Operations Strategy Capacity Strategy

Capacity Strategy Resource Usage Market Competitiveness 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

What is 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

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

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

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

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

Volume in thousands of units Forecast demand = 9000 units 2 4 6 8 10 12 Costs / Revenue ($) Volume in thousands of units Forecast demand = 9000 units Cost Revenue

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

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

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

Number & size of sites Questions Options Many small 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? 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?

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

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

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

The three options ….. Which option? Financials? Time Demand Capacity Volume Capacity Leading Strategy Capacity Lagging Strategy Capacity Smoothing Strategy Which option? Financials?

Balancing Capacity Change Balance? Costs?

Location of Capacity Why is location important? Zara Toyota

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