Capacity Management

Capacity Management

• Is the activity of coping with mismatches between demand on an operation and it’s ability to supply

mismatches are due to fact that demand varies over time or capacity can fluctuate over time.  

capacity is not only the result of the VC configuration, but also of the SC configuration.  

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Operations Strategy

Definition

Operations strategy is the pattern of decisions and actions that shapes the long-term vision, objectives and capabilities of the operation and its contribution to the overall strategy of the business.

The Make or Buy Decision

Buy

Advantage of buying

• Firm can get competitive bids from suppliers To obtain lowest price.

• Firm can access another’s expertise.

Disadvantage of buying

• Transaction costs incurred Costs of searching for best supplier Costs of negotiating Costs of monitoring quality, delivery, etc. Legal costs (contracts), etc.

Advantage of making

• Transaction costs reduced No need to search, monitor, etc. No need for legal contracts

Disadvantage of making

• Firms can’t be experts at everything • Firms don’t want to get too big (lose focus on what customers’ value) • Can be expensive – not the scale economies specialists enjoy

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Vendor Selection

Parameters to consider

•                 •  Range of products/services provided  
•                 •  Quality of products/services provided  
•                 •  Responsiveness  
•                 •  Dependability of Supply  
•                 •  Delivery and Volume Flexibility  
•                 •  Total Cost of Being Supplied  
•                 •  Capacity  

..and for strategic ones:

• Potential for Innovation • Ease of doing business • Willingness to share risk • Long-Term commitment to supply • Ability to transfer Knowledge

Rule:

• Supplier A gets 75% of the business • Supplier B gets 25% of the business

Advantages:

•                 •  Obtain scale economies from supplier “A”  
•                 •  Obtain security by having supplier “B”  
•                 •  Tell supplier “A” that they can increase their share by outperforming supplier “B” in terms of quality or cost  

Why the need to reduce the supply base?

• 1.  To reduce costs.  
• 2.  To retain/ gain competitiveness.  

Firms understand that having fewer suppliers improves their competitive position by:

– Cutting their costs; and – Improving the product.

• Operational costs can be reduced – Fewer suppliers = less work to run on day-to-day basis

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