Quality
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© Nigel Slack and Michael Lewis 2003 Quality Performance objectives Dependability Supply Networks Process Technology Development and Organization Speed Flexibility Cost Resource Usage Market Competitiveness Decision areas Issues covered in this chapter Capacity (configuration) Issues include: • Capacity levels • Number of sites • Size of sites • Location
description
Resource Usage. Issues include:. Quality. Capacity levels Number of sites Size of sites Location. Speed. Performance objectives. Dependability. Market Competitiveness. Flexibility. Cost. Development and Organization. Capacity (configuration). Process Technology. - PowerPoint PPT Presentation
Transcript of Quality
© Nigel Slack and Michael Lewis 2003
Quality
Per
form
ance
o
bje
ctiv
es
Dependability
Supply Networks
Process Technology
Developmentand
Organization
Speed
Flexibility
Cost
Resource Usage
Mar
ket
Co
mp
etit
iven
ess
Decision areas
Issues covered in this chapter
Capacity (configuration)
Issues include:
• Capacity levels
• Number of sites
• Size of sites
• Location
© Nigel Slack and Michael Lewis 2003
Capacity Strategy
Configuring Capacity
Managing Capacity Change
Type of Capacity
Overall Level of Capacity
Location of
Capacity
Timing of
Change
Magnitudeof
Change
Issues in capacity strategy
Location of changed capacity
© Nigel Slack and Michael Lewis 2003
Efficiency Actual outputEffective capacity
37244134
90.08%
=
= =
Efficiency Actual outputEffective capacity
46225437
85.01%
=
= =
Ice Cream Division Canned Food Division
Total Capacity
7896 hrs
Planned Loss
3762 hrs
Effective Capacity
4134 hrs
Actual Output
3724 hrs
Avoidable Loss
410 hrs
Total Capacity
7896 hrs
Planned Loss2459 hrs
Effective Capacity
5437 hrs
Actual Output3724 hrs
Avoidable Loss815 hrs
Utilization Actual outputTotal capacity
37247896
47.16%
=
= =
Utilization Actual outputTotal capacity
46227896
58.54%
=
= =
Utilization and efficiency measures for two divisions of a food processing company
© Nigel Slack and Michael Lewis 2003
Forecast level of
demand Changes in
future demand
Uncertainty of future demand
Consequences of over/under
supply
Availability of capital
Cost structure of capacity increment
Economies of scale
Flexibility of capacity
provisions
Some factors influencing the overall level of capacity
OPERATIONS RESOURCES
MARKET REQUIREMENTS
Overall level of capacity
© Nigel Slack and Michael Lewis 2003
Issues include…..
aLONG-TERM CAPACITY CHANGE
STRATEGY
NUMBER OF SITES
LOCATION OF EACH SITE
ALLOCATIONOF TASKS
TO EACH SITE
CAPACITY OF EACH SITE
© Nigel Slack and Michael Lewis 2003
Questions: “Who should be involved in these decisions?” “How does the company make this type of decision?”
NUMBER OF SITES and CAPACITY OF SITES
LOCATIONOF SITES
ALLOCATION OF TASKSTO SITES
LONG-TERM CAPACITY CHANGE STRATEGY
Many small sites?
Few larger sites?
Questions Options
Supply side dominated?
Demand side dominated?
All sites make all products/services?
Each site focuses on a few products/services?
Capacity leads demand?
Capacity lags demand?
© Nigel Slack and Michael Lewis 2003
Why is capacity strategy important?
Without an appropriate capacity strategy operations will always be struggling to supply markets
in a competitive manner
Getting capacity strategy right is the starting point for developing
competitive operations
© Nigel Slack and Michael Lewis 2003
LONG-TERM CAPACITY CHANGE
STRATEGY
NUMBER OF SITES
LOCATION OF EACH SITE
CAPACITY OF EACH SITE
ALLOCATIONOF TASKSTO SITES
What performance measures will
all these decisions
have a major impact on ?
?
How should one judge a capacity strategy ?
© Nigel Slack and Michael Lewis 2003
Should capacity lead or lag demand ?
Capacity leads demand
Vo
lum
e
Time
•What competitive objectives will be affected?
Capacity lags demand
Vo
lum
e
Time
Demand Demand
Capacity
Capacity
© Nigel Slack and Michael Lewis 2003
The three options …..
Time
Demand
Capacity
Vo
lum
e
Time
Capacity
Leading
Strategy
Demand
Capacity
Vo
lum
e
Time
Capacity
Lagging
Strategy
Demand
Capacity
Vo
lum
e
Time
Capacity
Smoothing
Strategy
© Nigel Slack and Michael Lewis 2003
2
4
6
8
10
12
00 2 4 6 8 10 12
Co
sts
/ Rev
enu
e ($
)
Volume in thousands of units
Fo
reca
st d
eman
d =
900
0 u
nit
s
Cost
Revenue
Cost, volume, profit illustration
© Nigel Slack and Michael Lewis 2003
1 2 3 4 5 600
2
4
6
8
Un
it c
os
t (t
ota
l co
st /
vo
lum
e)
Volume in thousands of units
(a)
Nominal capacity
limit
1 2 3 4 5 600
2
4
6
8
Un
it c
os
t (t
ota
l co
st /
vo
lum
e)
Volume in thousands of units
(b)
Diseconomies of scale kick in
Unit cost curve
© Nigel Slack and Michael Lewis 2003
Physical capacity
of facilities
Effective Capacity
Demand
Vo
lum
e
Time
Cash flow with extended physical
capacity
Cash flow with two identical capacity
increments
Cu
mu
lati
ve c
ash
flo
w
Time
Expanding physical capacity in advance of effective capacity can bring greater returns in the longer term
© Nigel Slack and Michael Lewis 2003
Required service level
Geographical distribution of
demand
Economies of scale
Supply costs
Some factors influencing the number and size of sites
OPERATIONS RESOURCES
MARKET REQUIREMENTS
Size and number of
sites
© Nigel Slack and Michael Lewis 2003
Required service level
Suitability of site
Image of location
Resource costs
Land and facilities
investment
Resource availability
Community factors
Some factors influencing the location of sites
OPERATIONS RESOURCES
MARKET REQUIREMENTS
Location of sites
© Nigel Slack and Michael Lewis 2003
0.4 0.6 0.8 1.0 1.2
London (city)
Hong Kong
New York (midtown)
Singapore
Stockholm
Amsterdam
Madrid
Office rents in various cities ($’000 per square metre, January 1999)
Source: Richard Ellis, The Economist
© Nigel Slack and Michael Lewis 2003
60 80 100 120
Unit labour costs in various countries (1998) (includes effects of currency exchange rates and productivity)
140 160
Denmark
Britain
Japan
France
Germany
Sweden
Netherlands
Spain
Source: OECD, The Economist
United States = 100
© Nigel Slack and Michael Lewis 2003
Location A Location BLocation of operation
Co
sts
/ Rev
enu
e Revenue
Costs
(a) Location concerned with profit maximization;(b) Location concerned with cost minimization
Location ALocation of operation
Co
sts
/ Rev
enu
e
Revenue
Costs
Fast food restaurant Electronics manufacturer
(a) (b)
© Nigel Slack and Michael Lewis 2003
1000 2000 3000 4000
150000
4m
3m
2m
1m
$US
Monthly volume (kg)
Current volume
Revenue
3 Brayford facilities
1 Bi-line 8 facility & 1 Brayford facility
Cost-volume-profit curves for two alternative capacity strategies
