Capacity
Chapter 4
Production Capacity
It is highly imperative that management must formulate a strategic plan for operations before any production is carried out. This is basically important in avoiding possible hindrances and excess in capacity. Under capacity may force the firm to cancel production schedules or excess can be fatal due to a broadened fixed cost. Both really would be a financial burden to the firm.
Some procedural strategy can be adopted to minimize ill effects of capacity-related problems. Foremost should be a credible forecast of demand which will subsequently be the basis of ascertaining the capacity requirement. It is as well relevant to know the type of capacity required and the time when it is needed. To properly choose the most desirable capacity plan, alternatives must be made. These alternatives should be each evaluated on the basis of efficiency and technical capability.
Capacity planning is appropriate for their long-term or short-term requirement. But the firm should plan for long-term need and within this range short and medium-term plan is formulated.
The construction lead time for facilities varies. Bigger requirements such as for refineries, power plants, steel mills, and paper mills takes around 5 years to build.
There are three basic considerations in capacity planning: one is the level of capacity requirement, number two is the date wherein such capacity will be needed, and the third one is the appropriate location for the capacity.
Strategies for Facilities Due to the role played by the policy of the firm on facilities to competitiveness, capacity decisions should be made as part of the company’s operation strategy rather than consider it as an element of the capital budgeting decisions.
The basic components of an effective facilities strategy could be as follows:
1. Projection for demand
Projecting capacity demand is basically the function of product demand and this is the initial step
Production Capacity
It is highly imperative that management must formulate a strategic plan for operations before any production is carried out. This is basically important in avoiding possible hindrances and excess in capacity. Under capacity may force the firm to cancel production schedules or excess can be fatal due to a broadened fixed cost. Both really would be a financial burden to the firm.
Some procedural strategy can be adopted to minimize ill effects of capacity-related problems. Foremost should be a credible forecast of demand which will subsequently be the basis of ascertaining the capacity requirement. It is as well relevant to know the type of capacity required and the time when it is needed. To properly choose the most desirable capacity plan, alternatives must be made. These alternatives should be each evaluated on the basis of efficiency and technical capability.
Capacity planning is appropriate for their long-term or short-term requirement. But the firm should plan for long-term need and within this range short and medium-term plan is formulated.
The construction lead time for facilities varies. Bigger requirements such as for refineries, power plants, steel mills, and paper mills takes around 5 years to build.
There are three basic considerations in capacity planning: one is the level of capacity requirement, number two is the date wherein such capacity will be needed, and the third one is the appropriate location for the capacity.
Strategies for Facilities Due to the role played by the policy of the firm on facilities to competitiveness, capacity decisions should be made as part of the company’s operation strategy rather than consider it as an element of the capital budgeting decisions.
The basic components of an effective facilities strategy could be as follows:
1. Projection for demand
Projecting capacity demand is basically the function of product demand and this is the initial step