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Chapter 7 Facility Capacity and Location. Capacity Production Capacity: maximum rate of production output Sustainable Practical Capacity: the greatest.

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Presentation on theme: "Chapter 7 Facility Capacity and Location. Capacity Production Capacity: maximum rate of production output Sustainable Practical Capacity: the greatest."— Presentation transcript:

1 Chapter 7 Facility Capacity and Location

2 Capacity Production Capacity: maximum rate of production output Sustainable Practical Capacity: the greatest level of output that a plant can maintain within the framework of a realistic work schedule, taking account of normal downtime, and assuming sufficient availability of inputs to operate the machinery and equipment in place* *Federal Reserve Statistical Release, 2000

3 Capacity Utilization % of production capacity that was actually used If the production capacity is 5000 units per week, and last week the plant made 3500 units, then capacity utilization = What is bad about: –too little capacity?– too much capacity?

4 Capacity Utilization Example Last week H&R Block, an income tax preparation firm, had enough employees to service 300 customers. Records show that 315 customers requested service last week. Due to various reasons 20 customers withdrew their request. Because the majority of the requests came in toward the end of the week, employees were able to process only 255 customers’ tax forms last week. What was H&R Block’s capacity utilization last week?

5 Measuring Capacity What measure of capacity is most useful for: Manufacturer  Alcon Restaurant  Bennigan’s University  UTA Service  Arlington Fire Department Retailer  Foley’s Hospital  Cook Children’s Hospital

6 Changing Capacity What are some changes that might potentially increase capacity at a local Taco Bell location? Which of these potential changes would be best? Can you think of any other changes that might potentially increase capacity at a manufacturer?

7 Time Frame for Capacity Changes Long termMedium termShort term -- new plant-- new equip.-- overtime --expand plant-- add shift-- subcontract -- hire people-- standby equip. Emergency -- postpone preventive maintenance -- do fewer inspections -- move workers from other workstations to help out -- shorten lunch and coffee breaks

8 The Red Robin restaurant by Valley River Center primarily serves sandwiches to customers. During lunch they currently have 2 cooks and 4 waitresses. There is plenty of food preparation space and facilities, and there are 40 tables placed close together, which uses all available space. Customers typically wait 10 minutes to get a table, place their order within 2 minutes of being seated, then wait 20 minutes before their meal is ready, and are finished eating and leave 20 minutes later. What would be the best way to increase capacity during lunch ? a. expand the building b. install more tables c. expand the cooking area d. hire more waiters e. hire another cook

9 The Eugene Planning and Development Department issues building permits for new houses, a process that consists of many steps. When a request for a building permit is received, the average waiting time before a permit is issued is 7 weeks. There is a two-week backlog of permit requests for which processing has not yet begun. City administrators are convinced that permits should be issued much quicker, but there is currently a hiring freeze for the indefinite future. If you were the manager in charge of building permits, what would be the best step to take to permanently increase capacity so as to provide better customer service? a. expand the office space b. hire more employees c. start using overtime d. try to simplify the process of approving permits e. subcontract some of the work

10 The U.S. Post Office in Cottage Grove would like to increase its capacity by 20%. What would be the most effective way to do this? a.expand the customer lobby area b.hire additional employees c.offer additional services to customers such as accepting utility bill payments or explaining tax forms d.place mail in post office boxes more often during the day e.require the use of smaller sized envelopes

11 Decision Trees branch  an action or event node  a point in time decision node:chance event node: Expected Value: EV = Build tree from left to right (chronologically); solve tree from right to left Determine the expected value at each node $ $ expand new do nothing sunny.2 rain.3 overcast.4 snow.1

12 A firm is trying to decide whether to sell one of its plants next year or do a feasibility study on expanding the plant. If it sells the plant next year, the firm estimates that it will get $3 million (net present value) if the economy is good or $1 million (npv) if the economy is bad. There is a 60% probability for a good economy next year. A feasibility study would cost $1 million, and there is only a 30% chance that the feasibility study will be favorable. If the study is unfavorable then the firm can at that point sell the plant for $500,000 (npv). If the study is favorable, then the firm can sell the plant for $4 million (npv) or expand the plant. If the plant is expanded and the future economic outlook is high, the firm would receive a net present value of $7 million, and if the outlook Is low the firm would receive a npv of $2 million. There is a 60% chance that the future economic outlook at that point will be high. Draw a decision tree for this problem and show all expected values. Explain what the firm should do at each decision node.

13 Facility Location Decisions How should you decide where to locate a facility? Which factors should be considered for location decisions at each level: –U.S. bicycle company opening a mfg. plant in Asia –Japanese-owned Nintendo opening a next-model GameCube mfg. plant in the U.S. –Nuclear power plant in Oregon –New Taco Bell store in Arlington

14 After working for a small local accounting firm for seven years you see little possibility of becoming a partner with the firm. Two colleagues have agreed to join with you as partners to create a new accounting firm in Eugene primarily for individuals and small businesses. You are responsible for finding a suitable location in town for the office and have decided to rent space in an existing office building. Which of the following factors should be least important in your decision of where to rent office space? a. zoning restrictions b. rent per square foot c. amount of traffic d. types of other businesses in the building e. demographics of people in the area

15 The U.S. Post Service wants to build a new post office branch in the Ferry Street Bridge area of Eugene. Which factor would be most important in its decision about where to build? a. taxes b. labor cost c. land cost d. environmental impact e. labor availability

16 Due to a recently approved 10% sales tax on fast food, the state of Oregon has decided to create and add a new college to the state system of higher education. They must first decide where to locate the new college. Which factor would be most important? a. zoning restrictions b. environmental impact c. local tax incentive packages d. concentration of potential students


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