Unformatted text preview: : Try not to run short. Here capacity must lead
demand, so on average there will be excess capacity.
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 C: Maximize capacity utilization. Capacity
additions lag demand, so that average demand is never
Determinants of Capacity
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 environment where manufacturer has
power over the industry: Use Type C Policy. (Intel,
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 of the facility.
Tax Incentives. 16...
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