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    1. The document discusses different strategies for capacity planning including capacity leading demand, capacity lagging demand, capacity averaging, and large step expansion. 2. It explains how average unit cost decreases initially with increasing output but then increases after a certain output level due to diseconomies of scale. 3. The key advantage of capacity leading demand is avoiding lost sales, while the key disadvantage of capacity lagging demand is potential lost sales during periods of high demand.

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    1. The document discusses different strategies for capacity planning including capacity leading demand, capacity lagging demand, capacity averaging, and large step expansion. 2. It explains how average unit cost decreases initially with increasing output but then increases after a certain output level due to diseconomies of scale. 3. The key advantage of capacity leading demand is avoiding lost sales, while the key disadvantage of capacity lagging demand is potential lost sales during periods of high demand.

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    4 views9 pages

    Capacity Planning Part 2

    Uploaded by

    Ashutosh
    1. The document discusses different strategies for capacity planning including capacity leading demand, capacity lagging demand, capacity averaging, and large step expansion. 2. It explains how average unit cost decreases initially with increasing output but then increases after a certain output level due to diseconomies of scale. 3. The key advantage of capacity leading demand is avoiding lost sales, while the key disadvantage of capacity lagging demand is potential lost sales during periods of high demand.

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    of 9

    Operations Management

    ashutosh.p223a00023@greatlakes.edu.in
    FUQ29SCN6D
    Capacity Planning

    Dr Ravindra Ojha

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    P r o d u c t C o s t a n d Facility C a p a c i t y

    Cost per unit of output

    ashutosh.p223a00023@greatlakes.edu.in
    FUQ29SCN6D

    p1 p2 p3 Output rate

    Will the unit output cost reduce indefinitely


    with increasing output rate? If not, why?
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    P r o d u c t C o s t a n d Facility C a p a c i t y
    Average unit cost of output

    ashutosh.p223a00023@greatlakes.edu.in
    FUQ29SCN6D

    Economies of scale and Diseconomies of


    the learning curve scale start to work
    working

    Volume

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    S tr ategies for C a p a c i t y P l a n n i n g

    • Capacity leading demand

    • Capacity lagging demand

    • Capacity averaging
    ashutosh.p223a00023@greatlakes.edu.in
    FUQ29SCN6D

    • Large step expansion

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    Capacity Leading D e m a n d

    Capacity Expansion
    Capacity
    ashutosh.p223a00023@greatlakes.edu.in
    FUQ29SCN6D

    Demand Curve

    Time

    What is the key advantage of this strategy?


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    Capacity L a g g i n g D e m a n d

    Demand Curve
    Capacity
    ashutosh.p223a00023@greatlakes.edu.in
    FUQ29SCN6D

    Capacity Expansion

    Time

    What is the key disadvantage of this strategy?


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    Capacity Averaging

    Demand Curve
    Capacity
    ashutosh.p223a00023@greatlakes.edu.in
    FUQ29SCN6D

    Capacity Expansion

    Time

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    Multiple/Single L a r g e S t e p
    Single-step
    Capacity

    Capacity
    ashutosh.p223a00023@greatlakes.edu.in
    FUQ29SCN6D

    Demand Curve

    Time

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    Summary

    01 The four strategies in capacity planning are:


    • Capacity leading demand
    • Capacity lagging demand
    • Capacity averaging
    • Multiple/Single Large-step expansion
    ashutosh.p223a00023@greatlakes.edu.in
    FUQ29SCN6D

    02 The strategy is adopted based on the demand forecast and risk-


    taking ability.

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