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Operations Strategy Capacity Strategy. Quality Performance objectives Dependability Supply Networks Process Technology Development and Organization Speed.

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Presentation on theme: "Operations Strategy Capacity Strategy. Quality Performance objectives Dependability Supply Networks Process Technology Development and Organization Speed."— Presentation transcript:

1 Operations Strategy Capacity Strategy

2 Quality Performance objectives Dependability Supply Networks Process Technology Development and Organization Speed Flexibility Cost Resource Usage Market Competitiveness Decision areas Issues covered in this chapter Capacity (configuration) Issues include: Capacity levels Number of sites Size of sites Location

3 What is Capacity Strategy? Capacity Strategy Configuring Capacity Managing Capacity Change Type of Capacity Overall Level of Capacity Location of Capacity Timing of Change Magnitude of Change Issues in capacity strategy Location of changed capacity

4 Capacity Decisions at 3 Levels Strategic capacity decisions – How much overall? – How should the capacity be distributed? – Location? Medium-term decisions – Level/fluctuate? – Staffing? – Subcontracting? Short-term decisions – Which resources to which tasks? – Scheduling

5 Overall Level of Operations Capacity Forecast level of demand Changes in future demand Uncertainty of future demand Consequences of over/under supply Availability of capital Cost structure of capacity increment Economies of scale Flexibility of capacity provisions OPERATIONS RESOURCES MARKET REQUIREMENTS Overall level of capacity

6 Overall Level of Operations Capacity Market Side Forecast demand (long term) Uncertainty Consequences of over/under supply Changes in demand – long vs. short term

7 Overall Level of Operations Capacity Supply Side Availability of capital (debt/equity/dilution) Cost structure of capacity increments

8 Costs / Revenue ($) Volume in thousands of units Forecast demand = 9000 units Cost Revenue

9 Overall Level of Operations Capacity Supply Side Availability of capital (debt/equity/dilution) Cost structure of capacity increments Economies of scale

10 Minimum cost & optimal operating rate are functions of size of production unit. Average cost per unit 0 Small plant Medium plant Large plant Output rate

11 Overall Level of Operations Capacity Supply Side Availability of capital (debt/equity/dilution) Cost structure of capacity increments Economies of scale Flexibility of capacity provision

12 Number & size of sites 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? QuestionsOptions 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?

13 Number & size of sites Required service level Geographical distribution of demand Economies of scale Supply costs OPERATIONS RESOURCES MARKET REQUIREMENTS Size and number of sites

14 Capacity Change Changing capacity takes time – risks? – Scale? Timing capacity change – Response time – Competitive strategy

15 Generic Timing Strategies Capacity leads demand Volume Time Capacity lags demand Volume Time Demand Capacity

16 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 Which option? Financials?

17 Balancing Capacity Change Balance? Costs?

18 Location of Capacity Why is location important? – Zara – Toyota

19 Required service level Suitability of site Image of location Resource costs Land and facilities investment Resource availability Community factors OPERATIONS RESOURCES MARKET REQUIREMENTS Location of sites


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