Notes for Chapter 5 _Strategic Capacity Planning_.doc - Notes for Strategic Capacity Planning.pdf

Notes for Chapter 5 _Strategic Capacity Planning_.doc - Notes for Strategic Capacity Planning.pdf

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HST400 – Hamid Faramarzi Page 1 of 5 Notes for Chapter 5 – Strategic Capacity Planning >> Capacity is the upper limit on the workload that an operating unit can handle. Capacity is also measured as maximum production rate. >> If a company has excess capacity, or can quickly add capacity, that fact may serve as a barrier to entry of other companies. ! Example: Potash Corp of Saskatchewan ! After expanding in the 1970s and 1980s, the company has been left with some idle potash-processing facilities. ! The Lanigan mill's old site, after expansion, has been kept idle, and can be brought into operation if needed (at some expense). This excess capacity is a deterrent against new competition. >> In selecting a measure of capacity, it is better to choose one that does not require updating. ! For example, dollar amounts are often a poor measure of capacity (e.g., a restaurant may have capacity of $1 million of sales a year) because price changes over time necessitate updating of that measure. >> There are two types of capacity: 1. Design capacity : the maximum output that can possibly be attained under ideal conditions. 2. Effective capacity : the maximum possible output that can be sustained given operating hours, product mix, scheduling difficulties and expected delays, and machine maintenance.
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