Discussion on Capacity Planning, Facility Location and Facility Layout
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Chapter91.pptxChapter 9
Chapter overview
This chapter defines capacity planning and location analysis, and explains the steps and factors that are considered when making these types of decisions.
The relationship between capacity planning and location analysis is described.
The use of decision support tools for capacity planning and location analysis is described.
objectives
Define capacity planning.
Explain the steps involved in capacity planning and location analysis.
Explain the usefulness of decision trees in decision making.
Identify key factors in location analysis.
Describe the decision-support tools used in location analysis.
Why is capacity planning important?
Having the wrong level of capacity causes negative effects.
Too much capacity means that the costs are higher than they should be since we are paying for more land, equipment, and a larger building.
Low capacity negatively affects the level of service provided to our customers.
Companies that are seeking new locations for warehouses – this is capacity planning.
Closer to the initial location means the same management team could be used. Far away from the initial location may mean drastic management style changes, but may mean less expenses for transportation to customers.
Design capacity vs. effective capacity
Design capacity is the maximum output that can be achieved using temporary measures, such as overtime and subcontracting.
Effective capacity is the maximum output that can be achieved under normal conditions, including realistic work schedules and regular staff levels.
Effective capacity is usually less than design capacity.
Effective capacity is what we can achieve over long periods of time, while design capacity can be reached on a short-term basis.
Capacity planning steps
The steps in capacity planning are to identify the capacity requirements for the present and future, develop capacity alternatives, and evaluate capacity alternatives.
The capacity alternatives are do nothing, expand large now, and expand small now with the option to increase capacity later.
We evaluate the capacity alternatives by determining the predicted impacts on costs, profit, and customer service.
are decision trees effective?
A decision tree is a tool for determining the predicted effect of decisions given the uncertainties of the outcomes related to each decision.
They help us make better decisions since they provide a structured, logical process for evaluating the expected outcome given the probabilities of different outcomes.
Overcapacity and undercapacity
Overcapacity typically occurs when a university builds a new business school building. This is because we would not want to construct the building to provide just enough offices for the current level of faculty. We would build extra offices to prepare for an increase in faculty in the future.
Undercapacity occurs at universities when they have to keep increasing the class sizes since they do not have either enough faculty or classrooms to support the current number of students.
location decisions
A poor location decision in the service industry affects the level of demand since customers usually go to the facility to be served. A facility that is not close to or part of a heavily populated area may not have a high level of demand.
There are limits to how far customers will travel to obtain various types of services. A poor location decision with respect to proximity to the source of labor could cause us to have difficulty staffing the facility.
It is good for restaurants to locate close to popular shopping areas, given the traffic volume and time spent by customers which could cause them to decide to eat there as well.
A wood furniture manufacturer has made a bad location decision if the plant was located far from the lumber suppliers since it is expensive to transport the lumber.
The five factors of location decisions
Transportation is the cost of moving items to and/or from the location.
Community attitude relates to the community’s support for the facility in terms of lowering expenses to encourage it to open there, and the level of desire to have the facility there.
Proximity to customers affects demand for services and transportation costs for manufacturers.
Proximity to labor affects the ability to find staff for the facility.
Proximity to sources of supply affects the transportation costs. Service and manufacturing firms may place different levels of importance on each of these factors.
Questions?
