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University of Toronto St. George
Rotman Commerce
Chris Bovaird

MGTA04 Operations Planning o The business plan and forecasts developed by top managers guide operations planning  Business plan outlines goals and objectives, including the specific goods and services that the firm will offer  Managers also develop an long range production plan through forecasts of future demand for both new and existing products  Forecast: estimates of future demand for both new and existing products  Covering a 2-5 year period, the production plan specifies the number of plants or service facilities and the amount of labour, equipment, transportation, and storage that will be needed to meet demand—also specifies how resources will be obtained  Capacity Planning  Capacity: the amount of a good that a firm can produce under normal working conditions  Depends on how many people it employs and the number and size of its facilities  Long-range planning takes into account both current and future capacity o Capacity Planning for Producing Goods  Ensuring that a manufacturing firm’s capacity slightly exceeds the normal demand for its product  If capacity is too small to meet demand, company must turn away customers o Not only cuts into profits but also alienates both customers and salespeople  If capacity greatly exceeds demand, the firm is wasting money by maintain a plant that is too large, by keeping excess machinery online, or by employing too many workers  Company must expand fast enough to meet future demand and protect market share from competitors as well as weigh the increased costs of expanding o Capacity Planning for Producing Services  In low-contact processes, maintaining inventory allows managers to set capacity at the level of average demand  A catalogue sales warehouse may hire enough order fillers to handle 1000 orders per day. When daily orders exceed this average demand, some orders are placed in inventory—set aside in a “to-be-done” file—to be processed on a day when fewer than 1000 orders are receive  In high-contact processes, managers must plan capacity to meet peak demand  A supermarket has far more cash registers than it needs on an average day o But on a Saturday morning or during the three days before Thanksgiving, all registers will be running at full speed  But doesn’t this just mean bad planning?  Location Planning o Location Planning for Producing Goods  In goods-producing operations, location decisions are influenced by proximity to raw materials and markets, availability of labour, energy and transportation costs, local and provincial regulations and taxes and community li
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