Facilities and Capacity Planning Chapter 5 Facilities and Capacity Planning

Key Issues in Facilities and Capacity Planning What kinds of facilities and capacity? How much capacity? How large should facilities be When to add capacity or new facilities? When to downsize?

Strategic Reasons for Facilities Changes Changes in existing products, markets, or processes Emergence of new products, markets, or processes Facilities strategies depend on position in the product life cycle

Factors influencing Facility and Capacity Changes

Basic Planning Questions What is to be accomplished at the facility? Facility charter How much capacity is needed? Few large facilities vs. several small facilities When should capacity changes take place? Potential market needs vs. assurance of demand

Facility Charters Facility charters define: Core competency Breadth of products and services Span of process Focused facilities identify priorities at which to excel

Types of Facilities Charters

Vertical Integration Vertical integration – the choice of what processes are performed within a facility and which are outsourced Key questions What are the costs? Do suppliers have required capabilities? Does the firm have required capabilities? What is the impact on human resources?

Arguments for In-House Production

Reasons Facilities Lose Focus Product and process proliferation Market and technological changes Product life cycle changes Uncontrolled incremental expansion Executive ambition Inability to quantify real and opportunity costs

Facility Focus Strategies

Facility Focus Strategies

Capacity Planning Balancing needs of the market with resource efficiency and utilization Too little capacity – inability to meet demand Too much capacity – high costs and inefficient use of resources

Capacity Measurement Capacity – rate of output per unit time Maximum (theoretical) Effective (planned) Actual Load – volume of work remaining to be completed = cumulative demand – cumulative capacity at any time

Evaluating Effective Capacity Effective capacity = maximum capacity * Utilization * Efficiency Utilization = actual hours used / scheduled hours available Efficiency = standard time / actual time

Strategies for Increasing Capacity Increasing facility size or labor force to increase maximum capacity Operational improvements such as reducing setup times or improving maintenance to increase actual capacity

Capacity Tradeoffs Cost of capacity Opportunity cost of not having adequate capacity

Capacity Economics Optimal level is generally the lowest point on the total cost curve as a function of anticipated volume. Dynamic changes in volume require more thorough analyses.

Strategic Capacity Planning

Service Capacity Management Fix resources or set a schedule Control timing or rate of demand Capacity decisions must be aligned with customer needs and service goals.

Examples of Revenue Management

Timing of Capacity Decisions Straddle strategy Lead strategy Lag strategy