Respond classmates’ postings. Some ways could include alternate solutions or calculations, and/or by challenging classmates’ on scenarios of when it is best to “add” or when it is best to “reduce” capacity. Include examples.
1. The output from the capacity determination process allows product design to design to optimal global capacity levels. The output quantifies the range and expected values for financial performance such as Return on Assets (ROA) and Profit & Loss (P+L), which are driven by the demand variability caused by customer behavior over the product life cycle.
The product must be something customers will buy, which affects the producer’s capacity. Product groups require visibility to the performance of a product to determine capacity decisions that drive peaks, troughs, and flat demand levels.
Determining the process affects product design if several ways like how to get the most out of equipment, transmission of knowledge (old to new product), how to maximize productivity based on a specific process, and how to lower operating costs. Process selection is also linked determining to product design and capacity depending on the intended application of the product or service and what technologies are available to improve efficiencies, increase capacity, and optimize design. Additionally, does the process require complex Bill of Materials (BOM), special handling when shipping (i.e. hazardous materials), and the end users are all determinates of what process best fit what design and the impact on capacity planning.
Decisions are based on the key characteristics of the product. The product design establishes the brand, part costs and related components, R&D, capital, and quality based on the customer needs. Capacity is measured by market, customer, and operational objectives to ensure sufficient quantity and characteristics of people, facilities, and tools are in place to achieve the organizational objectives (Vonderembse & White, 2013).
Capacity is important for resource development and long-lead
time items. If products are not available or there is a shortage to
deliver products and services to a customer this could result in
negatively impacting product sales and customer loyalty, which
opens the door for competition. The process selection is
related to product design and capacity determination and should be
integrated in new product introduction planning.
Vonderembse, M.A. & White, G.P. (2013). Operations Management . San Diego, CA: Bridgepoint Education, Inc.
2. Process selection, capacity, and product design are all closely related and are convergent on the customer, therefore they all should be considered at the same time (Vonderembse & White, 2013). The product design affects the process selection to produce the product and vice versa. The capacity at which to produce a product also depends upon what the process selection is, in addition to customer demand.
The product design is important in that decisions made at this point will commitment a company’s time, resources, and process selection for the product. Product selection and product design affect each other in that both are determinative of the other’s outcome. For this reason, many manufacturing companies are incorporating concurrent engineering which brings process and design engineers together (Vonderembse & White, 2013). The purpose of concurrent engineering is summarized by the Synthesis Coalition (1998) as, “This strategy focuses on the optimization and distribution of a firm's resources in the design and development process to ensure an effective and efficient product development process” (para. 4). The desired result for the manufacturing company is avoidance of delays, prevention of product mistakes, and quicker delivery to the market.
Process selection is also determinative of the capacity at which to produce the product and the volume at which to keep in inventory. The capacity and amount of volume at which to keep in inventory depends upon the consumer demand and market for the product (Vonderembse & White, 2013). Companies are unlikely to expend unnecessary resources in order to meet a low demand, and would therefore chose a process selection that produces a product at the forecasted demand (Vonderembse & White, 2013).
Synthesis Coalition. (1998). Strategies: Concurrent engineering. University of Berkeley. Retrieved from: http://best.berkeley.edu/~pps/pps/concurrent.html
Vonderembse, M., & White, G. (2013). Operations management. San Diego, CA: Bridgepoint Education, Inc. Retrieved from:
What is the system capacity?
The system capacity is 175 units per hour because each unit must channel through all five steps before being counted as sellable inventory. Since the department with the smallest capacity is Step 2 (measure and place in plastic pouch), it determines the system capacity.
W hich is the bottleneck department?
The bottleneck department is Step 2 because as the units advance from Step 1 (prepare food) to Step 2, there are more units entering the department than are leaving.
How much slack (unused capacity) is available in other departments?
There are 25 units of unused capacity in Step 3 (prepare cardboard box) and in Step 5 (shrink-wrap box). This is caused by the bottleneck in Step 2. Step 4 (insert pouch into box) has 125 units of unused capacity.
How much system capacity can be gained by adding capacity to the bottleneck?
An additional capacity of 25 units can be added to the capacity of each station because each of the other departments can absorb this additional capacity, without causing a bottleneck. The addition 25 units of capacity will increase the system capacity to 200 units per hour.
What are the key factors that determine when to add capacity?
The three key factors that determine when to add capacity are complete and accurate measurement of system capacity, location and causation of loss of capacity in process, and market demand forecast. (Vonderembse & White, 2013, p. 245)
Why would an organization want to reduce its capacity?
One reason that an organization would want to reduce capacity is an excess of inventory. When a company’s warehouse nears or reaches its maximum capacity and that inventory is not in demand, then a company would reduce manufacture capacity until the excess inventory is depleted. For example, imagine that you manufacture landscaping equipment, like rakes and lawn mowers. In the winter, the demand for your products is low and you are not selling it. Therefore you now have a backlog of inventory sitting in your warehouse.
Vonderembse & White (2013) pointed out “Management could simply choose not to satisfy all of the demand” (Operations Management, p. 245). This decision may be due to the timing of forecast demand or the preparation time of the product or to a lack of interest in establishing or increasing market share.
Vonderembse, M. A., & White, G. P. (2013). Operations Management. San Diego: Bridgepoint Education, Inc
4.The Monique Food Processing Company’s production of light snacks is a product layout and orientated system based on the sequential steps that their materials follow to become the final product. The bottleneck determines the system capacity, and in this production, step 2 is where the bottleneck occurs because it produces less output than the previous step (Vonderembse & White, 2013). The system capacity at step 2 is 175 units per hour, and therefore the bottleneck is step 2.
Unused capacity is that which no return on investment is provided (Vonderembse & White, 2013). Since step 1 produces more than step 2, the difference is the unused capacity or slack. The same is true for step 4 which produces more capacity than step 5.
Based on the units per hour in each step, 25 units per hour system capacity can be gained by adding those units to the bottleneck, step 2. This would result in rounding out capacity because step 2 would come into balance with the other steps by adding the additional 25 units per hour (Vonderembse & White, 2013).
To begin, managers must have an accurate forecast of demand in order to set capacity to meet that demand (Vonderembse & White, 2013). Management must then consider if setting capacity to meet demand is in alignment with their company’s strategic objectives or goals. If so, then they will need to calculate when to begin construction of the new capacity capability by subtracting the lead time from this estimate (Vonderembse & White, 2013).
A company may chose to lower capacity if they believe this would ultimately provide financial or market benefits. For example, the airline industry may consider lowering capacity of available airline seats if the capacity exceeds their demand. According to (Mutzabaugh, 2014), “A change in that dynamic -- where capacity begins to increase faster than demand -- would be expected to crimp airlines' pricing power for fares. Such a development that – if prolonged – could begin to eat into the robust profits seen hear during the past year” (para. 5).
|Description||Capacity (Units/Hour)||Unused Capacity|
|1||Prepare food||200||Step 1 - Step 2 = 25|
|2||Measure and place in plastic pouch||175|
|3||Prepare cardboard box||200|
|4||Insert pouch into box||300||Step 4 - Step 5 = 100|
Mutzabaugh, B. (8 July, 2014). Time to worry about overcapacity in airline industry? USA Today. Retrieved from: http://www.usatoday.com/story/todayinthesky/2014/07/08/time-to-worry-about-overcapacity-in-airline-industry/12356767/
Vonderembse, M., & White, G. (2013). Operations management. San Diego, CA: Bridgepoint Education, Inc. Retrieved from: https://content.ashford.edu/books/AUBUS644.13.1
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