Operations Notes – Capacity and Demand

ABOUT THIS CONTENT

Notes from core MBA Operations class, these focused on capacity and demand
Subject: Operations

Demand may be time variant (dynamic), uncertain. 3 main problems:

  • capacity
  • utilization
  • yield (esp. when available capacity has high fixed costs)

Ways demand can be managed (sometimes):

  • design product portfolio to manage fluctuations (e.g. products with complementary demand patterns)
  • modify time and location of delivery
  • pricing strategies (customer segmentation)
  • communication with the customer
  • reservations, appointments (yield management)

5 Overall Strategies to Manage Demand

  • take no action
  • reduce demand
  • increase demand
  • inventory demand by reservation system
  • inventory demand by formalized queues

Alternative to managing demand is to chase demand with flexible capacity:
The ability to chase demand depends on how flexible capacity is (various types of capacity must be considered).

Capacity Shortage Situations

  • Ask if aggregate capacity over a longer term < demand
    • if yes, need to add capacity
  • If aggregate capacity is adequate, examine how capacities compare with demand over shorter time horizons:
    • If there is no shortage, need to use capacity better
    • If there is a shortage during some periods and excess over others, try to reschedule to chase demand
    • Add capacity after rescheduling cannot close the gap completely

Different types of capacity (labor, facilities, equipment) need to be balanced carefully.

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