Module 11

Question #1. what is the goal of strategic capacity.

-Strategic capacity goal is to reach an optimal level where production capabilities meet demand,
capacity needs include equipment , space, and employee skills.

2. what do you mean by the following terms over capacity, under capacity, design capacity &
effective capacity .

- Overcapacity – Operating cost that are too high.

- Under capacity – strained resources and possible loss of customers.
- Design capacity – the maximum output rate or service capacity an operation, process or facility
is designed for. It is the maximum rate of output achieved under ideal or perfect conditions.
- Effective capacity – design capacity minus allowances such as personal time and maintenance.
This is always less than design capacity.

3. Can you name , define and give example of each of the 8 determinants of effective capacity?

Facilities – the design and size , including provision for any plan for expansion, is the key, locational
factors, such as transportation cost , distance to market , labor supply, energy sources and room for
expansion, are also important.

Ex. A shoe store chooses a large facility that would accommodate both adequate sales display and
inventory space.

Product and service factors – the more uniform the output is, greater can be standardization of
materials and process and greater can be utilization of capacity. But product mix should also be
considered too because different products have different rates of output.

Ex. A restraint that offers limited menu can prepare and serve meals at faster rate.

Process factors – the quantity capability of a process is an obvious determinant of capacity. If quality of
output does not meet standards, the rate of output will be slowed by the need for inspection and
rework activities.

Ex. The pulp and paper industries typically use chlorine for bleaching purposes. An abnormal situation
resulting in a chlorine leak calls for rapid corrective actions to contain leak and neutralize effects. Thus,
the rate of output will be slowed by the need to take actions.

Human Factors – the task that make up a job, the variety of activities involved, and the training, skills
and experience required to perform a job all have an impact on the potential and actual output, in
addition, employee motivation has very basic relationship to capacity , as do absenteeism and labor
turnover.
Ex. A company encourage staffs to stay motivated by regularly recognizing them for good work, giving
them some fruit baskets and healthy snacks. And providing them a napping station. Thus making them
feel that they should do their job well.

Policy factors – Management policy can affect capacity by allowing or not allowing capacity options such
as overtime or second or third shifts

Ex. Tired workers due to overworking are also likely to make more mistakes, be absent off work with
sickness and are often far less productive than their well-rested counterparts.

Operational Factors – Scheduling problems may occur when an organization has differences in
equipment capabilities among alternative pieces of equipment or difference in job requirements.
Inventory shocking decision, late deliveries, purchasing requirements, acceptability of purchased
materials and parts, and quality inspection and control procedures also can have an impact on effective
capacity.

Ex. At manufacturing site, space for raw materials must be adequate to supply production for given
period of time, on-time delivery could save up some space in storing for other deliveries thereby
increasing storage capacity.

Supply chain factors – these must be taken into account in capacity planning if substantial capacity
changes are involved.

External factors – Pollution standards on products and equipment often reduce effective capacity, as
does paperwork required by government regulatory agencies by engaging employees in non-productive
activities. A similar effects occurs when a union contract limits the number of hours and type of work
an employee may do.

4. Can you apply these learning on capacity in personal life?

-
Module 12

Question :

5. what do you mean by in house operation? What is outsourcing?

In-house operation - is an activity performed within business, using the company’s asset and
employees for example ; when a company does its own printing instead of sending it out to a printer.

Outsourcing – it involves hiring outside assistance, often through another business, to perform activities
intead of using internal assets or employees.

6. what are the 6 factors to consider when deciding whether to perform in-house or outsource and
explain each factors.

Available capacity – if an organization has the resources ( equipment, necessary skills,time) it often
makes sense to produce an item. On the other hand, outsourcing can increase capacity and flexibility.

Expertise – if a firm lacks the expertise to do a job satisfactorily, buying might be a reasonable
alternative.

Quality consideration – firms that specialize can usually offer higher quality than an organization can
attain itself, conversely, unique quality requirements or the desire to closely monitor quality may cause
an organization to perform a job itself.

The nature of demand – when demand for an item is high and steady, the organization is often better
off doing the work itself. However, wide fluctuations in demand or small orders are usually better
handled by specialist who are able to combine orders from multiple sources, which results in higher
volume and tend to offset individual buyer fluctuations.

Cost – Any cost savings achieved from buying or making must be weighed against the preceding factors

Risk – Buying goods or services may entail considerable risk. Loss of direct control over operations ,
knowledge sharing, and the possible need to disclose proprietary information are three risk.