MGSC 395 TEST 2 Capacity Planning

Capacity Planning Capacity – Max rate of output of a process or system Long Term Capacity – relates primarily to strategic issues involving the firms major production facilities Short Term Capacity – concerns issues of scheduling, labor shifts, and balancing resource capacities the goal of short-term capacity planning is to handle unexpected shifts in demand in an efficient economic manner. Utilization – degree to which a resource such as equipment, workspace, or workforce is currently being used  Utilization = (Average Output Rate/Maximum Capacity) x 100 Resource Economies of Scale – average unit cost can be reduced by increasing its output rate  Spreading Fixed Costs – spread across more units  Reducing Construction Costs – doubling size of facility doesn’t double construction costs  Cutting Costs of purchased materials – higher volume cost  Finding Process Advantages – high volume production provides opportunity for cost reduction Diseconomies of Scale – average cost per unit increases as the facilities size increases  Complexities  Loss of Focus  Inefficiencies Capacity Cushion – amount of reserve capacity a process uses to handle sudden increases in demand or temporary losses of production capacity