Operations Strategy - Capacity Strategy

Information about Operations Strategy - Capacity Strategy

Published on July 22, 2014

Author: sujith5989

Source: authorstream.com

Content

Operations Strategy 3: Operations Strategy 3 Capacity Strategy Ch 3 Slack & Lewis PowerPoint Presentation: Issues include : Capacity levels Number of sites Size of sites Allocation of activities When to change Capacity How much to change Location Operations strategy Performance objectives Quality Speed Dependability Flexibility Cost Development and organisation Capacity strategy Supply network Process technology Decision areas Market competitiveness The operations strategy matrix Resource usage Operations Capacity: Operations Capacity Operations capacity dictates its potential level of productive activity. It is the maximum level of value added activity over a period of time that the operation can achieve under normal conditions. Capacity at three levels Long term : Strategic capacity decisions Encompasses all parts of the project Intermediate term : Aggregate planning Short term – Scheduling, machine loading Capacity strategy: Capacity strategy Capacity strategy is a set of decisions concerned with how operations configure and change their overall capacity in order to achieve a particular level of output potential. Capacity strategy defines overall scale of operation the number and size of different sites between which its capacity is distributed, the specific activities allocated to each site and the location of each site. Achieve a match between long term production or supply capabilities and long term demand, as far as predictable, considering changes in Technology, Environment, Perceived threats and opportunities Importance of Capacity Decisions: 5- 5 Impacts ability to meet future demands : Make provisions in capacity for increased demand in future. Having capacity to meet demand is advantageous. Affects operating costs : Balance the costs of over & under capacity (Matching supply & demand is an ideal situation) Major determinant of initial costs : For larger unit, initial cost is higher but per unit production cost is less Involves long-term commitment : Changing capacity decisions involves major cost Affects competitiveness : Large capacity or ability to add capacity is entry barrier for competitors Affects ease of management : Matched capacity is easier to manage (Large capacity is Globalization has made capacity decisions important and complex (more uncertainty) Impacts long range planning : Plan for power plants Importance of Capacity Decisions Strategy Formulation: 5- 6 Strategy Formulation Considerations for capacity strategy formulation for long-term demand Forecasts are key inputs : Seasonality factors have to be considered Demand patterns : Stability of demand Growth rate Facilities : Cost of building and operating the facilities Technological changes : Rate and direction of technological changes both in product design and manufacturing equipment Competitive factors : Behavior of competitors Availability of capital and other inputs PowerPoint Presentation: Some factors influencing the overall level of capacity Forecast level of demand Consequences of over or under-supply Availability of capital Flexibility of capacity provisions Changes in future demand Uncertainty of future demand Cost structure of capacity increment Economies of scale OPERATIONS RESOURCES MARKET REQUIREMENTS Overall level of capacity PowerPoint Presentation: 2 4 6 8 10 12 0 0 2 4 6 8 10 12 Costs / Revenue ($) Volume in thousands of units Forecast demand = 9,000 units Cost Revenue Cost, volume, profit illustration PowerPoint Presentation: 1 2 3 4 5 6 0 0 2 4 6 8 Unit cost (total cost / volume) Volume in thousands of units (a) Nominal capacity limit Unit cost curve PowerPoint Presentation: 1 2 3 4 5 6 0 0 2 4 6 8 Unit cost (total cost/volume) Volume in thousands of units (b) Diseconomies of scale kick in Unit cost curve PowerPoint Presentation: Physical capacity of facilities Effective capacity Demand Volume Time Expanding physical capacity in advance of effective capacity can bring greater returns in the longer term PowerPoint Presentation: Cash flow with extended physical capacity Cash flow with two identical capacity increments Cumulative cash flow Time Expanding physical capacity in advance of effective capacity can bring greater returns in the longer term PowerPoint Presentation: Capacity strategy issues include….. NUMBER OF SITES LOCATION OF EACH SITE ALLOCATION OF TASKS TO EACH SITE CAPACITY OF EACH SITE LONG-TERM CAPACITY CHANGE STRATEGY PowerPoint Presentation: NUMBER OF SITES and CAPACITY OF SITES LOCATION OF SITES ALLOCATION OF TASKS TO SITES LONG-TERM CAPACITY CHANGE STRATEGY Many small sites? Few larger sites? Questions Options Supply side dominated? Demand side dominated? All sites make all products/services? Each site focuses on a few products/ services? Capacity leads demand? Capacity lags demand? PowerPoint Presentation: Why is capacity strategy important? Without an appropriate capacity strategy, operations will always be struggling to supply markets in a competitive manner Getting capacity strategy right is the starting point for developing competitive operations PowerPoint Presentation: LONG-TERM CAPACITY CHANGE STRATEGY NUMBER OF SITES LOCATION OF EACH SITE CAPACITY OF EACH SITE ALLOCATION OF TASKS TO SITES What performance measures will all these decisions have a major impact on? Costs Revenues Cash requirements Service levels How should one judge a capacity strategy ? PowerPoint Presentation: Required service level Geographical distribution of demand Economies of scale Supply costs OPERATIONS RESOURCES MARKET REQUIREMENTS Size and number of sites Some factors influencing the number and size of sites PowerPoint Presentation: Required service level Resource costs Community factors Some factors influencing the location of sites Suitability of site Image of location Land and facilities investment Resource availability OPERATIONS RESOURCES MARKET REQUIREMENTS Location of sites PowerPoint Presentation: Forecast level of demand Required level of service Lead-time of capacity change Some factors influencing the timing of capacity change Competitor activity Uncertainty of future demand Ability to cope with change Economies of scale OPERATIONS RESOURCES MARKET REQUIREMENTS Overall level of capacity PowerPoint Presentation: 400 800 1,200 1,600 2,000 2,400 Volume (Units / week) Time Demand Capacity plans for meeting demand using either 800- or 400-unit capacity plants Capacity plan using 800-unit plants Capacity plan using 400-unit plants PowerPoint Presentation: Forecast demand Smaller-scale capacity increments allow the capacity plan to be adjusted to accommodate changes in demand Actual demand Capacity plan using 800-unit plants Capacity plan using 400-unit plants 400 800 1,200 1,600 2,000 2,400 Volume (Units/week) Time PowerPoint Presentation: Current capacity = 1,010 units Required new capacity = 1,800 units Current capacity = 1,000 units Required new capacity = 1,800 units Current capacity = 900 units Required new capacity = 1,800 units Current capacity = 1,100 units Required new capacity = 1,800 units Capacity increment Operating cost Capacity increment Operating cost Capacity increment Operating cost Capacity increment Operating cost 800 units 600 units Parts manufacture Assembly plant Warehouse Distribution Rarely does each stage of a supply chain have perfectly balanced capacity because of different optimum capacity increments PowerPoint Presentation: The three options ….. Time Demand Capacity Volume Time Capacity Leading Strategy Demand Capacity Volume Time Capacity Lagging Strategy Demand Capacity Volume Time Capacity Smoothing Strategy PowerPoint Presentation: Capacity planning with certain forecasts and capacity introduction Output Planned capacity Forecast demand Capacity increment 1 Capacity increment 2 Capacity increment 3 Capacity increment 4 Time

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