Learning Objectives
7-1: Explain why capacity planning is important and how capacity decisions are made.
The dilemma that all operations and supply chain managers face is that the demand for products and services is uncertain. There is always a gap between the capacity available in the system and the capacity that is required to meet demand. Managers have to plan for capacity in the short, medium, and long terms. Not only do they have to decide when capacity is needed but also the kind of capacity needed and how much of it. Appropriate capacity planning strategies and accurate capacity measurements such as capacity efficiency and capacity utilization are used to help make these decisions.
7-2: Evaluate the difficulties associated with capacity planning for services, and explain how they can be overcome.
Services are generally consumed at the time they are produced. As a result, it is not possible to inventory extra quantities of them to serve as a buffer when demand increases. The key capacity planning decisions for service organizations deal with workloads or the processing times needed to deliver the various types of services. Many service firms require less capital investment to satisfy the increased demand of their customers. These firms can often meet increases in demand by adding more staff, at least in the short run.
7-3: Describe the challenges of planning for capacity in supply chains, and explain what supply chain partners can do to improve their joint capacity planning.
Capacity planning is more challenging for a supply chain than it is for an individual company because there are more organizations and functions involved. Uncertainties for any individual firm have an effect that ripples throughout the entire supply chain. For firms that operate in global markets, the task is challenging. Among the steps firms can take to effectively plan for capacity within their chains are to (a) share information and integrate their business processes, (b) build trust and share power with one another, (c) balance outsourcing and capacity acquisitions, and (d) establish supply chain contracts that allow for risk sharing.
7-4: Predict the effect of sustainability and ethics on the future capacity decisions of firms and supply chains.
Capacity planning decisions and sustainability are closely related. Capacity decisions focus on the company’s acquisition of critical human, technological, financial, and organizational resources, as well as on their organization, deployment, and use to reduce operating costs and waste. Reducing waste improves the environment and reduces operating costs. Sustainability practices that focus on reducing resource usage and waste lead to more efficient use of existing capacity. Ethics, likewise, plays a critical role in implementing capacity planning decisions. Too many times firms assume that adding ethics or sustainability to their capacity calculations will increase costs or result in inefficient operations. In fact, the opposite is usually true. Firms increasingly are factoring sustainability and ethical business choices into their decisions regarding capacity planning and use of overseas suppliers and other contractors, as well as for developing their supply chains.
7-5: Identify the challenges in developing a global capacity planning strategy, including the opportunities and threats in the global arena.
Globalization of the supply chains, scarcity of supply, and uncertain demand dictate that global manufacturers align capacity with projected demand on a global basis. To compete globally, companies need to manage their capacity, which requires a consolidated global view of demand and supply. Unfortunately, the approaches used by most global manufacturers are unable to address this capacity challenge. This inability is often because the supply chains of these manufacturers are planned and managed by disparate regional systems, even though the supply chains are getting increasingly more complex. To combine these disparate plans into a coherent, broad strategy requires that companies also consider the broad variety of risks including supply risks, exchange rate risks, risks from foreign government policies, laws and regulations, labor availability and stability in foreign countries, as well as demand and transportation risk.