BUAD446 Lecture Notes - Lecture 2: Capacity Planning, Theory Of Constraints, Capacity Management

• School: University of Delaware
• Department: Business Administration
• Course: BUAD446
• Professor: Davis Darwin

Document Summary

Key equations: utilization (%) = (average output rate/maximum capacity) x 100, capacity cushion, c (%) C=100% - average utilization rate (%: a. capacity requirement for one service or product: Capacity: maximum rate of output of a process/a system, managers: responsible for ensuring firm has the capacity to meet current & future demand. Capacity planning (long term: economies & diseconomies of scale, capacity timing and sizing strategies, systematic approach to capacity decisions. Constraint management (short term: theory of constraints, id and management of bottlenecks, product mix decisions using bottlenecks, managing constraints in a line process. Economies of scale: 4 reasons why economies of scale drive costs down when output increases, fixed costs are spread over more units, construction costs are reduced, costs of purchased materials are cut, process advantages are found. Diseconomies of scale: occurs when average cost per unit increases as the facility"s size increases, size brings about complexity, loss of focus, inefficiencies.