1. Facilities and Capacity Planning
Chapter 5
Facilities and Capacity Planning

2. 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?

3. 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

4. Factors influencing Facility and Capacity Changes

5. 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

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

7. Types of Facilities Charters

8. 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?

9. Arguments for In-House Production

10. 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

11. Facility Focus Strategies

12. Facility Focus Strategies

13. 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

14. 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

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

16. 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

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

18. 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.

19. Strategic Capacity Planning

20. 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.

21. Examples of Revenue Management

22. Timing of Capacity Decisions
Straddle strategy Lead strategy Lag strategy