KR: Chapter 8 Capacity

Chapter Outline Introduction Measures of capacity Capacity unit Peak capacity vs. effective capacity Bottleneck Economies of scale Diseconomies of scale Capacity strategies

Economies of Scale Spreading Fixed Costs Reducing Construction Costs Cutting Costs of Purchased Materials Finding Process Advantage

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 8.2

Capacity Strategies Time between increments Capacity increment Planned unused capacity Time (a) Expansionist strategy Forecast of capacity required Capacity Figure 8.3

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 8.3

Expansionist Strategy Concept Large, infrequent jumps in capacity Stays ahead of demand Advantages Lost sales unlikely Economies of scale (construction and learning) Preempt competition

Wait-and-See Strategy Concept Small, frequent jumps in capacity Lags behind demand, relaying on short- term operations Advantages Minimizes risk Greater flexibility

Linking Capacity and Other Decisions Competitive Priorities Quality Management Capital Intensity Resource Flexibility Inventory Scheduling