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Strategic Capacity Planning and Facility Location.

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Presentation on theme: "Strategic Capacity Planning and Facility Location."— Presentation transcript:

1 Strategic Capacity Planning and Facility Location

2 Strategic Capacity Planning What Size Should the Operations System Be?

3 MTSU3 Capacity Problems Movie theaters Electrical energy-California

4 MTSU4 Capacity Amount of resource inputs available relative to output requirements at a particular time Some measurements of capacity Output rate capacity Aggregate capacity Input rate capacity Percentage of capacity utilization Strategic capacity planning specifies the overall capacity level of resources that best supports the firms long range competitive strategy

5 MTSU5 Capacity Planning Considerations in Changing Capacity Alternatives When Changing Capacity Determining Capacity Requirements

6 MTSU6 Considerations in Changing Capacity Maintaining System Balance Frequency of Capacity Changes External Sources of Capacity Subcontractor networks Sharing capacity Supplier networks

7 MTSU7 Expansion of Long-Term Capacity Subcontract Acquire capacity Develop new sites Expand current sites Reactivate standby facilities

8 MTSU8 Reduction of Long-Term Capacity Sell off existing facilities Mothball facilities Develop and phase in new products/services

9 MTSU9 Steps in the Capacity Planning Process Estimate the capacity of the present facilities Forecast the long-range future capacity needs Identify and analyze sources of capacity to meet these needs Select from among the alternative sources of capacity

10 MTSU10 Forecasting Capacity Demand Long-range forecast of market demand Estimate the firms market share Multiply the forecasted market demand by the estimated market share Adjust for utilization and efficiency factors Translate firms demand into machine and labor capacity needs

11 MTSU11 Importance of Capacity Decisions Impact the ability of the firm to meet future demands for products and services Affect operating costs Usually a major determinant of initial cost Involves long-term commitment of resources and difficult to modify Affect competitiveness

12 MTSU12 Types of Capacity Design capacity maximum obtainable output Effective capacity Maximum capacity given product mix, scheduling difficulties, and other doses of reality. Actual output rate of output actually achieved--cannot exceed effective capacity.

13 MTSU13 Actual output Efficiency = Effective capacity Actual output Utilization = Design capacity Efficiency and Utilization

14 MTSU14 Design capacity = 50 trucks/day Effective capacity = 40 trucks/day Actual output = 36 units/day Actual output 36 units/day Efficiency = = = 90% Effective capacity 40 units/ day Actual output 36 units/day Utilization = = = 72% Design capacity 50 units/day Efficiency/Utilization Example

15 MTSU15 Minimum cost Average cost per unit 0 Rate of output Production units have an optimal rate of output for minimal cost. Optimal Output Rate

16 MTSU16 Average cost per unit 0 Small facility Medium facility Large facility Output rate Minimum cost & optimal operating rate are functions of size of production unit

17 MTSU17 Other Considerations Resource availability The experience curve Focus Flexibility Economies of scope Accuracy of the long-range forecast Capacity cushion Changes in competitive environment

18 MTSU18 Decision Approaches Break-even Analysis Present-value Analysis Decision Tree Analysis Computer Simulation Waiting Line Analysis Linear Programming

19 MTSU19 Planning Service Capacity Timing Services cannot be stored for later use Capacity must be available to produce a service at the time when it is needed Location For high contact services, capacity must be located near the customer Volatility of Demand Services cannot be stored Customers interact directly with the system and each may have different requirements Directly affected by consumer behavior

20 MTSU20 Facility Location

21 MTSU21 Some Reasons the Facility Location Decision Arises (1 of 2) Changes in the market Expansion Contraction Geographic shift Changes in inputs Labor skills and/or costs Materials costs and/or availability Utility costs

22 MTSU22 Reasons (2 of 2) Changes in the environment Regulations and laws Attitude of the community

23 MTSU23 Characteristics of the Facility Location Decision Infrequent Expensive to implement Studied and evaluated extensively Determination of a site involves narrowing the scope of the area being considered Involves a long-term commitment

24 MTSU24 Some Factors Affecting the Location Decision (1 of 2) Economic Site acquisition, preparation and construction costs Labor costs, skills and availability Utilities costs and availability Transportation costs Taxes

25 MTSU25 Factors (2 of 2) Noneconomic Proximity to customers Labor attitudes and traditions Training and employment services Communitys attitude Schools and churches Recreation and cultural attractions Amount and type of housing available Political risk Location of other facilities

26 MTSU26 Analyzing Service Location Decisions Consumer behavior research Market research Data gathering for each location alternative Revenue projection for each location alternative Profit projection for each location alternative

27 MTSU27 Examples of Decision Approaches Break-even Analysis Rating Scale Relative-Aggregate-Scores Present-value Analysis Cost Minimization Models Center of gravity method Decision Tree Analysis Computer Simulation Linear Programming

28 MTSU28

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