Planning Concepts
Economies and Diseconomies of Scale
The Experience Curve
Where Economies of Scale Meet the Experience Curve
Capacity Focus
Capacity Flexibility
Capacity Planning
Considerations in Adding Capacity
Determining Capacity Requirements
Using Decision Trees to Evaluate Capacity Alternatives
Planning Service Capacity
Capacity Planning in Service Versus Manufacturing
Capacity Utilization and Service Quality

Case: Shouldice Hospital - A Cut Above

References



Richard B. Chase, F. Robert Jacobs, Nicholas J. Aquilano, Operations Management for Competitive Advantage, 10/e, McGraw-Hill Higher Education, 2004
http://highered.mcgraw-hill.com/sites/0072506369/student_view0/chapter10/

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