Supply Chain Wednesday–Capacity

Today’s

Vocabulary

(1) Capacity: The amount that’s possible

Our capacity is 1000 units per month.

(2) Overhead: Fixed costs. The money you should pay even if you produce nothing.

When we added a third floor to our factory, overhead costs went up a lot.

(3) Lag: A delay

There’s a lag between when we find out about a problem and solve it.

Today’s

Questions

1. What should strategic capacity planning support?

a. Production

b. Long-term goals

c. The distribution center

2. When is it a good idea to use a lead strategy?

a. When you want to win in the market

b. When you want to be conservative

c. When you want to be aggressive

3. When is it a good idea to use a lag strategy?

a. When you want to win in the market

b. When you want to be conservative

c. When you want to be aggressive

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SUPPLY CHAIN WEDNESDAY

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factory By Jeremy Schaar

Strategic Capacity Planning

This concept is at the start of managing your factory. It’s about figuring out your goals and how much you can produce. Your different resources from money to space are limited. When designing your factory, and your business plan, you make the choices that support your long-term goals.

A big part of strategic capacity planning is determining how capacity will change over time.

Lead strategy means increasing production capacity before there is a great demand. In a very simple example, let’s say you have two workers. You might hire a third worker before you need him. The third worker will be great if demand does increase. If demand doesn’t increase, you can use the third worker to help the first two or on some other project.

Lag strategy is the opposite idea. Here, you would only hire the third worker when the first two workers are working overtime. That is, you hire him when you need him for sure. You definitely won’t waste money on a worker you don’t need, but you might also be slower than you want to be.

Match strategy means adding capacity when you know that there will be an increase in demand. You can think of it as between lead and lag strategy.

Strategic capacity planning is about choosing the best strategy. There are risks and rewards with all three strategies.

Imagine a company that makes housing supplies in California. The economy has been bad, but recently it is improving. Still, they remember that many of their competitors failed five years ago because their overhead was very large. When demand fell, their capacity was too big to maintain. This company survived because they had a lag strategy, but now they’re considering a lead strategy. What do you think? Is it a good idea?

How about your business? Which strategy is best for you?

Got questions or comments? How about practicing some new vocabulary and posting your thoughts on the blog, Facebook, or Twitter?

CHECK YOUR ANSWERS!

Answers To Today’s Questions

B, C, B

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You Can Do It All Yourself But You Dont Have To

One Response to “ “Supply Chain Wednesday–Capacity”

  1. get smart says:

    In simple terms, aggregate planning is an attempt to balance capacity and demand in such a way that costs are minimized. The term “aggregate” is used because planning at this level includes all resources “in the aggregate;” for example, as a product line or family. Aggregate resources could be total number of workers, hours of machine time, or tons of raw materials. Aggregate units of output could include gallons, feet, pounds of output, as well as aggregate units appearing in service industries such as hours of service delivered, number of patients seen, etc.

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