Case study Fitness club part A

Capacity 6 Planning MBA 3-15; August – December, 2013 For discussions on 3-September, 2013 Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall. 6-1 Planning Capacity Capacity is the maximum rate of output of a process or system Accounting, finance, marketing, operations, purchasing, and human resources all need capacity information to make decisions Capacity planning is done in the long-term and the short-term Questions involve the amount of capacity cushion and expansion strategies 6-2 Capacity management Capacity planning (long-term)

Economies and discomposes of scale Capacity timing and sizing strategies Systematic approach to capacity decisions Constraint management (short-term) Theory of constraints Identification and management of bottlenecks Product mix decisions using bottlenecks Managing constraints in a line 6-3 Measures of Capacity Utilization Output measures of capacity Input measures of capacity Utilization Average output rate Utilization – x 100% Maximum capacity Capacity and Scale Economies of scale Spreading fixed costs Reducing construction costs Cutting costs of purchased materials Finding process advantages

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Discomposes of scale Complexity Loss of focus Inefficiencies 6-5 Average unit cost (dollars per patient) 250-bed hospital 500. Bed Economies of scale 750-bed Output rate (patients per week) Figure 6. 1 – Economies and Discomposes of Scale Capacity Timing and Sizing Sizing capacity cushions Capacity cushions are the amount of reserve capacity a process uses to handle sudden changes Capacity cushion = 100% – Average Utilization rate (%) Expansionist strategies Wait-and-see strategies Combination of strategies 6-7 Forecast of capacity required Planned unused capacity increment Time between increments Time (a) Expansionist strategy Figure 6. – Two Capacity Strategies 6-8 Planned use of (b) Wait-and-see strategy 6-9 Linking Capacity Capacity decisions should be linked to processes and supply chains throughout the organization Important issues are competitive priorities, quality, and process design 6-10 Systematic Approach 1 . Estimate future capacity requirements 2. Identify gaps by comparing requirements with available capacity 3. Develop alternative plans for reducing the gaps 4. Evaluate each alternative, both qualitatively and quantitatively, and make a final choice 6-11

Step 1 is to determine the capacity required to meet future demand using an appropriate planning horizon Output measures based on rates of production Input measures may be used when Product variety and process divergence is high The product or service mix is changing Productivity rates are expected to change 6-12 For one service or product processed at one operation with a one year time period, the capacity requirement, M, is Processing hours required for year’s demand requirement = Hours available from a single capacity unit (such as an employee or machine) per year, after deducting desired cushion (C/OHIO)] where D = demand forecast for the year (number of customers serviced or units of product) p = processing time (in hours per customer served or unit produced) N = total number of hours per year during which the process operates C = desired capacity cushion (expressed as a percent) 6-13 Setup times may be required if multiple products are produced requirement = Processing and setup hours required for year’s demand, summed over all services or products Hours available from a single capacity unit per year, after deducting desired cushion

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