MGMT250 Notes September 28, 2004
1. Initial Stuff
A. Schedule
1. Begin Strategic Capacity Analysis
2. H.W. Due next time.
3. Tour at Polar Bev. Nov. 9
2. Strategic Capacity Planning
Why are we concerned with these issues in operations?
This is long-term basic decisions that will drive the organization’s operations.
Capacity is how much “load” (in terms of time, volume, etc), that a process or system can handle.
Capacity Planning includes:
1. Type of capacity required (very dependent on process/product/or service) - e.g. take-out versus sit-
down restaurants will require different capacities. One is for atmosphere and quality, the other is
capacity to minimize waiting time.
2. How much capacity.
3. When is it needed. (long-term, short-term capacity planning).
When we get to aggregate planning we will discuss some shorter-term capacity planning models. Which
include people, equipment, inventory, etc.
A. Defining and Measuring Capacity (in more detail).
Three types of capacity have been identified by book:
1. Design Capacity - which is .....(ideal)
2. Effective Capacity - which is ...(real)
3. Actual Output - which is the actual output of a system.
These definitions are helpful in defining Efficiency and Utilization of Systems (which can also be
considered forms of productivity measures).
1. Efficiency = actual output/effective capacity
2. Utilization = actual output/design capacity.
Look at example problem to show you differences (which might be more meaningful?)
The issue to improving actual output is improving effective capacity.
Effective Capacity may be managed by:
1. Facility decisions - Layouts, size, expansion, location, all have implications for capacity.
2. Product/Service Factors - mix is important, similar repetitive services/products offer more effective
capacity.
3. Process Factors - what level of quantity/quality are you looking for and can provide.
4. Human Factors - learning, new workers, etc .
5. Operations factors, e.g. scheduling, coordination,
6. External factors.
Let us take a look at Tri-state Video
Developing Capacity Alternatives:
1. Take into consideration future capacity needs by building in flexibility. Golf Course Example.
2. Systems perspective, if you increase room capacity, how about parking? (also big picture …e.g. product
life cycle).
3. Capacity typically comes in discrete units.
4. Capacity needs (e.g. demand) may be volatile. Leveling capacity (complementary products for
seasonality).
5. Optimal costs may occur at different levels of capacity, make sure you know where optimal is.
Evaluating and Selecting Alternatives
a. Break Even Analysis
b. Financial (NPV – Cashflow Analysis)
c. Decision Theory (Covered Already)
