KR: Chapter 8

Capacity

Chapter OutlineIntroductionMeasures of capacity

Capacity unitPeak capacity vs. effective capacityBottleneckEconomies of scaleDiseconomies of scaleCapacity strategies

Economies of ScaleSpreading Fixed CostsReducing Construction CostsCutting Costs of Purchased MaterialsFinding Process Advantage

Economies and Economies and Diseconomies of ScaleDiseconomies of Scale

Av

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it c

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rs p

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Output rate (patients per week)

250-bed hospital

750-bed hospital 500-bed

hospital

Diseconomies of scale

Economies of scale

Figure 8.2

Capacity Capacity StrategiesStrategies

Time between increments

Capacity increment

Planned unused capacity

Time

(a) Expansionist strategy

Forecast of capacity required

Ca

pac

ity

Figure 8.3

Capacity Capacity StrategiesStrategies

Time between increments

Capacity increment

Time

Forecast of capacity required

Ca

pac

ity

Planned use of short-term options

(b) Wait-and-see strategy

Figure 8.3

Expansionist StrategyConcept

Large, infrequent jumps in capacityStays ahead of demand

AdvantagesLost sales unlikelyEconomies of scale (construction and learning)Preempt competition

Wait-and-See StrategyConcept

Small, frequent jumps in capacityLags behind demand, relaying on short-term operations

AdvantagesMinimizes riskGreater flexibility

Linking Capacity and Other Decisions• Competitive Priorities• Quality Management• Capital Intensity• Resource Flexibility• Inventory• Scheduling