Chapter 4 Supply Chain - Chapter 5- Manufacturing and...

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Chapter 5- Manufacturing and Service Process Choices 1. Capacity Planning a. The amount of output (Work) that a process can produce in a given time with the amount of inputs and resources (equipment, facility and capital) is its capacity. Ideally capacity should meet demand. b. Too much capacity means that resources are underutilized, so cost increase. i. Example Starbucks—too many opened in a small amount of time…. Eventually they had to close some c. Too little capacity customer demand will not be met. d. If one member of the supply chain doesn’t have enough capacity, the whole chain can be affected. 2. Economies and Diseconomies of Scale 1. Economies of Scale: As volume increases, unit cost decrease to an optimal level is reached 2. Reasons: a. Allocation of fixed cost i. Fixed cost don’t vary over a wide range of volumes, they can be spread over more units- reducing the cost per unit ii. Ex. Depreciation of equipment, taxes, insurance b. Equipment and construction cost i. Doesn’t increase proportionally with size ii. Oil tank in refinery doubles, cost increase 1.5 times c. Lower costs for purchases i. Higher volumes d. Learning Curves i. As the production volume doubles, the labor hour required decrease by a constant proportion ii. Higher in assembly, lower in automated processes 3. Diseconomies of Scale: occur when the cost per unit increase as an operation’s size increases. E. Time Frame for Capacity Changes 1. The decision of when to change capacity depends upon the size of the change and the type of resources affected. A. the number of surgeries done depend upon the number of able specialized physicians 2. Some resources can be changed faster than others. Time Frame (Time required for Changes Limiting Resources Types of Capacity Change Examples Short Term (0- 6mths) Low Skilled Labor Overtime, part time, temporary labor, layoffs Restaurant wait staff, bank tellers, production line workers Equipment, Space Rental, Leasing Landscaping equipment, temporary storage
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mths) Specialized Labor Hiring, firing contract labor Engineers, accountants, machine operators, physicians Equipment, Space Leasing, subcontracting, equipment installation and renovation Distribution/warehouse, fast- food restaurant rebuild, production line renovation Long Term (2+years) Physical Plant New building, outsourcing Automotive plant open or closure, new office building 3. Process Structures i. Managers must design process based on what kind of work needs to be done. ii. Different process structures provide different capabilities. Process structure determines how inputs, activities, flow and output of a process are organized. b. Product- Process Matrix 1. Categorizes processes into structures based on output volume and variety 2. To achieve high performance, a firms process must be aligned with its competitive priorities and mkt strategies Process Type Output Characteristics Example Process Characteristics Project Unique One of a Kind Custom Home
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Chapter 4 Supply Chain - Chapter 5- Manufacturing and...

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