Presentation Transcript

1. Operations Management Strategy

   Capacity Strategy
2. Outlines Introduction What is capacity strategy? The overall level of operations capacity The number and size of sites Capacity change Location of capacity
3. Introduction NUMBER OF SITES LOCATION OF EACH SITE CAPACITY OF EACH SITE LONG-TERM CAPACITY CHANGE STRATEGY ALLOCATION OF TASKS TO EACH SITE
4. Many small sites? NUMBER OF SITES and CAPACITY OF SITES Few larger sites? Supply side dominated? LOCATION OF SITES Demand side dominated? ALLOCATION OF TASKS TO SITES Capacity leads demand? LONG-TERM CAPACITY CHANGE STRATEGY All sites make all products/services? Capacity lags demand? Each site focuses on a few products/ services? Introduction Questions Options
5. Introduction Capacity Strategy Managing Capacity Change Configuring Capacity Overall Level of Capacity Location of Capacity Timing of Change Magnitude of Change Location of changed capacity Type of Capacity Issues in capacity strategy
6. Introduction NUMBER OF SITES Costs Revenues Cash requirements Service levels LOCATION OF EACH SITE CAPACITY OF EACH SITE What performance measures will all these decisions have a major impact on? LONG-TERM CAPACITY CHANGE STRATEGY ALLOCATION OF TASKS TO SITES
7. What is capacity strategy? The potential level of productive activity The maximum level of value-added activity over a period of time that the operation can achieve under normal conditions Not as the same as outputs Three levels of capacity decision
8. What is capacity strategy?
9. The overall level of operations capacity Resource Usage Issues include: Quality Capacity levels Number of sites Size of sites Location Speed Performance objectives Dependability Market Competitiveness Flexibility Cost Development and Organization Capacity (configuration) Process Technology Supply Networks Decision areas Issues covered in this chapter
10. The overall level of operations capacity Factors influencing the overall level of capacity Forecast level of demand Availability of capital Changes in future demand Cost structure of capacity increment Market Requirements Operations Resources Overall level of capacity Uncertainty of future demand Economies of scale Flexibility of capacity provisions Consequences of over/under- supply
11. The overall level of operations capacity -- Forecasting Forecasting based is a starting point not a good decision Industry trend is more important than a specific number (color or B/W on mobile phone) Related to the way doing business Using IT in call center requires less operators than without IT but is not suitable in cheap labor cost area
12. Capacity planning with certain forecasts and capacity introduction Planned capacity Output Forecast demand Time Capacity increment 1 Capacity increment 2 Capacity increment 3 Capacity increment 4
13. The overall level of operations capacity – Economies of Scale IKEA, Carrefour, Walmart Large capacity leads to low transaction costs Substantial discounts from suppliers Attracting more customers
14. The overall level of operations capacity – Uncertainty of future demand Leads to financial consequences if under demand occurs Shortage of capacity after introducing new product could results in enterprise’s crisis– case on HTC Butterfly and One Sometimes under-supplying a market may increase the value of product under lack of competitors
15. The overall level of operations capacity – Changes in demand To meet long term or short term peak Long-term demand lower than short-term demand Capacity ?
16. The overall level of operations capacity – Changes in demand Short-term demand lower than long-term demand Capacity ?
17. The overall level of operations capacity – The availability of capital Can you afford it? ASRS as an example, 2/3 of company’s capital id focused on ASRS  the company would be XXX if it fails TFT-LCD example University dormitory BOT in NTU and NCKU What is your strategy?
18. The overall level of operations capacity – The cost structure of capacity increments Relationship between volume and profit Additional capacity means higher cost indicating “moving enterprise from profit to loss”  next figure Gap between capacity could lead to big jump on capacity costs
19. The overall level of operations capacity – The cost structure of capacity increments 12 10 8 Cost Costs/Revenue ($) 6 4 Revenue 2 0 2 4 6 8 10 12 0 Volume in thousands of units Forecast demand = 9,000 units
20. The overall level of operations capacity – The economies of scale TC=FC+VC*Q TC/Q=FC/Q+VC More units produced indicating costs on overtime, insurance and utility cost are increased Increase chance of machine breakdown Accelerate the deterioration on equipment
21. The overall level of operations capacity – The economies of scale Cy= K* yk Cy: Cost of providing capacity y K: scale factor k: indicate the degree of economies of scale for technology involved, 0.5<k<1.0
22. The overall level of operations capacity – The economies of scale (a) 8 6 Unit cost (total cost/volume) Nominal capacity limit 4 2 0 0 1 2 4 5 6 3 Volume in thousands of units
23. The overall level of operations capacity – The economies of scale (b) 8 6 Unit cost (total cost/volume) Diseconomies of scale kick in 4 2 0 0 1 2 4 5 6 3 Volume in thousands of units
24. The overall level of operations capacity – Flexibility of capacity provision Build a facility for later expansion Maybe different in cash flow Forecasting the demand is not an easy task Making capacity flexible is also not easy Continuous expansion may lose customers’ values
25. Expanding physical capacity in advance of effective capacity can bring greater returns in the longer term Physical capacity of facilities Demand Volume Effective Capacity Time
26. Expanding physical capacity in advance of effective capacity can bring greater returns in the longer term (Continued) Cash flow with extended physical capacity Cash flow with two identical capacity increments Cumulative cash flow Time
27. The number and size of sites Economies of scale Required service level Size and number of sites MARKET REQUIREMENTS OPERATIONS RESOURCES Geographical distribution of demand Supply costs
28. The number and size of sites Many small sites vs few large sites Depends on if demand are widely spread Supermarket example, 家樂福 vs 全聯 Supply chain management issue Local service vs national brand
29. The number and size of sites – Distribution operation example A company stores and distributes books to bookstore Three distribution centers, UK, France, and Germany Minimizing cost vs higher service level Two options Simulations What‘s value on service level?
30. The number and size of sites – Distribution operation example
31. Capacity changes Lead time and economies of scale(EOS) Capacity change need lead to be implemented Not all capacity changes can be responded due to EOS Not EOS indicating higher risk
32. Capacity changes – Timing of change Lead-time of capacity change Forecast level of demand Ability to cope with change Competitor activity Overall level of capacity MARKET REQUIREMENTS OPERATIONS RESOURCES Uncertainty of future demand Economies of scale Required level of service
33. Capacity changes – Generic timing strategies Capacity leads demand Capacity lags demand Smoothing with inventories
34. The three options ….. Demand Capacity Leading Strategy Capacity Volume Time Time Demand Capacity Lagging Strategy Capacity Volume Time Demand Capacity Smoothing Strategy Capacity Volume Time
35. Capacity changes – Generic timing strategies  Capacity-leading strategy Advantages: Always sufficient capacity to meet demand Revenue is maximized Customers are satisfied Always has capacity cushion to absorb extra demand when forecasting is pessimistic No new startup plan
36. Capacity changes – Generic timing strategies  Capacity-leading strategy Disadvantages: Capital spending on plant early Utilization on plant is always high Risk of over-capacity if demand does not reach forecast levels
37. Capacity changes – Generic timing strategies  Capacity-lagging strategy Advantages: Always sufficient demand to keep plants working at full capacity Unit costs are minimized Over-capacity problem is minimized if forecasts are optimistic Capital spend on plants is delayed
38. Capacity changes – Generic timing strategies  Capacity-lagging strategy Disadvantages: In sufficient capacity to meet demand fully Reduced revenue and dissatisfied customers No ability to exploit short term increases Under-supply position even worse if there are start-up problems with new plants
39. Capacity changes – Generic timing strategies  Capacity-leading and Capacity-lagging strategy
40. Capacity changes – Generic timing strategies  Soothing-with-inventory strategy Advantages: All demand is satisfied Customers are satisfied Revenues are maximized Utilization on plant is high Cost is low Short term surges is demand can be met from inventory
41. Capacity changes – Generic timing strategies Soothing-with-inventory strategy Disadvantages: Cost of inventory in terms of working capital is high Serious when company requires capital on expanding Risk on product deterioration
42. Capacity changes – Generic timing strategies Soothing-with-inventory strategy
43. Capacity plan using 800-unit plants Capacity plan using 400-unit plants Demand Capacity plans for meeting demand using either 800- or 400-unit capacity plants 2,400 2,000 1,600 Volume (Units/week) 1,200 800 400 Time
44. Capacity plan using 800-unit plants 2,400 Capacity plan using 400-unit plants 2,000 1,600 Volume (Units/week) 1,200 800 400 Time Smaller-scale capacity increments allow the capacity plan to be adjusted to accommodate changes in demand Forecast Demand Actual Demand
45. Rarely does each stage of a supply chain have perfectly balanced capacity, because of different optimum capacity increments Parts manufacture Assembly plant Warehouse Distribution Current capacity = 1,000 units Required new capacity = 1,800 units Current capacity = 1,100 units Required new capacity = 1,800 units Current capacity = 900 units Required new capacity = 1,800 units Current capacity = 1,010 units Required new capacity = 1,800 units 800 units 600 units Operating cost Operating cost Operating cost Operating cost Capacity increment Capacity increment Capacity increment Capacity increment
46. Some factors influencing the location of sites Resource costs Required service level Land and facilities investment Suitability of site Location of sites MARKET REQUIREMENTS OPERATIONS RESOURCES Image of location Resource availability Community factors
47. 15.55 France 14.33 Portugal 11.43 Turkey 11.43 Thailand 11.13 Morocco 10.82 Romania China 10.37 9.60 Myanmar The cost breakdown of shirts made in various countries and sold in France Labour Transport Fabric Supplies Custom duties 4 8 12 16 2 0 6 10 14 Cost in €uros Source: Slack, N., Chambers, S. and Johnston, R. (2007) Operations Management, 5th edn. Harlow: Financial Times Prentice Hall. Reproduced with permission from Pearson Education Ltd.