Sales and Operations Summary part 2
Load & Capacity
Learning objectives
Describe load & demand, and understand the relationship between both terms.
Define what is capacity and its different types.
Understand the differences between utilization and efficiency.
Recognize the need of demand management and how it can be done.
Understand the need for capacity management, and how to use it for service
processes.
Explain strategies to manage capacity according to load variations.
Describe strategies to expand capacity.
Demand
The willingness and ability to purchase a commodity or service
The quantity of a commodity or service wanted at a specified price and time
The requirement of work or of the expenditure of a resource
Load
The quantity that can be carried at one time by a specified means
Whatever is put in a ship or vehicle or airplane for conveyance (cargo)
A burdensome or laborious responsibility
What the customer demand, creates load for a company.
Capacity is the maximum possible output in a given time. Capacity is the amount of
goods a company can produce and/or services it can perform within a certain period of
time.
Design capacity
o The theoretical maximum capacity of an operation
o In general, design capacity cannot be exceeded
o Example: maximum number of tables and chairs in a classroom
Effective capacity
o The potential capacity that can be achieved in a typical day
o Includes preventive maintenance and product changeovers
o Example: maximum numbers of tables and chairs in a classroom with
walking space
Achieved capacity
o The operation achieved in a given day
o Includes unplanned events such as breakdowns and shortages
o Example: the number of tables and chairs currently being used
Utilization is the achieved capacity : design capacity
The proportion of design capacity that is actually achieved.
Efficiency is the achieved capacity : effective capacity
The proportion of effective capacity that is actually achieved.
, Sales and Operations Summary part 2
The 4 V’s
1. Volume:
How much of a specific product is required to satisfy a demand.
2. Variety:
Relates to the variety of goods and services to be produced and sold to the
customer. It is about diversity. High variety gives the company the flexibility to
produce goods/services to match the customer’s requirements. The higher the
variety, the lower the volume.
3. Variation:
Refers to how much the level of demand changes over a time period due to
external factors.
4. Visibility:
Refers to how much of the company’s process the customer actually experiences.
Service industries have high visibility while manufacturing industries do not.
If these are included, it could result in higher efficiency, faster cycle time and higher
overall productivity: adding value to the organization.
Capacity management strategies
Level capacity:
Only x amount of capacity is available
(hotel rooms)
Chase demand:
The decision here is to cope with the
customer demand varying capacity at a
given period depending on demand at
that period. You are “chasing” demand.
There are 2 types of strategies for expansion:
Capacity leading (expansionist)
This involves increasing the company’s capacity in anticipation of an increase in
demand for its products and services. This is an aggressive strategy that seeks to
either create new customers or take existing customers away from the
competition by having the capacity to immediately respond to the needs.
Capacity lagging (wait & see)
This is very conservative. It will only increase capacity when there is an actual
increase in demand for her company’s products and services. This helps to ensure
that a company obtains the best return on investment as possible by not creating
wasteful excess capacity. However, there is also the risk of not having not enough
products to meet the demand.
Load & Capacity
Learning objectives
Describe load & demand, and understand the relationship between both terms.
Define what is capacity and its different types.
Understand the differences between utilization and efficiency.
Recognize the need of demand management and how it can be done.
Understand the need for capacity management, and how to use it for service
processes.
Explain strategies to manage capacity according to load variations.
Describe strategies to expand capacity.
Demand
The willingness and ability to purchase a commodity or service
The quantity of a commodity or service wanted at a specified price and time
The requirement of work or of the expenditure of a resource
Load
The quantity that can be carried at one time by a specified means
Whatever is put in a ship or vehicle or airplane for conveyance (cargo)
A burdensome or laborious responsibility
What the customer demand, creates load for a company.
Capacity is the maximum possible output in a given time. Capacity is the amount of
goods a company can produce and/or services it can perform within a certain period of
time.
Design capacity
o The theoretical maximum capacity of an operation
o In general, design capacity cannot be exceeded
o Example: maximum number of tables and chairs in a classroom
Effective capacity
o The potential capacity that can be achieved in a typical day
o Includes preventive maintenance and product changeovers
o Example: maximum numbers of tables and chairs in a classroom with
walking space
Achieved capacity
o The operation achieved in a given day
o Includes unplanned events such as breakdowns and shortages
o Example: the number of tables and chairs currently being used
Utilization is the achieved capacity : design capacity
The proportion of design capacity that is actually achieved.
Efficiency is the achieved capacity : effective capacity
The proportion of effective capacity that is actually achieved.
, Sales and Operations Summary part 2
The 4 V’s
1. Volume:
How much of a specific product is required to satisfy a demand.
2. Variety:
Relates to the variety of goods and services to be produced and sold to the
customer. It is about diversity. High variety gives the company the flexibility to
produce goods/services to match the customer’s requirements. The higher the
variety, the lower the volume.
3. Variation:
Refers to how much the level of demand changes over a time period due to
external factors.
4. Visibility:
Refers to how much of the company’s process the customer actually experiences.
Service industries have high visibility while manufacturing industries do not.
If these are included, it could result in higher efficiency, faster cycle time and higher
overall productivity: adding value to the organization.
Capacity management strategies
Level capacity:
Only x amount of capacity is available
(hotel rooms)
Chase demand:
The decision here is to cope with the
customer demand varying capacity at a
given period depending on demand at
that period. You are “chasing” demand.
There are 2 types of strategies for expansion:
Capacity leading (expansionist)
This involves increasing the company’s capacity in anticipation of an increase in
demand for its products and services. This is an aggressive strategy that seeks to
either create new customers or take existing customers away from the
competition by having the capacity to immediately respond to the needs.
Capacity lagging (wait & see)
This is very conservative. It will only increase capacity when there is an actual
increase in demand for her company’s products and services. This helps to ensure
that a company obtains the best return on investment as possible by not creating
wasteful excess capacity. However, there is also the risk of not having not enough
products to meet the demand.
