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What is Capacity?
Maximum rate of output
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List some measures of capacity?
- Output: Rates for different products
- Inputs: Machine hours available, seating capacity, # beds.
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List the importance of Capacity Decisions?
- 1. Impacts ability to meet future demands
- 2. Affects operating costs (under/over capacity)
- 3. Major determinant of initial costs
- 4. Involved long-term commitment
- 5. Affects competitiveness (del speed/barrier to entry)
- 6. Affects ease of management (capacity =?demand)
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Examples of fluctuating demand?
- Time of day>>Movies, Bowling alleys
- Days of week>>Repairing, Painting, U-Haul
- Times of the month>>Financial Services, Paydays
- Seasons of the year>>Roofing, income tax
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Why is it easier to manage capacity and demand in manufacturing than services?
- 1. Processing time varies due to customer involvement
- 2. Intangible service Output (qualitative & subjective)
- 3. Time perishable capacity
- 4. Service can't be inventoried
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How do you manage capacity and demand?
- Capacity: What type? (money, time, equipment, human, etc)
- How Much?
- When needed?
- Demand: Forecast
- Supply: Availability
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Types of Capacity?
- Human
- -Number, Skills-Level and mix
- Facilities
- -Single/multiple, main/satellite
- Equipment
- -Computer system
- -Substitutions, modifications
- Tools
- -computerized notifications
- Money
- -credit card firms can carry limited receivables
- Time
- -Hrs/day, days/week service provided
- Alternative Sources
- -subcontract or lease resources
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Two Strategies for managing capacity?
- 1. Lead Strategy (flexibility)
- -Build in idle capacity
- -Expand in anticipation of increase in demand
- (Economics of small increases vs. a large increase FP&L)
- 2. Lag Strategy (price)
- -Expand only after capacity has fallen below demand
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Capacity increases in _____________?
Chunks or Increments
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Define and Measure Capacity?
- Design Capacity: maximum obtainable output
- Effective Capacity: Max 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 ratio?
Efficiency = Actual Output / Effective Capacity
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Utilization Ratio?
Utilization = Actual Outpu / Design Capacity
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Yield Management with Efficiency Utilization
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Developing Capacity Alternatives?
- Do nothing
- Design flexibility into systems
- Differentiate between new and mature products or services
- Take a big picture approach (motel rooms/parking)
- Prepare to deal with capacity chunks
- Smooth out capacity requirements
- Identify optimal operating levels
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