Description I need help completing a discussion board post for my Management course (Operation Mana ...
Description I need help completing a discussion board post for my Management course (Operation Management). Below are the exact requirements provided by my instructor: Description: In this module, you will learn about the mathematical properties of reliability and the nature of decision theory as it relates to the operation of an organization. While there is some math in this module, it is no more difficult than adding, subtracting, multiplying, and dividing. The results of those calculations provide powerful insight to the reliability of processes to deliver the best solution. Learning Outcomes: Evaluate the impact of product reliability on the decision-making process of operations management. Differentiate the environments under which operations decisions are made. Analyze the techniques that apply to decision making under uncertainty. Argue how capacity planning impacts customers’ satisfaction. --------------- The Discussion: ----------------------- Capacity Planning Discuss the importance of capacity planning in deciding the number of police officers on duty at any given time. How does capacity decisions influence productivity? Give an example. ------------------------------------------------------------ Assignment Requirements: Your well-written paper should meet the following requirements: Length: Your initial post should address all components of the question with 600-650 words limit. Formatting: Follow academic writing standards and APA style guidelines. Sources & Citations: Support your submission with course material concepts, principles, and theories from the textbook and at least Three (3) scholarly, peer-reviewed journal articles. Proper APA citation is required. Originality Check: You are strongly encouraged to check all assignments for originality using Turnitin before submission. Plagiarism Policy: Plagiarism is NOT tolerated. Plagiarism is strictly prohibited. Assignments with more than 15% similarity to existing work will receive a zero. Repeated offenses may lead to termination. Grading Rubric: Review the grading rubric to understand how your assignment will be evaluated. Course Alignment: Ensure your discussion incorporates textbook concepts, principles, and theories, aligning with class lectures and avoiding the use of advanced material not yet covered in the course. Discuss the concepts, principles, and theories from your textbook. Be sure to cite the textbook and use the lectures provided so that the analysis aligns with the material we've covered so far in the course. Required Readings: Chapters 5 & 5S Decision Theory in Operations Management Liao, S., & Liu, Z., (2022). Enterprise financial influencing factors and early warning based on decision model tree. Scientific Programming,2022, 1-8. https://csuglobal.idm.oclc.org/login?url=https://search.ebscohost.com/login.aspx?direct=true&db=aph&AN=154756761&site=eds-live Mu, Z., Li, J., Zhang, X., Zhang, G., Li, J., & Wei, H. (2024). Reliability Growth Method for Electromechanical Products Based on Organizational Reliability Capability Evaluation and Decision-Making. Mathematics, 12(23), 3754. https://doi.org/10.3390/math12233754 Recommended: Dai, D., Wu, X., Si, F., Feng, Z., & Chu, W. (2023). The impact of tariff policies on vaccine supply chains: short-term and evolutionary game behaviors based on uncertain utility. Applied Mathematical Modelling, 115, 754–777. https://doi.org/10.1016/j.apm.2022.11.017 Note: I’ve attached the slides for the relevant chapter, grading rubric, and the book (https://www.dropbox.com/scl/fi/10efj01b5l2avuyn4n8ih/Operations-management.-14th-ed.-.-McGraw-Hill-Stevenson-W.-J.-14-2021-Mcgraw-Hill-9781260238891.pdf?rlkey=uyb0ukyt4ryrugfn5swrv0kr8&st=vd59j2bj&dl=0). Instructor Expectations: Please ensure you dedicate your utmost effort and attention to detail when completing this task. The instructor places a strong emphasis on proper citation and substantive analysis that extends beyond simply answering the questions. Your work should demonstrate depth, originality, and critical thinking by introducing new insights and supporting arguments with thorough research. The instructor maintains high academic standards and expects students to consistently strive for excellence. Your assignment should reflect the following: Comprehensive Use of Sources: Incorporate textbook theories, concepts, and at least three (3) peer-reviewed journal articles to support your analysis. Proper APA citation is essential to demonstrate deep engagement with the material. Substantial Analysis: Move beyond surface-level responses by providing insightful, well-developed arguments. Offer unique perspectives and link theories to practical examples to enhance your discussion. Attention to Detail: Ensure your writing is clear, polished, and well-organized. Adhere to the required page count and APA formatting guidelines. This assignment is not just about fulfilling a requirement—it is an opportunity to showcase academic excellence. Additionally, your performance on this assignment will significantly influence my decision to collaborate with you on future coursework throughout my academic journey. UNFORMATTED ATTACHMENT PREVIEW 7/5/23, 11:31 AM Operations Management Name Discussion 25 Description 25 points Rubric Detail Levels of Achievement Criteria Exceeds Expectations Meets Expectation Some Expectations Unsatisfactory Quantity 5 to 6 points 3 to 4 points 1 to 2 points 0 to 0 points Initial post and two other posts of substance. Initial post and one other post of substance. Initial post only. Did not participate. 5 to 6 points 3 to 4 points 1 to 2 points 0 to 0 points Demonstrates excellent knowledge of concepts, skills, and theories relevant to the topic. Demonstrates knowledge of concepts, skills, and theories. Demonstrates satisfactory knowledge of concepts, skills, and theories. Did not participate. 5 to 6 points 3 to 4 points 1 to 2 points 0 to 0 points Discussion post(s) exceed expectations in terms of support provided and extend the discussion. Discussion post(s) meet expectations in terms of support provided. Statements are satisfactory in terms of support provided. Did not participate. 6 to 7 points 4 to 5 points 1 to 2 points 0 to 0 points Writing is well organized, clear, concise, and focused; no errors. Some significant but not major errors or omissions in writing organization, focus, and clarity. Numerous significant errors or omissions in writing organization, focus, and clarity. Did not participate. Content Support Writing View Associated Items https://lms.seu.edu.sa/webapps/rubric/do/course/manageRubrics?dispatch=view&context=course&rubricId=_77298_1&course_id=_39832_1 1/2 7/5/23, 11:31 AM Operations Management Print Close Window https://lms.seu.edu.sa/webapps/rubric/do/course/manageRubrics?dispatch=view&context=course&rubricId=_77298_1&course_id=_39832_1 2/2 Decision Theory Copyright ©2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior 5s-1 written consent of McGraw-Hill Education. You should be able to: LO 5s.1 LO 5s.2 LO 5s.3 LO 5s.4 LO 5s.5 LO 5s.6 LO 5s.7 Outline the steps in the decision process Name some causes of poor decisions Describe and use techniques that apply to decision making under uncertainty Describe and use the expected-value approach Construct a decision tree and use it to analyze a problem Compute the expected value of perfect information Conduct sensitivity analysis on a simple decision problem Copyright ©2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 5s-2 ? A general approach to decision making that is suitable to a wide range of operations management decisions ? Capacity planning ? Product and service design ? Equipment selection ? Location planning LO 5s.1 Copyright ©2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 5s-3 ? Characteristics of decisions that are suitable for using decision theory ? A set of possible future conditions that will have a bearing on the results of the decision ? A list of alternatives from which to choose ? A known payoff for each alternative under each possible future condition LO 5s.1 Copyright ©2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 5s-4 1. 2. 3. 4. 5. Identify the possible future states of nature Develop a list of possible alternatives Estimate the payoff for each alternative for each possible future state of nature If possible, estimate the likelihood of each possible future state of nature Evaluate alternatives according to some decision criterion and select the best alternative LO 5s.1 Copyright ©2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 5s-5 ? A table showing the expected payoffs for each alternative in every possible state of nature Possible Future Demand Alternatives Low Moderate High Small facility $10 $10 $10 Medium facility 7 12 12 Large Facility (4) 2 16 • A decision is being made concerning which size facility should be constructed • The present value (in millions) for each alternative under each state of nature is expressed in the body of the above payoff table LO 5s.1 Copyright ©2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 5s-6 ? Steps: 1. Identify the problem 2. Specify objectives and criteria for a solution 3. Develop suitable alternatives 4. Analyze and compare alternatives 5. Select the best alternative 6. Implement the solution 7. Monitor to see that the desired result is achieved LO 5s.1 Copyright ©2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 5s-7 ? Decisions occasionally turn out poorly due to unforeseeable circumstances; however, this is not the norm ? More frequently poor decisions are the result of a combination of ? Mistakes in the decision process ? Bounded rationality ? Suboptimization LO 5s.2 Copyright ©2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 5s-8 ? Errors in the Decision Process ? Failure to recognize the importance of each step ? Skipping a step ? Failure to complete a step before jumping to the next step ? Failure to admit mistakes ? Inability to make a decision LO 5s.2 Copyright ©2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 5s-9 ? Bounded rationality ? The limitations on decision making caused by costs, human abilities, time, technology, and availability of information ? Suboptimization ? The results of different departments each attempting to reach a solution that is optimum for that department LO 5s.2 Copyright ©2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 5s-10 ? There are three general environment categories: ? Certainty ? Environment in which relevant parameters have known values ? Risk ? Environment in which certain future events have probabilistic outcomes ? Uncertainty ? Environment in which it is impossible to assess the likelihood of various possible future events LO 5s.3 Copyright ©2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 5s-11 ? Sometimes we know the exact outcome or environment. Under those situations, making a decision is easy. For example, if Investment 1 gives a return of 3.4% and Investment 2 gives a return of 5.6%, then we know what to do. ? Uncertainty comes when there is a risk involved, for instance, Investment 1 could be the return on a CD which is guaranteed, but Investment 2 could be a mutual fund whose returned can’t be guaranteed. LO 5s.3 Copyright ©2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 5s-12 ? Decisions are sometimes made under complete uncertainty: No information is available on how likely the various states of nature are. ? Decision criteria: ? Maximin ? Choose the alternative with the best of the worst possible payoffs ? Maximax ? Choose the alternative with the best possible payoff ? Laplace ? Choose the alternative with the best average payoff ? Minimax regret ? Choose the alternative that has the least of the worst regrets LO 5s.3 Copyright ©2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 5s-13 Possible Future Demand Alternatives Low Moderate High Small Facility $10 $10 $10 Medium Facility 7 12 12 Large Facility (4) 2 16 •The worst payoff for each alternative is Small facility: $10 million Medium facility $7 million Large facility -$4 million •Choose to construct a small facility LO 5s.3 Copyright ©2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 5s-14 Possible Future Demand Alternatives Low Moderate High Small Facility $10 $10 $10 Medium Facility 7 12 12 Large Facility (4) 2 16 •The best payoff for each alternative is Small facility: $10 million Medium facility $12 million Large facility $16 million •Choose to construct a large facility LO 5s.3 Copyright ©2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 5s-15 Possible Future Demand Alternatives Low Moderate High Small Facility $10 $10 $10 Medium Facility 7 12 12 Large Facility (4) 2 16 •The average payoff for each alternative is Small facility: (10 + 10 + 10) ÷ 3 = $10 million Medium facility (7 + 12 + 12) ÷ 3 = $10.33 million Large facility (?4 + 2 + 16) ÷ 3 = $4.67 million •Choose to construct a medium facility LO 5s.3 Copyright ©2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 5s-16 Possible Future Demand Alternatives Low Moderate High Small Facility $10 $10 $10 Medium Facility 7 12 12 Large Facility (4) 2 16 •Construct a regret (or opportunity loss) table •The difference between a given payoff and the best payoff for a state of nature Regrets LO 5s.3 Alternatives Low Moderate High Small Facility $0 $2 $6 Medium Facility 3 0 4 Large Facility 14 10 0 Copyright ©2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 5s-17 Regrets Alternatives Low Moderate High Small Facility $0 $2 $6 Medium Facility 3 0 4 Large Facility 14 10 0 •Identify the worst regret for each alternative •Small facility $6 million •Medium facility $4 million •Large facility $14 million •Select the alternative with the minimum of the maximum regrets •Build a medium facility LO 5s.3 Copyright ©2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 5s-18 ? Decisions made under the condition that the probability of occurrence for each state of nature can be estimated ? A widely applied criterion is expected monetary value (EMV) ? EMV ? Determine the expected payoff of each alternative, and choose the alternative that has the best expected payoff ? This approach is most appropriate when the decision maker is neither risk averse nor risk seeking LO 5s.4 Copyright ©2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 5s-19 Possible Future Demand Alternatives Low (.30) Moderate (.50) High (.20) Small Facility $10 $10 $10 Medium Facility 7 12 12 Large Facility (4) 2 16 EMVsmall = .30(10) +.50(10) +.20(10) = 10 EMVmedium = .30(7) + .50(12) + .20(12) = 10.5 EMVlarge = .30(-4) + .50(2) + .20(16) = $3 Build a medium facility LO 5s.4 Copyright ©2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 5s-20 ? Decision tree ? A schematic representation of the available alternatives and their possible consequences ? Useful for analyzing sequential decisions LO 5s.5 Copyright ©2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 5s-21 ? Composed of ? Nodes ? Decisions – represented by square nodes ? Chance events – represented by circular nodes ? Branches ? Alternatives – branches leaving a square node ? Chance events – branches leaving a circular node ? Analyze from right to left ? For each decision, choose the alternative that will yield the greatest return ? If chance events follow a decision, choose the alternative that has the highest expected monetary value (or lowest expected cost) LO 5s.5 Copyright ©2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 5s-22 ? A manager must decide on the size of a video arcade to construct. The manager has narrowed the choices to two: large or small. Information has been collected on payoffs, and a decision tree has been constructed. Analyze the decision tree and determine which initial alternative (build small or build large) should be chosen in order to maximize expected monetary value. $40 $40 2 Overtime $50 $55 1 ($10) 2 $50 $70 LO 5s.5 Copyright ©2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 5s-23 $40 $40 2 Overtime $50 $55 1 ($10) 2 $50 $70 EVSmall = .4(40) + .6(55) = $49 EVLarge = .4(50) + .6(70) = $62 Build the large facility LO 5s.5 Copyright ©2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 5s-24 ? Expected value of perfect information (EVPI) ? The difference between the expected payoff with perfect information and the expected payoff under risk ? Two methods for calculating EVPI ? EVPI = expected payoff under certainty – expected payoff under risk ? EVPI = minimum expected regret LO 5s.6 Copyright ©2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 5s-25 Possible Future Demand Alternatives Low (.30) Moderate (.50) High (.20) Small Facility $10 $10 $10 Medium Facility 7 12 12 Large Facility (4) 2 16 EVwith perfect information = .30(10) + .50(12) + .20(16) = $12.2 EMV = $10.5 EVPI = EVwith perfect information – EMV = $12.2 – 10.5 = $1.7 You would be willing to spend up to $1.7 million to obtain perfect information LO 5s.6 Copyright ©2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 5s-26 Regrets Alternatives Low (.30) Moderate (.50) High (.20) Small Facility $0 $2 $6 Medium Facility 3 0 4 Large Facility 14 10 0 • Expected Opportunity Loss • EOLSmall = .30(0) + .50(2) + .20(6) = $2.2 • EOLMedium = .30(3) + .50(0) + .20(4) = $1.7 • EOLLarge = .30(14) + .50(10) + .20(0) = $9.2 • The minimum EOL is associated with the building the medium size facility. This is equal to the EVPI, $1.7 million. LO 5s.6 Copyright ©2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 5s-27 ? Sensitivity analysis ? Determining the range of probability for which an alternative has the best expected payoff ? The approach illustrated is useful when there are two states of nature ? It involves constructing a graph and then using algebra to determine a range of probabilities over which a given solution is best LO 5s.7 Copyright ©2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 5s-28 State of Nature Alternative #1 #2 Slope Equation A 4 12 12 – 4 = +8 4 + 8P(2) B 16 2 2 – 16 = ?14 16 – 14P(2) C 12 8 8 ? 12 = ?4 12 – 4P(2) LO 5s.7 Copyright ©2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 5s-29 16 ? 14P(2) = 12 ? 4P(2) Rearranging terms yields 4 = 10P(2) Solving yields P(2) = .40. Thus, alternative B is best from P(2) = 0 up to P(2) = .40. B and C are equivalent at P(2) = .40. Similar analysis can be used for alternative A and C 4 + 8P(2) = 12 ? 4P(2 ) Solving yields P(2) = .67. Thus, alternative C is best from P(2) > .40 up to P(2) = .67, where A and C are equivalent. For values of P(2) greater than .67 up to P(2) = 1.0, A is best. LO 5s.7 Copyright ©2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 5s-30 Strategic Capacity Planning for Products and Services Copyright ©2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 5-1 You should be able to: LO 5.1 Name the three key questions in capacity planning LO 5.2 Explain the importance of capacity planning LO 5.3 Describe ways of defining and measuring capacity LO 5.4 Name several determinants of effective capacity LO 5.5 Discuss factors to consider when deciding whether to perform in-house or outsource LO 5.6 Discuss the major considerations related to developing capacity alternatives LO 5.7 Describe the steps used to resolve constraint issues LO 5.8Copyright ©2021 McGraw-Hill Briefly describe approaches that are useful for Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. evaluating capacity alternatives 5-2 ? Capacity ? The upper limit or ceiling on the load that an operating unit can handle ? Capacity needs include ? Equipment ? Space ? Employee skills LO 5.1 Copyright ©2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 5-3 ? Goal ? To achieve a match between the long-term supply capabilities of an organization and the predicted level of long-term demand ? Overcapacity ? operating costs that are too high ? Undercapacity ? strained resources and possible loss of customers LO 5.1 Copyright ©2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 5-4 ? Key questions: ? What kind of capacity is needed? ? How much is needed to match demand? ? When is it needed? ? Related questions: ? How much will it cost? ? What are the potential benefits and risks? ? Are there sustainability issues? ? Should capacity be changed all at once, or through several smaller changes? ? Can the supply chain handle the necessary changes? LO 5.1 Copyright ©2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 5-5 ? Capacity decisions 1. Impact the ability of the organization to meet future demands 2. Affect operating costs 3. Are a major determinant of initial cost 4. Often involve long-term commitment of resources 5. Can affect competitiveness 6. Affect the ease of management 7. Have become more important and complex due to globalization 8. Need to be planned for in advance due to their consumption of financial and other resources LO 5.2 Copyright ©2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 5-6 ? Measure capacity in units that do not require updating ? Why is measuring capacity in dollars problematic? ? Two useful definitions of capacity ? Design capacity ? The maximum output rate or service capacity an operation, process, or facility is designed for ? Effective capacity ? Design capacity minus allowances such as personal time and maintenance LO 5.3 Copyright ©2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 5-7 Business Inputs Outputs Auto manufacturing Labor hours, machine hours Number of cars per shift Steel mill Furnace size Tons of steel per day Oil refinery Refinery size Number of acres, number of cows Gallons of fuel per day Bushels of grain per acre per year, gallons of milk per day Restaurant Number of tables, seating capacity Theater Number of seats Number of meals served per day Number of tickets sold per performance Retail sales Square feet of floor space Farming Revenue generated per day TABLE 5.1 Measures of capacity LO 5.3 Copyright ©2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 5-8 ? Actual output ? The rate of output actually achieved ? It cannot exceed effective capacity ? Efficiency actual output Efficiency = effective capacity ? Utilization actual output Utilizatio n = design capacity Measured as percentages LO 5.3 Copyright ©2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 5-9 ? Design Capacity = 50 trucks per day ? Effective Capacity = 40 trucks per day ? Actual Output = 36 trucks per day actual output 36 Efficiency = = = 90% effective capacity 40 actual output 36 Utilizatio n = = = 72% design capacity 50 LO 5.3 Copyright ©2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 5-10 ? Facilities ? Product and service factors ? Process factors ? Human factors ? Policy factors ? Operational factors ? Supply chain factors ? External factors LO 5.4 Copyright ©2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 5-11 TABLE 5.2 Factors that determine effective capacity LO 5.4 Copyright ©2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 5-12 ? Strategies are typically based on assumptions and predictions about: ? Long-term demand patterns ? Technological change ? Competitor behavior LO 5.4 Copyright ©2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 5-13 ? Leading ? Build capacity in anticipation of future demand increases ? Following ? Build capacity when demand exceeds current capacity ? Tracking ? Similar to the following strategy, but adds capacity in relatively small increments to keep pace with increasing demand LO 5.4 Copyright ©2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 5-14 ? Capacity cushion ? Extra capacity used to offset demand uncertainty ? Capacity cushion = 100% ? utilization ? Capacity cushion strategy ? Organizations that have greater demand uncertainty typically have greater capacity cushions ? Organizations that have standard products and services generally have smaller capacity cushions LO 5.4 Copyright ©2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 5-15 1. Estimate future capacity requirements 2. Evaluate existing capacity and facilities; identify gaps 3. Identify alternatives for meeting requirements 4. Conduct financial analyses 5. Assess key qualitative issues 6. Select the best alternative for the long term 7. Implement alternative chosen 8. Monitor results LO 5.4 Copyright ©2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 5-16 ? Long-term considerations relate to overall level of capacity requirements ? Require forecasting demand over a time horizon and converting those needs into capacity requirements ? Short-term considerations relate to probable variations in capacity requirements ? Less concerned with cycles and trends than with seasonal variations and other variations from average LO 5.4 Copyright ©2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 5-17 ? Calculating processing requirements requires reasonably accurate demand forecasts, standard processing times, and available work time k ?pD N R = i =1 i i T where N R = number of required machines pi = standard processing time for product i Di = demand for product i during the planning horizon T = processing time available during the planning horizon LO 5.4 Copyright ©2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 5-18 ? Service capacity planning can present a number of challenges related to: ? The need to be near customers ? Convenience ? The inability to store services ? Cannot store services for consumption later ? The degree of demand volatility ? Volume and timing of demand ? Time required to service individual customers LO 5.4 Copyright ©2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 5-19 ? Strategies used to offset capacity limitations and that are intended to achieve a closer match between supply and demand ? Pricing ? Promotions ? Discounts ? Other tactics to shift demand from peak periods into slow periods LO 5.4 Copyright ©2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 5-20 ? Once capacity requirements are determined, the organization must decide whether to produce a good or service itself or outsource ? Factors to consider: ? Available capacity ? Expertise ? Quality considerations ? The nature of demand ? Cost ? Risks LO 5.5 Copyright ©2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 5-21 ? Things that can be done to enhance capacity management: ? Design flexibility into systems ? Take stage of life cycle into account ? Take a “big-picture” approach to capacity changes ? Prepare to deal with capacity “chunks” ? Attempt to smooth capacity requirements ? Identify the optimal operating level ? Choose a strategy if expansion is involved LO 5.6 Copyright ©2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 5-22 ? An operation in a sequence of operations whose capacity is lower than that of the other operations LO 5.6 Copyright ©2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 5-23 Average cost per unit Minimum cost Optimal Output rate LO 5.6 Rate of output Copyright ©2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 5-24 ? Economies of scale ? If output rate is less than the optimal level, increasing the output rate results in decreasing average per unit costs ? Diseconomies of scale ? If the output rate is more than the optimal level, increasing the output rate results in increasing average costs per unit LO 5.6 Copyright ©2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 5-25 ? Economies of scale ? If output rate is less than the optimal level, increasing the output rate results in decreasing average per unit costs ? Reasons for economies of scale: ? Fixed costs are spread over a larger number of units ? Construction costs increase at a decreasing rate as facility size increases ? Processing costs decrease due to standardization LO 5.6 Copyright ©2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 5-26 ? Diseconomies of scale ? If the output rate is more than the optimal level, increasing the outpu
