KEY OUTLINE

1. Capacity Management in Operations
   1. Capacity Defined
   2. Strategic Capacity Planning Defined
      
      
2. Capacity Planning Concepts
   1. Best Operating Level Defined
   2. Capacity Utilization Rate Defined
   1. Economies and Diseconomies of Scale
   2. The Experience Curve
   3. Where Economies of Scale Meet the Experience Curve
   4. Capacity Focus
      1. Capacity Focus Defined
   5. Capacity Flexibility
      1. Economies of Scope Defined
         
         
3. Capacity Planning
   1. Considerations in Adding Capacity
   2. Determining Capacity Requirements
      1. Capacity Cushion Defined
   3. Using Decision Trees to Evaluate Capacity Alternatives
      
      
4. Planning Service Capacity
   1. Capacity Planning in Service Versus Manufacturing
   2. Capacity Utilization and Service Quality
      
      
5. Conclusion

Case: Shouldice Hospital—A Cut Above

Capacity is the ability to hold, receive, store, or accommodate. In a business sense, it is viewed as the amount of output that a system is capable of achieving over a specific period of time.

Strategic capacity planning has as its objective, to determine the overall capacity level of capital-intensive resources - facilities, equipment, and overall labor force size - that best supports the company's long-range competitive strategy.

Economies of scale are important to capacity decisions. This concept signifies that as production volumes increase, the average cost per unit decreases. The experience curve also plays a role in capacity planning. As plants produce more units, they gain experience in their production methods, which in turn, results in reducing the per unit costs of production in a predictable manner.

Capacity flexibility means having the ability to rapidly increase or decrease production levels or to shift production capacity quickly from one product or service to another. Such flexibility is achieved through flexible plants, processes, and workers, as well as through strategies that use the capacity of other operations.

Issues to be considered in adding capacity include maintaining system balance, frequency of capacity additions, and the use of external capacity. Capacity strategies can be proactive, neutral, and reactive. Reactive and neutral strategies are not responsive to anticipating future growth or building a facility for future demand. Capacity planning decisions are based on forecasts for product demand, labor requirements, and equipment requirements. Decisions include whether to add capacity, determining capacity requirements, and planning service capacity throughout the product life-cycle stages.