Strategic Capacity Planning and Facility Location

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Strategic Capacity Planning and Facility Location
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Strategic Capacity Planning

• What Size Should the Operations System Be?

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Capacity Problems

• Movie theaters
• Electrical energy-California

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Capacity

• Amount of resource inputs available relative to
  output requirements at a particular time
• Some measurements of capacity
• Output rate capacity
• Aggregate capacity
• Input rate capacity
• Percentage of capacity utilization
• Strategic capacity planning specifies the overall
  capacity level of resources that best supports
  the firms long range competitive strategy

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Capacity Planning

• Considerations in Changing Capacity
• Alternatives When Changing Capacity
• Determining Capacity Requirements

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Considerations inChanging Capacity

• Maintaining System Balance
• Frequency of Capacity Changes
• External Sources of Capacity
• Subcontractor networks
• Sharing capacity
• Supplier networks

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Expansion of Long-Term Capacity

• Subcontract
• Acquire capacity
• Develop new sites
• Expand current sites
• Reactivate standby facilities

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Reduction of Long-Term Capacity

• Sell off existing facilities
• Mothball facilities
• Develop and phase in new products/services

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Steps in theCapacity Planning Process

• Estimate the capacity of the present facilities
• Forecast the long-range future capacity needs
• Identify and analyze sources of capacity to meet
  these needs
• Select from among the alternative sources of
  capacity

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Forecasting Capacity Demand

• Long-range forecast of market demand
• Estimate the firms market share
• Multiply the forecasted market demand by the
  estimated market share
• Adjust for utilization and efficiency factors
• Translate firms demand into machine and labor
  capacity needs

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Importance of Capacity Decisions

• Impact the ability of the firm to meet future
  demands for products and services
• Affect operating costs
• Usually a major determinant of initial cost
• Involves long-term commitment of resources and
  difficult to modify
• Affect competitiveness

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Types of Capacity

• Design capacity
• maximum obtainable output
• Effective capacity
• Maximum capacity given product mix, scheduling
  difficulties, and other doses of reality.
• Actual output
• rate of output actually achieved--cannot exceed
  effective capacity.

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Efficiency and Utilization
Actual output Efficiency Effective
capacity Actual output Utilization
Design capacity
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Efficiency/Utilization Example

• Design capacity 50 trucks/day
• Effective capacity 40 trucks/day
• Actual output 36 units/day
• Actual output 36 units/day
• Efficiency 90
• Effective capacity 40
  units/ day
• Actual output
  36 units/day Utilization
  72
• Design capacity
  50 units/day

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Optimal Output Rate
Production units have an optimal rate of output
for minimal cost.
Average cost per unit
Minimum cost
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Rate of output
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Minimum cost optimal operating rate are
functions of size of production unit

Small facility
Average cost per unit
Medium facility
Large facility
0
Output rate
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Other Considerations

• Resource availability
• The experience curve
• Focus
• Flexibility
• Economies of scope
• Accuracy of the long-range forecast
• Capacity cushion
• Changes in competitive environment

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Decision Approaches

• Break-even Analysis
• Present-value Analysis
• Decision Tree Analysis
• Computer Simulation
• Waiting Line Analysis
• Linear Programming

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Planning Service Capacity

• Timing
• Services cannot be stored for later use
• Capacity must be available to produce a service
  at the time when it is needed
• Location
• For high contact services, capacity must be
  located near the customer
• Volatility of Demand
• Services cannot be stored
• Customers interact directly with the system and
  each may have different requirements
• Directly affected by consumer behavior

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Facility Location
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Some Reasons the Facility Location Decision
Arises (1 of 2)

• Changes in the market
• Expansion
• Contraction
• Geographic shift
• Changes in inputs
• Labor skills and/or costs
• Materials costs and/or availability
• Utility costs

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Reasons (2 of 2)

• Changes in the environment
• Regulations and laws
• Attitude of the community

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Characteristics of the Facility Location Decision

• Infrequent
• Expensive to implement
• Studied and evaluated extensively
• Determination of a site involves narrowing the
  scope of the area being considered
• Involves a long-term commitment

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Some Factors Affecting the Location Decision (1
of 2)

• Economic
• Site acquisition, preparation and construction
  costs
• Labor costs, skills and availability
• Utilities costs and availability
• Transportation costs
• Taxes

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Factors (2 of 2)

• Noneconomic
• Proximity to customers
• Labor attitudes and traditions
• Training and employment services
• Communitys attitude
• Schools and churches
• Recreation and cultural attractions
• Amount and type of housing available
• Political risk
• Location of other facilities

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Analyzing Service Location Decisions

• Consumer behavior research
• Market research
• Data gathering for each location alternative
• Revenue projection for each location alternative
• Profit projection for each location alternative

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Examples of Decision Approaches

• Break-even Analysis
• Rating Scale
• Relative-Aggregate-Scores
• Present-value Analysis
• Cost Minimization Models
• Center of gravity method
• Decision Tree Analysis
• Computer Simulation
• Linear Programming

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