Category Archives: Facility Decisions: Location and Capacity

Capacity Planning

Capacity Planning The objective of capacity planning is to specify which level of capacity will meet market demands in a cost-efficient way. Capacity planning can be viewed in three time duration long range (greater than one year), intermediate range (the next 6 to 12 months). and short range (less than six months). Our focus in the chapter  long-range capacity planning where the firm makes its major investment


Reactive When a reactive strategy is adopted plant capacity is not added until all of the planned output from the facility can be sold. Thus with this strategy the plant is not brought on line until demand equals 100 percent of its capacity as shown in Exhibit 7.7C. Operating costs are minimized with this approach, as the plant is producing at its desired optimal output beginning with its first day of operation.


Neutral A neutral strategy for adding capacity simply takes a middle-of-the-road approach. As seen in Exhibit 7.7B, additional capacity becomes available when demand is about 50 percent of total capacity. The issue here a with reactive strategy i how best to satisfy demand before the plant is up and operating.


Proactive With a proactive strategy, management anticipates future growth and builds the facility so that it is up and running when the demand is there, as seen in Exhibit 7.7A With the strategy, opportunity costs resulting from lost sales due to an inability to meet demand are minimized, although the firm does have to allocate fixed costs over a relatively small volume of units during the plant’s initial

Capacity Strategies

Capacity Strategies For manufacturing firms, there are three major strategies for adding capacity: proactive, neutral, and reactive. Each has its strengths and weaknesses. Which strategy to adopt is dependent, to a large extent, on the operating characteristics of the facility and the overall strategy of the firm.

Capacity Balance

Capacity Balance In a perfectly balanced plant. the output of Stage 1 provides the exact input requirement for Stage 2, the output of Stage 2 provides the exact input requirement for Stage 3, and so on. In practice, however. achieving such a "perfect'' design is usually both impossible and undesirable. One reason i-, that the best operating levels for each stage generally differ. For instance, Department I may

Use of external capacity

Use of external capacity. Two common strategies for creating flexibility by using the capacity of other organizations are subcontracting and sharing capacity. An example of subcontracting is Japanese banks in California subcontracting check-clearing operations to the Wells Fargo Bank of California's check clearinghouse. An example of sharing capacity is two domestic airlines flying different routes with differ

Flexible workers

Flexible workers Flexible workers have multiple skills and the ability to switch easily from one kind of task to another. They require broader training than specialized worker and need managers and staff support to facilitate quick changes in their work assignments.

Flexible processes.

Flexible processes. Flexible processes are epitomized by flexible manufacturing systems on the one hand and simple, easy-to-set-up equipment on the other. Both of these technological approaches permit rapid low-cost switching from one product line to another. enabling what is sometimes referred to as economies of scope. (By definition, economies of scope exist when multiple products can be produced at a lower c

Flexible plants

Flexible plants Perhaps the ultimate in plant flexibility is the zero-changeover-time plant Using movable equipment, knockdown walls, and easily accessible and reroutable utilities such a plant can adapt to change in real time, An analogy to a familiar service business captures the flavor quite well-a plant with equipment "that is easy to install and easy to tear down and move-like the Ringling Bros .. Barnum a