Presentation on theme: "Issues covered in this chapter"— Presentation transcript:
1 Issues covered in this chapter Resource UsageIssues include:QualityCapacity levelsNumber of sitesSize of sitesLocationSpeedPerformance objectivesDependabilityMarket CompetitivenessFlexibilityCostDevelopmentand OrganizationCapacity (configuration)Supply NetworksProcess TechnologyDecision areasIssues covered in this chapter
2 Issues in capacity strategy Configuring CapacityManaging Capacity ChangeOverall Level of CapacityLocation of CapacityTiming of ChangeMagnitudeofChangeLocation of changed capacityType of CapacityIssues in capacity strategy
3 Ice Cream DivisionCanned Food DivisionActual outputEffective capacityActual outputEffective capacityEfficiency=Efficiency=3724413446225437==90.08%==85.01%Planned LossAvoidable LossPlanned LossAvoidable LossTotal CapacityTotal Capacity3762 hrs410 hrs2459 hrs815 hrs7896 hrs7896 hrsEffective CapacityEffective CapacityActual OutputActual Output4134 hrs5437 hrs3724 hrs3724 hrsActual outputTotal capacityActual outputTotal capacityUtilization=Utilization=3724789646227896==47.16%==58.54%Utilization and efficiency measures for two divisions of a food processing company
4 Some factors influencing the overall level of capacity Forecast level of demandAvailability of capitalCost structure of capacity incrementChanges in future demandOPERATIONS RESOURCESOverall level of capacityMARKET REQUIREMENTSUncertainty of future demandEconomies of scaleFlexibility of capacity provisionsConsequences of over/under supplySome factors influencing the overall level of capacity
5 LONG-TERM CAPACITY CHANGE STRATEGY Issues include…..NUMBER OF SITESCAPACITY OF EACH SITELOCATION OF EACH SITEaLONG-TERM CAPACITY CHANGE STRATEGYALLOCATIONOF TASKSTO EACH SITE
6 Questions Options Questions: “Who should be involved in these decisions?”“How does the company make this type of decision?”QuestionsOptionsNUMBER OF SITES and CAPACITY OF SITESMany small sites?Few larger sites?LOCATIONOF SITESSupply side dominated?Demand side dominated?ALLOCATION OF TASKSTO SITESAll sites make all products/services?Each site focuses on a few products/services?LONG-TERM CAPACITY CHANGE STRATEGYCapacity leads demand?Capacity lags demand?
7 Why is capacity strategy important? Without an appropriate capacity strategy operations will always be struggling to supply markets in a competitive mannerGetting capacity strategy right is the starting point for developing competitive operations
8 ? How should one judge a capacity strategy ? NUMBER OF SITESWhat performance measures will all these decisions have a major impact on ?CAPACITY OF EACH SITELOCATION OF EACH SITE?LONG-TERM CAPACITY CHANGE STRATEGYALLOCATIONOF TASKSTO SITES
9 Should capacity lead or lag demand ? Capacity leads demandCapacity lags demandCapacityCapacityDemandDemandVolumeVolumeTimeTimeWhat competitive objectives will be affected?
10 The three options ….. Capacity Leading Strategy DemandCapacity Leading StrategyCapacityVolumeTimeTimeDemandCapacity Lagging StrategyCapacityVolumeTimeDemandCapacity Smoothing StrategyCapacityVolumeTime
11 Cost, volume, profit illustration 12108CostCosts / Revenue ($)Forecast demand = 9000 units64Revenue224681012Volume in thousands of unitsCost, volume, profit illustration
12 Unit cost curve 8 8 6 6 Unit cost (total cost / volume) Diseconomies of scale kick inNominal capacity limit4422123456123456Volume in thousands of unitsVolume in thousands of units(a)(b)Unit cost curve
13 Cash flow with extended physical capacity Cash flow with two identical capacity incrementsPhysical capacity of facilitiesDemandCumulative cash flowVolumeTimeEffective CapacityTimeExpanding physical capacity in advance of effective capacity can bring greater returns in the longer term
14 Some factors influencing the number and size of sites Economies of scaleRequired service levelSize and number of sitesOPERATIONS RESOURCESMARKET REQUIREMENTSGeographical distribution of demandSupply costsSome factors influencing the number and size of sites
15 Some factors influencing the location of sites Resource costsRequired service levelLand and facilities investmentSuitability of siteOPERATIONS RESOURCESLocation of sitesMARKET REQUIREMENTSResource availabilityImage of locationCommunity factorsSome factors influencing the location of sites
16 Office rents in various cities ($’000 per square metre, January 1999) London (city)Hong KongNew York (midtown)SingaporeStockholmAmsterdamMadrid0.40.60.81.01.2Office rents in various cities ($’000 per square metre, January 1999)Source: Richard Ellis, The Economist
17 DenmarkBritainJapanFranceGermanySwedenNetherlandsSpainUnited States = 1006080100120140160Unit labour costs in various countries (1998) (includes effects of currency exchange rates and productivity)Source: OECD, The Economist
18 (a) Location concerned with profit maximization; Fast food restaurantElectronics manufacturerRevenueRevenueCosts / RevenueCostsCosts / RevenueCostsLocation ALocation BLocation ALocation of operationLocation of operation(a)(b)(a) Location concerned with profit maximization;(b) Location concerned with cost minimization
19 Cost-volume-profit curves for two alternative capacity strategies $US4mRevenue3m3 Brayford facilities2m1 Bi-line 8 facility & 1 Brayford facility1m150000Current volume1000200030004000Monthly volume (kg)Cost-volume-profit curves for two alternative capacity strategies
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