To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Chapter 8 - Capacity

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Utilization

Utilization Fabrication can make 100 engines/day Management wants 45 engines/day Currently producing 50 engines/day Example 8.1

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Utilization Fabrication can make 100 engines/day Management wants 45 engines/day Currently producing 50 engines/day Utilization peak = Average output rate Peak capacity Example 8.1

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Utilization Fabrication can make 100 engines/day Management wants 45 engines/day Currently producing 50 engines/day Utilization peak = Example 8.1

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Utilization Fabrication can make 100 engines/day Management wants 45 engines/day Currently producing 50 engines/day Utilization peak = x 100% = 50% Example 8.1

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Utilization Fabrication can make 100 engines/day Management wants 45 engines/day Currently producing 50 engines/day Utilization peak = x 100% = 50% Utilization effective = Average output rate Effective capacity Example 8.1

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Utilization Fabrication can make 100 engines/day Management wants 45 engines/day Currently producing 50 engines/day Utilization peak = x 100% = 50% Utilization effective = Example 8.1

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Utilization Fabrication can make 100 engines/day Management wants 45 engines/day Currently producing 50 engines/day Utilization peak = x 100% = 50% Utilization effective = x 100% = 111% Example 8.1

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Utilization Fabrication can make 100 engines/day Management wants 45 engines/day Currently producing 50 engines/day Utilization peak = 50% Utilization effective = 111% Example 8.1

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Utilization Fabrication can make 100 engines/day Management wants 45 engines/day Currently producing 50 engines/day Capacity cushion peak = 100% – 50% = 50% Capacity cushion effective = 100% – 111% = – 11% Utilization peak = 50% Utilization effective = 111% Figure 8.1

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Utilization Fabrication can make 100 engines/day Management wants 45 engines/day Currently producing 50 engines/day Capacity cushion effective = 100% – Utilization effective Utilization peak = 50% Utilization effective = 111% Capacity cushion peak = 100% – Utilization peak Example 8.1

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Utilization Fabrication can make 100 engines/day Management wants 45 engines/day Currently producing 50 engines/day Capacity cushion peak = 100% - 50% Capacity cushion effective = 100% – 111% Utilization peak = 50% Utilization effective = 111% Capacity cushion peak = 100% – 50% Example 8.1

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Utilization Fabrication can make 100 engines/day Management wants 45 engines/day Currently producing 50 engines/day Capacity cushion peak = 100% – 50% = 50% Capacity cushion effective = 100% – 111% = – 11% Utilization peak = 50% Utilization effective = 111% Example 8.1

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Capacity Bottlenecks

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Capacity Bottlenecks Inputs To customers (a) Operation 2 a bottleneck 50/hr /hr Figure 8.2

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. (b) All operations bottlenecks Capacity Bottlenecks Figure 8.2

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Theory of Constraints 1.Identify the system bottleneck(s) 2.Exploit the bottleneck(s) 3.Subordinate all other decisions to step 2 4.Elevate the bottleneck(s) 5.Do not let inertia set in

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Output rate (patients per week) Economies and Diseconomies of Scale Figure 8.3 Average unit cost (dollars per patient)

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. 250-bed hospital Output rate (patients per week) Economies and Diseconomies of Scale Figure 8.3 Average unit cost (dollars per patient)

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Economies and Diseconomies of Scale 250-bed hospital 500-bed hospital Output rate (patients per week) Figure 8.3 Average unit cost (dollars per patient)

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Economies and Diseconomies of Scale 250-bed hospital 500-bed hospital Output rate (patients per week) Economies of scale Figure 8.3 Average unit cost (dollars per patient)

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Economies and Diseconomies of Scale 250-bed hospital 750-bed hospital 500-bed hospital Output rate (patients per week) Economies of scale Figure 8.3 Average unit cost (dollars per patient)

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Economies and Diseconomies of Scale Average unit cost (dollars per patient) Output rate (patients per week) 250-bed hospital 750-bed hospital 500-bed hospital Diseconomies of scale Economies of scale Figure 8.3

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Capacity Strategies

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Capacity Strategies Time Forecast of capacity required Capacity Figure 8.4

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Capacity Strategies Planned unused capacity Time (a) Expansionist strategy Forecast of capacity required Capacity Figure 8.4

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Capacity Strategies Planned unused capacity Time (a) Expansionist strategy Forecast of capacity required Capacity Figure 8.4

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Capacity Strategies Time between increments Capacity increment Planned unused capacity Time (a) Expansionist strategy Forecast of capacity required Capacity Figure 8.4

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Capacity Strategies Time Forecast of capacity required Capacity (b) Wait-and-see strategy Figure 8.4

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Capacity Strategies Time Forecast of capacity required Capacity (b) Wait-and-see strategy Planned use of short-term options Figure 8.4

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Capacity Strategies Time between increments Capacity increment Time Forecast of capacity required Capacity Planned use of short-term options (b) Wait-and-see strategy Figure 8.4

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Linking Capacity and Other Decisions Competitive Priorities Quality Management Capital Intensity Resource Flexibility Inventory Scheduling

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Capacity Decisions

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Capacity Decisions Estimate Capacity Requirements ItemClient XClient Y Annual demand forecast (copies) Standard processing time (hour/copy) Average lot size (copies per report) Standard setup time (hours) Example 8.2

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Capacity Decisions Estimate Capacity Requirements ItemClient XClient Y Annual demand forecast (copies) Standard processing time (hour/copy) Average lot size (copies per report) Standard setup time (hours) [Dp + (D/Q)s] product [Dp + (D/Q)s] product n N[1 – (C/100)] M = Example 8.2

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Capacity Decisions Estimate Capacity Requirements ItemClient XClient Y Annual demand forecast (copies) Standard processing time (hour/copy) Average lot size (copies per report) Standard setup time (hours) [2000(0.5) + (2000/20)(0.25)] client X + [6000(0.7) + (6000/30)(0.4)] client Y (250 days/year)(1 shift/day)(8 hours/shift)(1.0 – 15/100) M = Example 8.2

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Capacity Decisions Estimate Capacity Requirements ItemClient XClient Y Annual demand forecast (copies) Standard processing time (hour/copy) Average lot size (copies per report) Standard setup time (hours) M = [2000(0.5) + (2000/20)(0.25)] client X + [6000(0.7) + (6000/30)(0.4)] client Y (250 days/year)(1 shift/day)(8 hours/shift)(1.0 – 15/100) Example 8.2

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Capacity Decisions Estimate Capacity Requirements ItemClient XClient Y Annual demand forecast (copies) Standard processing time (hour/copy) Average lot size (copies per report) Standard setup time (hours) M = = 3.12  4 machines Example 8.2

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Capacity Decisions Identify Capacity Gaps

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Capacity Decisions Kitchen capacity = 80,000 meals Dining room capacity = 105,000 meals Identify Capacity Gaps Example 8.3

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Capacity Decisions Kitchen capacity = 80,000 meals Dining room capacity = 105,000 meals Demand Year 1:90,000 meals Year 2:100,000 meals Year 3:110,000 meals Year 4:120,000 meals Year 5:130,000 meals Identify Capacity Gaps Example 8.3

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Capacity Decisions Kitchen capacity = 80,000 meals Dining room capacity = 105,000 meals Demand Year 1:90,000 meals Year 2:100,000 meals Year 3:110,000 meals Year 4:120,000 meals Year 5:130,000 meals Kitchen Capacity Gaps Identify Capacity Gaps Example 8.3

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Capacity Decisions Kitchen capacity = 80,000 meals Dining room capacity = 105,000 meals Demand Year 1:90,000 meals Year 2:100,000 meals Year 3:110,000 meals Year 4:120,000 meals Year 5:130,000 meals Kitchen Capacity Gaps Year 1:90,000 – 80,000 = 10,000 Identify Capacity Gaps Example 8.3

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Capacity Decisions Kitchen capacity = 80,000 meals Dining room capacity = 105,000 meals Demand Year 1:90,000 meals Year 2:100,000 meals Year 3:110,000 meals Year 4:120,000 meals Year 5:130,000 meals Kitchen Capacity Gaps Year 1:90,000 – 80,000 = 10,000 Year 2:100,000 – 80,000 = 20,000 Year 3:110,000 – 80,000 = 30,000 Year 4:120,000 – 80,000 = 40,000 Year 5:130,000 – 80,000 = 50,000 Identify Capacity Gaps Example 8.3

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Capacity Decisions Kitchen capacity = 80,000 meals Dining room capacity = 105,000 meals Demand Year 1:90,000 meals Year 2:100,000 meals Year 3:110,000 meals Year 4:120,000 meals Year 5:130,000 meals Dining Room Capacity Gaps Year 1: Year 2: Year 3: Year 4: Year 5: Identify Capacity Gaps Example 8.3

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Capacity Decisions Kitchen capacity = 80,000 meals Dining room capacity = 105,000 meals Demand Year 1:90,000 meals Year 2:100,000 meals Year 3:110,000 meals Year 4:120,000 meals Year 5:130,000 meals Dining Room Capacity Gaps Year 1:no gaps Year 2:no gaps Year 3: Year 4: Year 5: Identify Capacity Gaps Example 8.3

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Capacity Decisions Kitchen capacity = 80,000 meals Dining room capacity = 105,000 meals Demand Year 1:90,000 meals Year 2:100,000 meals Year 3:110,000 meals Year 4:120,000 meals Year 5:130,000 meals Dining Room Capacity Gaps Year 1:no gaps Year 2:no gaps Year 3:110,000 – 105,000 = 5,000 Year 4: Year 5: Identify Capacity Gaps Example 8.3

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Capacity Decisions Kitchen capacity = 80,000 meals Dining room capacity = 105,000 meals Demand Year 1:90,000 meals Year 2:100,000 meals Year 3:110,000 meals Year 4:120,000 meals Year 5:130,000 meals Dining Room Capacity Gaps Year 1:no gaps Year 2:no gaps Year 3:110,000 – 105,000 = 5,000 Year 4:120,000 – 105,000 = 15,000 Year 5:130,000 – 105,000 = 25,000 Identify Capacity Gaps Example 8.3

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Capacity Decisions Evaluate Alternatives

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Capacity Decisions Evaluate Alternatives Expand capacity to meet expected demand through Year 5 Example 8.4

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Capacity Decisions Evaluate Alternatives Expand capacity to meet expected demand through Year 5 YearDemandCash Flow Example 8.4

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Capacity Decisions Evaluate Alternatives Expand capacity to meet expected demand through Year 5 YearDemandCash Flow 190,000(90,000 – 80,000)2 = $20,000 Example 8.4

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Capacity Decisions Evaluate Alternatives Expand capacity to meet expected demand through Year 5 YearDemandCash Flow 190,000(90,000 – 80,000)2 = $20, ,000(100,000 – 80,000)2 = $40, ,000(110,000 – 80,000)2 = $60, ,000(120,000 – 80,000)2 = $80, ,000(130,000 – 80,000)2 = $100,000 Example 8.4

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Capacity Decisions Evaluate Alternatives Figure 8.5

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Capacity Decisions Simulation

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Capacity Decisions Simulation TIME TO PERFORM (SECONDS) Standard OPERATION AverageDeviation 1.Review renewal application for correctness153 2.Check file for violations and restrictions Process and record payment256 4.Conduct eye test Photograph applicant205 6.Issue temporary license305 AVERAGE CUSTOMER ARRIVAL TIME(PEOPLE PER MINUTE) 8:00 A.M. — 9:00 A.M :00 A.M. — 12:00 P.M :00 P.M. — 1:00 P.M :00 P.M. — 4:00 P.M.0.75 Example 8.5

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Capacity Decisions Simulation

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Capacity Decisions Simulation Figure 8.6(a)

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Capacity Decisions Simulation

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Capacity Decisions Simulation Figure 8.6(b)

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Capacity Decisions Simulation

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Capacity Decisions Simulation Figure 8.6(c)

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Capacity Decisions Decision Trees

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Capacity Decisions Decision Trees 1 Small expansion Large expansion Figure 8.7

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Capacity Decisions Decision Trees Low demand High demand 1 Small expansion Large expansion Figure 8.7

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Capacity Decisions Decision Trees Low demand High demand Don’t expand Expand 1 2 Small expansion Large expansion Figure 8.7

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Capacity Decisions Decision Trees Low demand [0.40] High demand [0.60] Don’t expand Expand 1 2 Small expansion Large expansion Figure 8.7

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Capacity Decisions Decision Trees Low demand [0.40] $70 $220 $40 High demand [0.60] Don’t expand Expand $135 $ Small expansion Large expansion Figure 8.7

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Capacity Decisions Decision Trees Low demand [0.40] $70 $220 $40 High demand [0.60] Don’t expand Expand $135 $ Small expansion Large expansion Figure 8.7

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Capacity Decisions Decision Trees Low demand [0.40] $70 $220 $40 High demand [0.60] $135 Don’t expand Expand $135 $ Small expansion Large expansion Figure 8.7

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Capacity Decisions Decision Trees Low demand [0.40] $70 $220 $40 High demand [0.60] $135 Don’t expand Expand $135 $ Small expansion Large expansion Figure 8.7

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Capacity Decisions Decision Trees Low demand [0.40] $70 $220 $40 High demand [0.60] $135 Don’t expand Expand $135 $ Small expansion Large expansion Expected Payoff = Event * Event Probability Figure 8.7

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Capacity Decisions Decision Trees Low demand [0.40] $70 $220 $40 High demand [0.60] $135 Don’t expand Expand $135 $ Small expansion Large expansion Expected Payoff = Event * Event Probability Small/Low = $70 (0.40) Figure 8.7

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Capacity Decisions Decision Trees Low demand [0.40] $70 $220 $40 High demand [0.60] $135 Don’t expand Expand $135 $ Small expansion Large expansion Expected Payoff = Event * Event Probability Small/Low = $70 (0.40) = $28 Figure 8.7

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Capacity Decisions Decision Trees Low demand [0.40] $70 $220 $40 High demand [0.60] $135 Don’t expand Expand $135 $ Small expansion Large expansion Expected Payoff = Event * Event Probability Small/Low = $70 (0.40) = $28 Small/High = $135 (0.60) Figure 8.7

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Capacity Decisions Decision Trees Low demand [0.40] $70 $220 $40 High demand [0.60] $135 Don’t expand Expand $135 $ Small expansion Large expansion Expected Payoff = Event * Event Probability Small/Low = $70 (0.40) = $28 Small/High = $135 (0.60) = $81 Figure 8.7

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Capacity Decisions Decision Trees Low demand [0.40] $70 $220 $40 High demand [0.60] $135 Don’t expand Expand $135 $ Small expansion Large expansion Expected Payoff = Event * Event Probability Small/Low = $70 (0.40) = $28 Small/High = $135 (0.60) = $81 Small = $28 + $81 = $109 Figure 8.7

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Capacity Decisions Decision Trees Low demand [0.40] $70 $220 $40 High demand [0.60] $135 Don’t expand Expand $135 $ Small expansion Large expansion Expected Payoff = Event * Event Probability Small/Low = $70 (0.40) = $28 Small/High = $135 (0.60) = $81 Small = $28 + $81 = $109 $109 Figure 8.7

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Capacity Decisions Decision Trees Low demand [0.40] $70 $220 $40 High demand [0.60] $135 Don’t expand Expand $135 $ Small expansion Large expansion Expected Payoff = Event * Event Probability Small/Low = $70 (0.40) = $28 Small/High = $135 (0.60) = $81 Small = $28 + $81 = $109 $109 Figure 8.7

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Capacity Decisions Decision Trees Low demand [0.40] $70 $220 $40 High demand [0.60] $135 Don’t expand Expand $135 $ Small expansion Large expansion Expected Payoff = Event * Event Probability Large/Low = $40 (0.40) = $16 Large/High = $220 (0.60) = $132 Large = $16 + $132 = $148 $109 Figure 8.7

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Capacity Decisions Decision Trees Low demand [0.40] $70 $220 $40 High demand [0.60] $135 Don’t expand Expand $135 $ Small expansion Large expansion Expected Payoff = Event * Event Probability Large/Low = $40 (0.40) = $16 Large/High = $220 (0.60) = $132 Large = $16 + $132 = $148 $109 $148 Figure 8.7

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Capacity Decisions Decision Trees Low demand [0.40] $70 $220 $40 $148 $109 High demand [0.60] $135 Don’t expand Expand $135 $ Small expansion Large expansion Figure 8.7

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Capacity Decisions Decision Trees Low demand [0.40] $70 $220 $40 $148 $109 High demand [0.60] $135 Don’t expand Expand $135 $ Small expansion Large expansion Figure 8.7

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Capacity Decisions Decision Trees Low demand [0.40] $70 $220 $40 $148 $109 $148 High demand [0.60] $135 Don’t expand Expand $135 $ Small expansion Large expansion Figure 8.7

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Capacity Decisions Decision Trees Low demand [0.40] $70 $220 $40 $148 $109 $148 High demand [0.60] $135 Don’t expand Expand $135 $ Small expansion Large expansion Figure 8.7

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Capacity Decisions Bottleneck Figure 8.8

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Capacity Decisions Bottleneck Figure 8.8