Chapter 03 - Strategic Capacity Management
STRATEGIC CAPACITY MANAGEMENT
Review and Discussion Questions
What capacity problems were encountered when a new drug was introduced to the market??
The first two problems are the high capital cost of capacity and the opportunity cost of restricting
investments in other facilities.
These problems are exacerbated by uncertainty over patent
infringement, competitor’s response and that there is only a 45% probability of launching the product.
If the product is launched it is possible to lose sales because there is not sufficient capacity to meet
The estimates of demand varied by 600% and if actual sales are at the high end or
the low end of the estimates the project will be a financial disaster unless the correct capacity decision
List some practical limits to economies of scale; that is, when should a plant stop growing?
The obvious answer is that a plant should stop growing when its long-run average cost curve hits the
However, since this determination is often difficult to make (in the short run), other
factors such as coordination problems, excess capacity, capacity imbalance, and market shifts indicate
a need to consider setting capacity limits.
What are some capacity balance problems faced by the following organizations or facilities?
An airline terminal.
Waiting areas, distances from boarding gates, ground crew requirements, landing strips.
A university computing lab.
The number of computer workstations, the size of each workstation (room for student papers, etc.),
the mix of different computer types (Mac or PC), the number of printers, the capacity of the network
access, study space for students waiting.
A clothing manufacturer.
Many manufacturers now use highly decentralized shops to make clothes. This means that capacity
of multiple sites must be accounted for in planning production.
What are some major capacity considerations in a hospital?
How do they differ from those of a
Some capacity considerations are size and composition of nursing staff (RNs vs. LPNs), balance
between operating room and intensive care units, emergency rooms, etc., and, of course, how many
beds are to be available.
One of the differences in capacity considerations between a hospital and a
factory is that a hospital can add capacity rather quickly in the short run, through “simply” adding
more staff and more beds.
A factory is usually technologically limited, and, therefore, must plan well
in advance to add major chunks of capacity.
On the other hand, though, the general uncertainty
which surrounds the demand for hospital services on any given day is much greater than would be
faced by a factory.