1Operations Management, 2e/Ch. 10 Capacity Management2007
Thomson South-WesternOperations Management, 2e/Ch. 10 Capacity
Management2007 Thomson South-WesternCapacity ManagementCHAPTER
10DAVID A. COLLIERANDJAMES R. EVANSOPERATIONS MANAGEMENTGoods,
Services and Value Chains2Operations Management, 2e/Ch. 10 Capacity
Management2007 Thomson South-WesternChapter 10 Learning
Objectives1. To understand the fundamental decisions that must be
made in both the short term and long term, how capacity inuences
economies and diseconomies of scale, and the impacts of capacity in
managing focused and unfocused facilities.!. To be able to identify
and use di"erent forms of capacity measurement useful to operations
managers, to understand the importance of safety capacity, and to
ma#e $uantitative calculations of capacity, and use capacity
measurements in operational planning decisions.%. To understand
approaches to ma#ing long&term capacity decisions and capacity
and e'pansion strategies.3Operations Management, 2e/Ch. 10 Capacity
Management2007 Thomson South-WesternChapter 10 Learning Objectives,
Cont.(. To understand how )rms deal with short&term imbalances
between demand and capacity, and to learn strategies for adjusting
capacity and inuencing demand to achieve better resource use and
e*ciency.+. To identify practical issues associated with revenue
management and be able to compute simple overboo#ing strategies.,.
To learn the principles and logic of the Theory of Constraints, and
better understand how demand, capacity, resource utili-ation, and
process structure are related.4Operations Management, 2e/Ch. 10
Capacity Management2007 Thomson South-WesternChapter 10 Capacity
.anagementUnderstanding CapacityCapacity is a measure of the
capability ofa manufacturing or service resource suchas a facility,
process, workstation, or pieceof equipment to accomplish its
purposeover a specifed time period.5Operations Management, 2e/Ch.
10 Capacity Management2007 Thomson South-WesternChapter 10 Capacity
.anagementUnderstanding CapacityThe resources available to the
organi-ation/facilities,e$uipment, and labor, how they are
organi-ed, andtheir e*ciency as determined by speci)c wor#methods
and procedures determine capacity.Capacity can be viewed in one of
two ways01. 1s the ma'imum rate of output per unit of time, or!. 1s
units of resource availability.6Operations Management, 2e/Ch. 10
Capacity Management2007 Thomson South-WesternTypical capacity
issues to address include02Can the facility, process, or e$uipment
accommodate new goods and services and adapt to changing demand for
e'isting goods and services324ow large should facility, process, or
e$uipment capacity be3
25hen should capacity changes ta#e place3Chapter 10 Capacity
.anagement7Operations Management, 2e/Ch. 10 Capacity Management2007
Thomson South-WesternExhibit 10.1!amp"es o# Short- an$ %ong-Term
Capacity &ecisions8Operations Management, 2e/Ch. 10 Capacity
Management2007 Thomson South-WesternChapter 10 Capacity
.anagementUnderstanding CapacityEconomies of scale are achieved
when the average unit cost of a good or service decreases as the
capacity and6or volume of throughput increases.Diseconomies of
scale occur when the average unit cost of the good or service
begins to increase as the capacity and6or volume of throughput
increases.9Operations Management, 2e/Ch. 10 Capacity Management2007
Thomson South-WesternExhibit 10.2'ir(us ')*0 conomies o#
Sca"e10Operations Management, 2e/Ch. 10 Capacity Management2007
Thomson South-WesternChapter 10 Capacity .anagementUnderstanding
CapacityFocused factory: a way to achieve economies of scale
without e'tensive investments in facilities and capacity by
focusing on a narrow range of goods or services, target mar#et
segments, and6or dedicated processes to ma'imi-e e*ciency and
e"ectiveness.Plant-within-a-plant: a strategy that divides a
facility into independent factories, each with its own core
competencies.11Operations Management, 2e/Ch. 10 Capacity
Management2007 Thomson South-WesternChapter 10 Capacity
.anagementCapacity MeasurementTheoretical capacity (sometimes
called design capacity): the ma'imum output per unit of time the
process can achieve for a short period of time under ideal
operating conditions.Eecti!e capacity: the actual output per unit
of time that the organi-ation can reasonably be e'pected to sustain
the long run under normal operating conditions.12Operations
Management, 2e/Ch. 10 Capacity Management2007 Thomson
South-WesternChapter 10 Capacity .anagementUnderstanding
Capacity"afety capacity: an amount of capacity reserved for
unanticipated events such as demand surges, materials shortages,
and e$uipment brea#downs.Average Safety Capacity % 7 1008 /1verage
9esource :tili-ation 8 ;
