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Chapter 9Strategic Capacity Planning Strategic Capacity Planning Defined Capacity Utilization Best Operating Level Economies Diseconomies of Scale The Experience Curve Capacity Focus, Flexibility Planning Determining Capacity Requirements Decision Trees Capacity Utilization Service Quality Strategic Capacity PlanningDefined Capacity can be defined as the ability to hold, receive, store, or accommodate. Strategic capacity planning is an approach for determining the overall capacity level of capital intensive resources, including facilities, equipment, and overall labor force size. Capacity Utilization Capacity used rate of output actually achieved Best operating level capacity for which the process was designed Best Operating Level Example of Capacity Utilization During one week of production, a plant produced 83 units of a product. Its historic highest or best utilization recorded was 120 units per week. What is this plant’s capacity utilization rate? Answer: Capacity utilization rate = Capacity used . Best operating level = 83/120 =0.69 or 69% Economies Diseconomies of Scale The Experience Curve Capacity Focus The concept of the focused factory holds that production facilities work best when they focus on a fairly limited set of production objectives.  Plants Within Plants (PWP) (from Skinner) Extend focus concept to operating level Capacity Flexibility Flexible plants Flexible processes Flexible workers Capacity Planning: Balance Maintaining System Balance Capacity Planning Frequency of Capacity Additions External Sources of Capacity Determining Capacity Requirements Forecast sales within each individual product line. Calculate equipment and labor requirements to meet the forecasts. Project equipment and labor availability over the planning horizon. Example of Capacity Requirements Example of Capacity Requirements: The Product from a Capacity Viewpoint Question: Are we really