Strategic Capacity Planning Based on slides for Chase Acquilano and Jacobs, Operations Management, McGraw-Hill

Strategic Capacity Planning Defined Capacity äthe ability to hold, receive, store, or accommodate. Strategic capacity planning äapproach for determining the overall capacity level of capital intensive resources, including facilities, equipment, and overall labor force size.

Capacity Utilization Capacity used ä rate of output actually achieved Best operating level ä capacity for which the process was designed Capacity utilization rate = Capacity used / Best operating level

Capacity Utilization in the U. S.

Example of Capacity Utilization During one week of production, a plant produced 85 units of a product. Its historic highest or best utilization recorded was 120 units per week. What is this plant’s capacity utilization rate?

Capacity Strategies

Long Run Average Cost Across Product and Process Lifecycle

Location Strategies

Exercise Suppose you were locating one of the following: äAutomobile assembly plant äDistribution center äNFL football stadium ä“Big box” store äBank branch äHospital Develop a list of criteria you might apply is comparing possible sites On the Internet, find a site and see how the location matches some of the criteria you identified Share results with the class

Problem A frozen food packing company currently operates two processing plants in small towns located near rail yards. Each began as a separate company more than 75 years ago, but about 10 years ago one bought out the other. Currently the combined fixed costs are about $15,000 per day; at optimal capacity, each can produce a box of frozen vegetables for about $.50 in variable costs. Demand, which is projected to grow over the future, is estimated at 148,000 boxes of frozen vegetables per day for the next year. Managers feel that volume may be more than the two plants can handle efficiently, given their current configuration. Managers are presently considering a proposal to consolidate the two plants, at a site more convenient to the interstate highway system. The new plant would eliminate redundant overhead and more than double the firm's capacity, but the cost of additional automation would push fixed costs to $20,000 per day. Decreased direct labor costs and more cost-effective shipping would reduce variable costs to $.47 per box. Should managers go ahead with the new plant? On what assumptions do you base your conclusion? How sensitive is your conclusion to those assumptions?

Example of a Decision Tree Problem A glass factory specializing in crystal is experiencing a substantial backlog, and the firm's management is considering three courses of action: A) Arrange for subcontracting, B) Construct new facilities. C) Do nothing (no change) The correct choice depends largely upon demand, which may be low, medium, or high. By consensus, management estimates the respective demand probabilities as.10,.50, and.40.

Example of a Decision Tree Problem: The Payoff Table The management also estimates the profits when choosing from the three alternatives (A, B, and C) under the differing probable levels of demand. These costs, in thousands of dollars are presented in the table below:

Decision Tree Example: 10.2 from text Computer store owner has to decide what to do next year. Has three options: äEnlarge store – take little time; no lost revenue äLocate at a new site äWait and do nothing – after 1 year could reconsider expansion Assume either strong or weak growth

Decision Tree Example: 10.2 from text Costs and revenues Probabilities

Decision Tree Answer