Analyzing change on capacity and decision making process
The SC is focus on client’s needs (Chopra & Meindl, 2007) meaning that internal operations including capacity levels © are adapted to clients lead time (L). Giving L and knowing capacity companies can calculate production (P). The P level should be sufficient for customers demand (D). Predictable D determines P at L giving as a result of©.
Additionally cost of production can be fixed or variable. Linear cost increases when production increases, exponential cost increases more than production increase and inverse proportional cost decrease when production increase. The total cost can increase or decrease depending on ...view middle of the document...
When capacity planning is defined, it is difficult for changing on short time basis. Because of that, capacity planning should be defined following long term perspective, vision and mission of the company (Chopra & Meindl, 2007; Slack & Lewis, 2011).
Increasing capacity should be supported by sales increase, reducing lead time. The following aspects should be evaluated:
1. Demand: considering price, promotion and market conditions.
2. Inventory cost: considering supplier activities,
3. Manufacturing cost: considering technology cost, head- cost and other cost needed for products transformation, and
4. Gross Revenue Evaluation: considering ratios for performance evaluation.
• Demand: considering price, promotion and market conditions.
Evaluating demand requires micro and macro-economic calculations, evaluating markets conditions such as perfect competition, monopoly and monopsony and market participants for quantity evaluation (Chopra & Meindl, 2007).
When demand is uncertain flexible capacity evaluation should be consider as an option to minimize cost and product price by using actual assets investments in an optimal way (Buyukkaramikli, Bertrand & Ooijen, 2013).
• Inventory cost: considering supplier activities.
Evaluating suppliers is possible to determine cost of products and suppliers ability for increasing products sales. For example Frito-Lay determined plan location and capacity based on potatoes production (Slack & Lewis, 2011).
• Manufacturing cost: considering technology cost, head- cost and other cost needed for products transformation.
Technology may change company capacity requirements. New machinery with new technology may requires less physical space. Changes on manufacturing structures need evaluation for future developments (Chopra & Meindl, 2007; Yahya-Zadeh, 2011).
• Gross Revenue Evaluation:...