Chapter Six Notes

Chapter Six Notes - Chapter Six Notes Capacity: maximum...

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Chapter Six Notes Capacity : maximum rate of output of a process or system Managers are responsible for ensuring that a firm has capacity to meet current/future demand or the organization will miss opportunities for growth and profit. Increasing and decreasing capacity are important business decisions that require extensive planning and often times, significant expenditure of resources and time. Capacity decisions must be made in light of several long-term issues such as firm's economies and diseconomies of scale, capacity cushions, timing and sizing strategies and trade-offs between customer service and capacity utilization. Capacity decisions affect almost every functional department of a firm : - Accounting needs to provide cost info to evaluate the capacity expansion decisions - Finance performs financial analysis of proposed capacity expansion investments and raises funds to support them - Marketing provides the demand forecasts needed to identify capacity gaps - Management Information Systems designs electronic infrastructure needed to make data such as cost info, financial performance measures, demand forecasts, and work standards available to those needing it to analyze capacity options - Operations selects the capacity strategies that can be implemented to effectively meet future demand - Purchasing facilitates acquisition of outside capacity from suppliers - HR focuses on hiring/training employees needed to support internal capacity plans Long-term capacity plans deal with investments in new facilities and equipment at the organizational level, and require top management participation and approval because they are not easily reversed. These plans are at least two years into the future, but construction lead times can sometimes be longer and result in longer planning time horizons. This long-term planning is central to the success of an organization. Consider the following questions when determining capacity strategy : - How much of a cushion is needed to handle variable, or uncertain, demand? - Should we expand capacity ahead of demand, or wait until demand is more certain? - Be able to measure a process' capacity before asking either of those questions Capacity can be expressed in two ways: output measures or input measures Output Measures of Capacity : best utilized when applied to individual processes within the firm, or when the firm provides a relatively small number of standardized services and products. High volume processes, such as those in a car manufacturing plant, are a good example. Capacity is measured in terms of number of cars produced per day. As the amount of customization and variety in the product mix increases, output-based capacity becomes less useful. Input Measures of Capacity
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Chapter Six Notes - Chapter Six Notes Capacity: maximum...

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