14 three approaches to capacity strategy policy

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Unformatted text preview: : Try not to run short. Here capacity must lead demand, so on average there will be excess capacity. Policy Policy B: Build to forecast. Capacity additions should be timed so that the firm has excess capacity half the time and is short half the time. Policy Policy C: Maximize capacity utilization. Capacity additions lag demand, so that average demand is never met. Determinants Determinants of Capacity Strategy Highly Highly competitive industries (commodities, large number of suppliers, limited functional difference in products, time sensitive customers) – here shortages are very costly. Use Type A Policy. Monopolistic Monopolistic environment where manufacturer has power over the industry: Use Type C Policy. (Intel, Lockheed/Martin). Products Products that obsolete quickly, such as computer products. Want type C policy, but in competitive industry, such as computers, you will be gone if you cannot meet customer demand. Need best of both worlds: Dell Computer. 15 Issues in Plant Location Size Size of the facility. Product Product lines. Process Process technology. Labor Labor requirements. Utilities Utilities requirements Environmental Environmental issues. International International considerations Tax Tax Incentives. 16...
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