Use either effective or design capacity in denominator

Example of Computing Capacity Utilization: A bakery’s design capacity is 30 custom cakes per day. Currently the bakery is producing 28 cakes per day. What is the bakery’s capacity utilization relative to both design and effective capacity?

Write the probability of each chance by the chance (sum of associated chances = 100%)

Write each alternative outcome in the right margin

Example Using Decision Trees: A restaurant owner has determined that she needs to expand her facility. The alternatives are to expand large now and risk smaller demand, or expand on a smaller scale now knowing that she might need to expand again in three years. Which alternative would be most attractive? (see notes)

A Load-Distance Model Example: Matrix Manufacturing is considering where to locate its warehouse in order to service its four Ohio stores located in Cleveland, Cincinnati, Columbus, Dayton. Two sites are being considered; Mansfield and Springfield, Ohio. Use the load-distance model to make the decision.

Remember the break even equations used for calculation total cost of each location and for calculating the breakeven quantity Q.

Total cost = F + cQ

Total revenue = pQ

Break-even is where Total Revenue = Total Cost

Q = F/(p-c)

Q = break-even quantity

p = price/unit

c = variable cost/unit

F = fixed cost

Example using Break-even Analysis: Clean-Clothes Cleaners is considering four possible sites for its new operation. They expect to clean 10,000 garments. The table and graph below are used for the analysis.

Decisions about capacity and location are highly dependent on forecasts of demand (Ch 8).

Capacity is also affected by operations strategy (Ch 2), as size of capacity is a key element of organizational structure.

Other operations decisions that are affected by capacity and location are issues of job design and labor skills (Ch 11), choice on the mix of labor and technology, as well as choices on technology and automation (Ch 3).

Capacity Planning and Facility Location Across the Organization

Capacity planning is deciding on the maximum output rate of a facility

Location analysis is deciding on the best location for a facility

Capacity planning and location analysis decision are often made simultaneously because the location of the facility is usually related to its capacity.

In both capacity planning and location analysis, managers must follow three-step process to make good decision. The steps are assessing needs, developing alternatives, and evaluating alternatives.

To choose between capacity planning alternatives managers may use decision trees, which are a modeling tool for evaluating independent decisions that must be made in sequence.

Key factors in location analysis included proximity to customers, transportation, source of labor, community attitude, and proximity to supplies. Service and manufacturing firms focus on different factors. Profit-making and nonprofit organizations also focus on different factors.

Several tools can be used to facilitate location analysis. Factor rating is a tool that helps managers evaluate qualitative factors. The load-distance model and center of gravity approach evaluate the location decision based on distance. Break-even analysis is used to evaluate location decisions based on cost values. The transportation method is an excellent tool for evaluating the cost impact of adding sites to the network of current facilities.

Chapter 9 Homework Hints

Problem 9.5: calculate utilizations based on design and effective capacities (see example 9.1). Present conclusions.

Problem 9.14: use factor rating method to compare the possible locations (see example 9.3).

Problem 9.15: use load-distance model to compare locations (see example 9.4).

Problem 9.16: use center-of-gravity method. Use data from problem 15 (e.g. load between city and warehouse) to determine desired coordinates for the new warehouse.