KR: Chapter 8

1. KR: Chapter 8 Capacity

2. Chapter Outline • Introduction • Measures of capacity • Capacity unit • Peak capacity vs. effective capacity • Bottleneck • Economies of scale • Diseconomies of scale • Capacity strategies

3. Economies of Scale • Spreading Fixed Costs • Reducing Construction Costs • Cutting Costs of Purchased Materials • Finding Process Advantage

4. 250-bed hospital 750-bed hospital 500-bed hospital Average unit cost (dollars per patient) Economies of scale Diseconomies of scale Output rate (patients per week) Economies and Diseconomies of Scale Figure 8.2

5. Capacity Strategies Forecast of capacity required Planned unused capacity Capacity increment Capacity Time between increments Time (a) Expansionist strategy Figure 8.3

6. Capacity Strategies Forecast of capacity required Planned use of short-term options Capacity increment Capacity Time between increments Time (b) Wait-and-see strategy Figure 8.3

7. Expansionist Strategy • Concept • Large, infrequent jumps in capacity • Stays ahead of demand • Advantages • Lost sales unlikely • Economies of scale (construction and learning) • Preempt competition

8. Wait-and-See Strategy • Concept • Small, frequent jumps in capacity • Lags behind demand, relaying on short-term operations • Advantages • Minimizes risk • Greater flexibility

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