Classes 12 and 13 - Managing Capacity - Chapter 8

Classes 12 and 13 - Managing Capacity - Chapter 8 - BUS...

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Unformatted text preview: BUS 370: Chapter 8 Capacity Decisions Donavon Favre College of Management North Carolina State University Capacity Decisions Defining & measuring capacity Strategic versus tactical capacity Evaluating capacity alternatives Advanced perspectives Learning curves Waiting lines Measure of an organizations ability to provide goods or services Jiffy Lube ==> Oil changes per hr. Law firm ==> Billable hours College ==> Student hrs. per semester Defining & measuring capacity Consider: Capacity for a PC Assembly Plant: (800 units shift./line)*(% Good)*(No. of lines)*(No. of Shifts) 1 or 2 shifts? 2 or 3 lines? Employee training? Controllable Factors Uncontrollable Factors Supplier problems? 98% or 100% good? Strategic vs. Tactical Capacity Strategic: 1 or more years out Bricks & Mortar Future technologies ==> GSK, IBM in RTP Tactical: 1 year or sooner Workforce level, inventory, etc. ==> Overtime, Sub-Contracting Capacity Time Strategic Capacity Planning Bricks & mortar decisions High-level planning High risk Tactical Planning Workforce, inventory, subcontracting decisions Intermediate-level planning Moderate risk Planning & Control Limited ability to adjust capacity Detailed planning Lowest risk Days or weeks out Months out Years out Capacity Strategies: When, how much, & how ? Lead Strategy Lag Strategy Evaluating capacity alternatives Economies of scale (EOS) Break-even points (BEP) Expected value analysis (EVA) Economies of Scale Total Cost for Fictional Line: Fixed cost + (Variable unit cost)*(x) = $200,000 + $4(x) Cost per unit for X=1? X=100,000? $0 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 $35,000 $40,000 5 15 25 35 45 55 65 75 Number of shipments Shipping costs Common Contract Private Common Carrier Contract Carrier Leasing Fixed cost None $5000 $21,000 Variable cost $750 $300 $50 Total Cost Equation Table 8.3 Total cost of three capacity alternatives at different demand levels, Ellison Seafood Company Total cost equation 15 shipments (low demand) 40 shipments (medium demand) 75 shipments (high demand) Common Carrier: $0 + $750(X) $11,250 $30,000 $56,250 Contract Carrier: $5,000 + $300(X) $9,500 $17,000 $27,500 Leasing: $21,000 + $50(X) $21,750 $23,000 $24,750 Expected value analysis j EV = = I i i i C P 1 [8-2] Where: j EV = Expected value of Capacity Alternative j i P = Probability of demand level i i C = Financial result (cost, revenue, or profit) at demand level i Data requirements Capacity cost structure (alternatives?) Expected demand (multiple scenarios?) Product / service requirements (ex. - time standards) Expected Value Analysis...
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This note was uploaded on 04/21/2009 for the course BUS 370 taught by Professor Favre during the Spring '08 term at N.C. State.

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Classes 12 and 13 - Managing Capacity - Chapter 8 - BUS...

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