TASK ANALYSIS

I. The Challenges of Planning Service Capacity

It is important to note that capacity planning for services can present special challenges
due to the nature of services.
Three very important factors in planning service capacity are:
1.) The need to be near the customer
Convenience for customer is often an important aspect of service. Generally,
service must be located near customers.

2.) The inability to store services

Capacity also must be matched with demand. Unlike goods, services cannot be
produced in one period and stored for use in a later period. Similarly, inventories of
goods allow customers to immediately satisfy wants, whereas a customer who wants
a service may have to wait. This can result in a variety negatives for an organization
that provides the service. Thus, speed of delivery, or customer waiting time,
becomes a major concern in service capacity planning.

3.) The degree of volatility of demand

Demand volatility presents problems for capacity planners. Demand volatility
tends to be higher for services than for goods, not only in timing of demand, but also
in the amount of time required to service individual customers.

II. Make or Buy Decision

Make-or-buy decision arise in business when a company must decide whether to
produce goods internally or to purchase them externally. This typically is an issue when a
company has the ability to manufacture material inputs required for its production operations
that are also available for purchase in the marketplace.
Example: A computer company may need to decide whether to manufacture circuit
boards internally or purchase them from a supplier.
When analyzing a make-or-buy business decision, look at several factors. The analysis
must examine thoroughly all of the costs related to manufacturing the product, as well as all the
costs related to purchasing the product. Such analysis must include quantitative and qualitative
factors. The analysis must also separate relevant costs from irrelevant costs. And must also
consider the availability of the product and the quality of the product.

 Quantitative and Qualitative Analysis

The make-or-buy decision involves both quantitative analysis and qualitative analysis.
You can calculate and compare quantitative considerations. Qualitative considerations require
subjective judgment and often need multiple opinions.
a.) Quantitative Factors
o The availability of production facilities, production capacity, and required
resources.
o Fixed and variable costs that can be determined with certainty or
estimated.
o Quantitative costs which includes the price of the product under
consideration as it is being priced by suppliers offering the product in the
marketplace for sale.
b.) Qualitative Factors
o The reputation and reliability of the suppliers.
o The long-term outlook regarding production or purchasing the product
and;
o The possibility of changing or altering the decision in the future and the
likelihood of changing or reversing the decision at a future date.

 Relevant and Irrelevant Costs

When making the make-or-buy decision, it is necessary to distinguish between relevant
and irrelevant costs. Relevant cost for making the product are all the costs that could be
avoided by not making the product as well as the opportunity cost incurred by using the
production facilities to make the product as opposed to the next best alternative usage of the
production facilities.
a.) Relevant Costs
o From the purchase of the product and all the costs associated with
buying it from the suppliers.
b.) Irrelevant Costs
o The costs that will be incurred regardless of whether the product is
manufactured internally or purchased externally.
III. Developing Capacity Alternatives
Things that can be done to enhance capacity management:
o Design flexibility into systems
The long-term nature of many capacity decisions and the risks inherent in
long-term forecasts suggest potential benefits from designing flexible
systems
o Take stage of life cycle into account
o Take a “big-picture” approach to capacity changes
When developing capacity alternatives, it is important to consider how
parts of the system interrelate
o Prepare to deal with capacity “chunks”
Capacity increases are often acquired in fairly large chunks rather than
smooth increments.
o Attempt to smooth capacity requirements
Unevenness in capacity requirements also can create certain problems.
o Identify the optimal operating level
Production units typically have an ideal or optimal level of operation in
terms of unit cost of output.
o Choose a strategy if expansion is involved